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Table of Contents

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


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

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

As of November 12, 2003, 44,667,718 shares of the issuer's common stock, par value $.01 per share, were
outstanding.

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PALATIN TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                            |        
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED BALANCE SHEETS -- As of September 30, 2003
     and June 30, 2002                                                                                                                              | Page 3 
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --
      For the Three Months Ended September 30, 2003 and
      September 30, 2002 and the Period from January 28, 1986
      (inception) through September 30, 2003 | Page 4 
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --
      For the Nine Months Ended March 31, 2003 and
     March 31, 2002 and the Period from January 28, 1986
     (inception) through March 31, 2003                | Page 5 
|        |                                                                                                                                                                                                             |        
|        | Notes to Consolidated Financial Statements                                                                                                                                                                  | Page 6 
|        |                                                                                                                                                                                                             |        
|Item 2. | Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                                                                                                  | Page 14
|        |                                                                                                                                                                                                             |        
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                  | Page 21
|        |                                                                                                                                                                                                             |        
|Item 4. | Controls and Procedures                                                                                                                                                                                     | Page 21
|        |                                                                                                                                                                                                             |        

PART II - OTHER INFORMATION

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

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)

`September 30, 2003    June 30, 2003
                                                                      ------------------    -------------
ASSETS
Current assets:
  Cash and cash equivalents                                              $   9,793,033      $  14,294,603
  Available for sale investments                                             4,023,486          4,088,384
  Contracts receivable                                                       1,762,247                  -
  Prepaid expenses and other                                                   335,896            447,510
                                                                         --------------     --------------
      Total current assets                                                  15,914,662         18,830,497

Property and equipment, net                                                  3,276,840          3,399,181
Restricted cash                                                                428,075            428,075
Other                                                                           67,339             63,381
                                                                         --------------     --------------
                                                                         $  19,686,916      $  22,721,134
                                                                         ==============     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt, including capital leases            $     173,093      $     188,015
  Accounts payable                                                           4,607,219          1,344,789
  Accrued expenses                                                           1,062,412          1,619,382
  Accrued compensation                                                         140,000            428,500
  Deferred revenue                                                             324,709            407,420
                                                                         --------------     --------------
      Total current liabilities                                              6,307,433          3,988,106
                                                                         --------------     --------------

Long term debt, including capital leases                                        38,010             76,432
                                                                         --------------     --------------

Commitments and contingencies (Note 5)

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 13,447 and 14,867 shares issued and outstanding
      as of September 30, 2003 and June 30, 2003, respectively                     134                149
  Common stock of $.01 par value - authorized 75,000,000 shares;
    issued and outstanding 43,341,275 and 42,994,050 shares as of
      September 30, 2003 and June 30, 2003, respectively                       433,413            429,941
  Additional paid-in capital                                               110,567,026        109,085,115
  Deferred compensation                                                        (54,173)           (37,977)
  Accumulated other comprehensive income                                       (76,746)           (11,805)
  Deficit accumulated during development stage                             (97,528,181)       (90,808,827)
                                                                         --------------     --------------
                                                                            13,341,473         18,656,596
                                                                         --------------     --------------
                                                                         $  19,686,916      $  22,721,134
                                                                         ==============     ==============`

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

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

`Inception
                                           Three Months Ended September 30,   (January 28, 1986)
                                           --------------------------------        through
                                                2003             2002         September 30, 2003
                                            ------------     ------------     ------------------
REVENUES:
  Grants and contracts                      $ 1,750,000      $   425,000       $  12,015,511
  License fees and royalties                     82,711          198,505           2,812,698
  Other                                               -                -             318,917
                                            ------------     ------------      --------------
    Total revenues                            1,832,711          623,505          15,147,126
                                            ------------     ------------      --------------

OPERATING EXPENSES:
  Research and development                    7,018,362        3,588,525          79,430,865
  General and administrative                  1,614,672        1,179,627          33,862,572
  Net intangibles write down                          -                -             259,334
                                            ------------     ------------      --------------
    Total operating expenses                  8,633,034        4,768,152         113,552,771
                                            ------------     ------------      --------------

OTHER INCOME (EXPENSES):
  Interest income                                86,518           46,504           2,787,650
  Interest expense                               (5,551)            (963)         (1,986,730)
  Merger costs                                        -                -            (525,000)
                                            ------------     ------------      --------------
    Total other income (expenses)                80,967           45,541             275,920
                                            ------------     ------------      --------------

    Loss before income taxes and cumulative
    effect of accounting change              (6,719,356)      (4,099,106)        (98,129,725)
  Income tax benefit                                  -                -             962,655
                                            ------------     ------------      --------------

    Loss before cumulative effect of
    accounting change                        (6,719,356)      (4,099,106)        (97,167,070)
  Cumulative effect of accounting change              -                -            (361,111)
                                            ------------     ------------      --------------

NET LOSS                                     (6,719,356)      (4,099,106)        (97,528,181)
PREFERRED STOCK DIVIDEND                              -          (17,459)         (3,511,765)
                                            ------------     ------------      --------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS                                $(6,719,356)     $(4,116,565)      $(101,039,946)
                                            ============     ============      ==============

Basic and diluted net loss per common share $     (0.16)     $     (0.22)
                                            ============     ============

Weighted average number of common shares
     outstanding used in computing basic
     and diluted net loss per common share   43,161,281       18,497,853
                                            ============     ============`

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

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

`Inception
                                                      Three Months Ended September 30,   (January 28, 1986)
                                                      --------------------------------        Through
                                                            2003             2002        September 30, 2003
                                                       ------------     ------------     ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                             $(6,719,356)     $(4,099,106)      $(97,528,181)                                                                                                            $
  Adjustments to reconcile net loss to net cash
   used for operating activities:
     Cumulative effect of accounting change                      -                -            361,111
     Depreciation and amortization                         157,988          154,564          3,267,976
     License fee                                                 -                -            500,000
     Interest expense on note payable                            -                -             72,691
     Accrued interest on long-term financing                     -                -            796,038
     Accrued interest on short-term financing                    -                -              7,936
     Intangibles and equipment write down                        -                -            278,318
     Common stock and notes payable issued for expenses          -                -            751,038
     Settlement with consultant                                  -                -            (28,731)
     Acceleration of options previously granted                  -                -          1,505,315
     Stock based compensation                              560,406           (3,889)         5,015,780
     Deferred revenue                                      (82,711)          122,496           (36,402)
     Changes in certain operating assets and
      liabilities:
       Accounts receivable                              (1,762,247)        (346,000)        (1,762,247)
       Prepaid expenses and other                          107,656          107,933         (1,135,556)
       Accounts payable                                  3,262,430          487,219          4,607,219
       Accrued expenses and other                         (845,470)        (700,132)           741,245
                                                       ------------     ------------      -------------
       Net cash used for operating activities           (5,321,304)      (4,276,915)       (82,586,450)
                                                       ------------     ------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of short-term investments                       (43)          (5,288)        (4,142,503)
     Purchases of property and equipment                   (35,647)        (907,577)        (5,977,397)
                                                       ------------     ------------      -------------
       Net cash used for investing activities              (35,690)        (912,865)       (10,119,900)
                                                       ------------     ------------      -------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from notes payable, related party                  -                -            302,000
     Payments on notes payable, related party                    -                -           (302,000)
     Proceeds from senior bridge notes payable                   -                -          1,850,000
     Payments on senior bridge notes payable                     -                -         (1,850,000)
     Payments on capital lease obligations                 (53,344)         (91,394)          (206,817)
     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                           908,768        1,666,181         76,497,541
     Proceeds from Preferred stock, net                          -                -         24,210,326
     Purchase of treasury stock                                  -                -             (1,667)
                                                       ------------     ------------      -------------
       Net cash provided by financing activities           855,424        1,574,787        102,499,383
                                                       ------------     ------------      -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                  (4,501,570)      (3,614,993)         9,793,033

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

CASH AND CASH EQUIVALENTS, end of period               $ 9,793,033      $ 4,329,271       $  9,793,033                                                                                                            $
                                                       ============     ============      =============`

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

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PALATIN TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)Notes to Consolidated Financial Statements
                                 (unaudited)

(1)    
          Organization Activities:

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

PT-141
is the Companys lead therapeutic drug candidate and is now in clinical development
for the treatment of both male and female sexual dysfunction. The Company recently
completed a Phase 2B trial with PT-141 in male patients. LeuTech® is the
Companys proprietary radiolabeled monoclonal antibody for imaging and diagnosing
infections. The Company commenced the biologics license application (BLA) amendment
filings to the FDA in the first half of calendar year 2003 and anticipates remitting the
final BLA amendment filing to the FDA in the first quarter of 2004. The Company expects to
receive a complete response from the FDA regarding its BLA amendment filings in the first
half of calendar year 2004. The Company is also conducting additional clinical trials for
LeuTech to expand its market potential as a diagnostic agent. In addition, the Company has
several preclinical drug candidates under investigation for various therapeutic
indications including sexual dysfunction, obesity, cachexia and inflammation.

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

Business
Risk and Liquidity  As shown in the accompanying financial statements, the Company
incurred a substantial net loss of $6,719,356 for the three months ended September 30,
2003 and has a deficit accumulated during development stage of $97,528,181, cash and cash
equivalents of $9,793,033 and investments of $4,023,486 as of September 30, 2003. The
Company anticipates incurring additional losses in the future as it continues development
of LeuTech for diagnosis of appendicitis and expands clinical trials for other indications
of LeuTech and continues research and development of PT-141 and its MIDAS (Metal
Ion-induced Distinctive Array of Structures) technology. To achieve profitability, the
Company, alone or with others, must successfully develop and commercialize its
technologies and proposed products, by conducting pre-clinical studies and clinical
trials, obtaining required regulatory approvals and successfully manufacturing and
marketing 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.

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The
Company has incurred negative cash flows from operations since its inception, the Company
has expended and expects to continue to expend in the future, substantial funds to
complete its planned product development efforts. The Company expects that its existing
capital resources will be adequate to fund the Companys projected operations through
September 30, 2004, based on current and projected expenditure levels. Management plans to
continue to refine its operations, control expenses, evaluate alternative methods to
conduct its business, and seek available and attractive sources of financing and sharing
of development costs through strategic collaboration agreements or other resources. Should
appropriate sources of financing not be available, management would delay certain clinical
trials and research activities until such time as appropriate financing was available.
There can be no assurance that the Companys financing efforts will be successful. If
adequate funds are not available, the Companys financial condition and results of
operations will be materially and adversely affected.

(2)    
          Basis of Presentation:

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

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

(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 accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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

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Investments
 The Company accounts for its investments in accordance with Statement of Financial
Accounting Standards No. 115 Accounting For Certain Investments in Debt and Equity
Securities. The Company classifies such investments as available for sale
investments and as such all investments are recorded at fair value. The investments
consist principally of corporate debt securities with a minimum credit rating of A2 and
mutual funds with average durations ranging from one to three years and credit ratings of
AAA. Unrealized holding gains and losses, net of the related tax effect, if any, are
excluded from earnings and are reported in other comprehensive income and as a separate
component of stockholders equity until realized. Interest on securities classified
as available for sale is included in interest income. Realized gains and losses are
recorded in the statement of operations in the period that the transaction occurs.

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

`Gross         Gross
                                 Unrealized     Unrealized
                      Cost          Gains         Losses       Fair Value
                      ----          -----         ------       ----------
Corporate debt
securities         $  100,000    $    1,312     $        -     $  101,312

Mutual Funds       $4,000,232    $        -     $   78,058     $3,922,174
                   ------------------------------------------------------
Total              $4,100,232    $    1,312     $   78,058     $4,023,486`

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

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

Mutual Funds       $4,000,189    $        -     $   14,048     $3,986,141
                   ------------------------------------------------------
Total              $4,100,189    $    2,243     $   14,048     $4,088,384`

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 reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of its long-lived assets,
management evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets. Impairment is
measured at fair value. Fair value is determined by an evaluation of available price
information at which assets could be bought or sold including quoted market prices, if
available, or the present value of the estimated future discounted cash flows based on
reasonable and supportable assumptions.

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Revenue
Recognition  Grant and contract revenues are recognized as the Company provides the
services stipulated in the underlying grants and/or contracts based on the time and
materials incurred. Revenue from corporate collaborations and licensing agreements
consists of up-front fees, research and development funding, and milestone payments.
Non-refundable up-front fees are deferred and amortized to revenue over the related
performance period. The Company estimates the performance period as the initial research
term. The actual performance period may vary. The Company will adjust the performance
period estimate based upon available facts and circumstances. Periodic payments for
research and development activities and government grants are recognized over the period
that the Company performs the related activities under the terms of the agreements.
Revenue resulting from the achievement of milestone events stipulated in the agreements is
recognized when the milestone is achieved. Milestones are based on the occurrence of a
substantive element specified in the contract or as a measure of substantive progress
towards completion under the contract.

The
Company recognized $1,750,000 for the three months ended September 30, 2003 in contract
revenue related to the attainment of certain milestones related to LeuTech pursuant to our
collaboration agreement, as amended, with Mallinckrodt, Inc. a division of Tyco
International, Ltd. described below, compared to $425,000 for the three months ended
September 30, 2003.

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

In
fiscal 2001, the Company adopted U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements (SAB
101) which requires up front, non-refundable license fees to be deferred and
recognized over the performance period. The cumulative effect of adopting SAB 101 resulted
in a one-time, non-cash charge of $361,111 or $0.04 per share, which reflects the deferral
of the $500,000 up-front license fee received from Mallinckrodt in August 1999. Under SAB
101, this payment has been recorded as deferred revenue to be recognized as license
revenue over the remaining development term of this agreement. For the three months ended
September 30, 2003 and 2002, the Company recognized $5,788 and $13,891, respectively, in
license revenue that was included in the cumulative effect adjustment as of July 1, 2000.

In
May 2002, the Company entered into an agreement with Mallinckrodt to amend the original
agreement. Under the terms of this amended agreement, Mallinckrodt committed, among other
things, up to an additional $3.2 million, subject to certain conditions and attainment of
certain milestones, to cover half of the Companys estimated expenses associated with
completing the FDA review process of LeuTech. Pursuant to this amendment, $800,000 was
received upon execution of this agreement. Under SAB 101, this payment has been recorded
as deferred revenue to be recognized as license revenue over the remaining development
term of this agreement. For the three months ended September 30, 2003 and 2002, the
Company recognized $76,923 and $184,614, respectively, in license revenue under this
agreement.

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

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

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

`For the three months ended September 30,
                                                       ----------------------------------------
                                                            2003                      2002
                                                       ----------------------------------------
Net loss attributable to common stockholders:

  As reported                                          $(6,719,356)                $(4,116,565)

Stock based employee compensation expense included
in the determination of net loss as reported               470,400                           -

Impact of total stock based compensation expense
determined under fair-value-based method                  (766,460)                   (367,954)
                                                       ----------------------------------------
  Pro forma                                            $(7,015,416)                $(4,484,519)
                                                       ========================================
Basic and diluted net loss per common share:

  As reported                                          $     (0.16)                $     (0.22)
                                                       ----------------------------------------
Impact of stock based compensation, net of tax         $     (0.00)                $     (0.02)
                                                       ----------------------------------------
  Pro forma                                            $     (0.16)                $     (0.24)
                                                       ----------------------------------------`

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The assumptions used in the
Black-Scholes option-pricing model are as follows: dividend yield of 0%, weighted average
risk-free interest rate of 3.54% in 2003 and 4.5 % in 2002, expected volatility of 92.5%
in 2003 and 60% in 2002, and an expected option life of 7 years.

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, 2003 and 2002, there were no dilutive effects of stock options or
warrants as the Company incurred a net loss in each period. Options and warrants to
purchase 14,826,080 shares of Common Stock at prices ranging from $0.01 to $21.70 per
share were outstanding at September 30, 2003.

Fair
Value of Financial Instruments  Statement of Financial Accounting Standards No. 107
Disclosure about Fair Value of Financial Instruments, (SFAS 107),
requires disclosures of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate the value. In
cases where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. These techniques are significantly
affected by the assumptions used, including discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the Company.

Recent
Accounting Pronouncements  In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities.  This Interpretation
addresses consolidation of variable interest entities where an enterprise does not have
voting control over the entity but has a controlling financial interest in the
entity.  FIN 46 is effective for all financial statements issued after September 30,
2003.  This statement will not have a material impact on our financial
statements.

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In April 2003, the FASB issued SFAS No. 149, Amendment of FASB Statement 133 on
Derivative Instruments and Hedging Activities.  This Statement amends and
clarifies financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.  This Statement clarifies under
what circumstances a contract with an initial net investment meets the characteristic of a
derivative discussed in SFAS No. 133, clarifies when a derivative contains a financing
component, amends the definition of an underlying to conform it to language
used in FIN No. 45,  and amends certain other existing pronouncements.  This
Statement is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003.  The adoption of this new
standard does not have any effect on our current financial statements.

In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.  This Statement
establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances).  This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.  The adoption of this new
standard does not have any effect on our current financial statements.

In
May 2003, the FASBs Emerging Issues Task Force reached consensus on Issue 00-21.
This Issue addresses certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities. Specifically, this Issue
addresses how to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. In applying this Issue, separate contracts with the same
entity or related parties that are entered into at or near the same time are presumed to
have been negotiated as a package and should, therefore, be evaluated as a single
arrangement in considering whether there are one or more units of accounting. That
presumption may be overcome if there is sufficient evidence to the contrary. This Issue
also addresses how arrangement consideration should be measured and allocated to the
separate units of accounting in the arrangement. The guidance in this Issue is effective
for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The
application of this Issue does not have any effect on our current financial statements.

(4)    
          Accrued Expenses:

Accrued
expenses consist of the following:

`September 30, 2003   June 30, 2003
                                    ----------------------------------
      Product development costs          $ 198,600         $ 784,007

      Accrued rent
                                           461,408           397,872

      Other
                                           402,404           437,503
                                    ----------------------------------
                                        $1,062,412        $1,619,382
                                    ==================================`

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(5)    
          Commitments and Contingencies:

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

As
of September 30, 2003, the Company has accrued approximately $59,000 related to the
Companys share of estimated costs until termination of the Princeton lease, which is
currently being subleased.

Capital
Leases  In September 2002, the Company acquired $417,920 of equipment under capital
leases. The term of these leases range from 24 to 60 months. As of September 30, 2003,
$211,103 remains outstanding pursuant to these lease obligations.

License
Agreements  The Company has three license agreements that require minimum yearly
payments. The cost to maintain these license agreements for the fiscal year ending June
30, 2004 amounts to $250,000. There were no payments due during the three months ended
September 30, 2003 under these agreements.

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

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

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

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

Critical Accounting
Policies

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

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Overview

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

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

Products and Technologies
in Research and Development

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

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

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

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

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

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

Each
year, more than 250,000 Americans are diagnosed with the infection, acute appendicitis. A
timely and accurate diagnosis of this infection is crucial to ensure timely treatment and
to prevent complications for the patient. A delay can entail hospital observation,
outpatient treatment or surgery and can lead to increased risk of peritonitis, sepsis and
other complications. Conversely, a mis-diagnosed patient may experience unneeded hospital
observation or unneeded surgery, which is expensive, inconvenient and utilizes limited
resources. Every year, more than 350,000 patients present with equivocal appendicitis.
This is when a specific diagnosis is uncertain and further testing is needed. In this
situation, it is not always clear if the patient has appendicitis or another medical
problem; nor is it exactly clear where the site of infection is located.

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

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

Under
the terms of the amended agreement, Mallinckrodt has committed up to an additional $3.2
million, subject to certain conditions and attaining certain milestones, to offset a
portion of the estimated expenses associated with completing the FDA review process.
Additionally, timing of the original $10 million in milestone payments has been revised to
coincide with LeuTechs anticipated FDA approval and achievement of future sales
goals. Of the $3.2 million, $2.95 million has been paid to date. We expect to receive the
remaining $0.25 million in the fourth quarter of calendar year 2003.

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

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

Generation
of commercially viable protein and peptide drug molecules with desirable properties
continues to be arduous, expensive and labor-intensive. We believe that our MIDAS
technology simplifies the development process by eliminating many of the inherent
limitations associated with peptides and proteins. We intend to seek to enter into
strategic alliances or collaborative arrangements to provide additional financial and
technical resources for MIDAS development.

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Results of Operations

Three Month Period Ended September
30, 2003 Compared to Three Month Period Ended September 30, 2002.

Grants
and Contracts  For the three months ended September 30, 2003, we recognized
$1,750,000 in contract revenue related to LeuTech pursuant to our collaboration agreement
with Mallinckrodt, Inc., a division of Tyco International, Ltd., compared to $425,000 for
the three months ended September 30, 2002. The increase in contract revenue was
attributable to the achievement of milestone events stipulated in the collaboration
agreement.

License
Fees and Royalties  During the fiscal year ended June 30, 2001, we adopted U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101 Revenue
Recognition in Financial Statements (SAB 101), which requires up-front,
non-refundable license fees to be deferred and recognized over the performance period. The
cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111
in fiscal 2001, which reflects the deferral portion of an up-front license fee received
from Mallinkrodt, Inc. related to licensing of LeuTech recognized in the fiscal year ended
June 30, 2000. Previously we had recognized up-front license fees when they were received
and we had no obligations to return the fees under any circumstances. Under SAB 101 these
payments are recorded as deferred revenue to be recognized over the remaining term of the
related agreements. For the three months ended September 30, 2003, we recorded $82,711 of
license revenue, $5,788 of which was included in the cumulative effect adjustment as of
July 1, 2002 and $76,923 was recorded as a result of the initial $800,000 payment received
from Mallinckrodt pursuant to our amended collaboration agreement in May 2002. For the
three months ended September 30, 2002, we recorded $198,505 of license revenue, $13,891 of
which was included in the cumulative effect adjustment as of July 1, 2000 and $184,614 was
recorded as a result of the initial $800,000 payment received from Mallinckrodt.

Research
and Development  Research and development expenses (R&D) increased
to $7,018,362 for the three months ended September 30, 2003 compared to $3,588,525 for the
three months ended September 30, 2002. The increase in R&D is primarily related to our
increased development efforts and expanding clinical trials of PT-141 and LeuTech. Our
R&D efforts, and their respective allocated costs, are currently concentrated on the
following:

| |  |  | PT-141: to date we have incurred approximately $25.0 million in allocated R&D
expenses. For the three months ended September 30, 2003, approximately $2.9 million of
R&D expense was allocated to PT-141 compared to approximately $1.9 million for the
three months ended September 30, 2002. We anticipate incurring approximately $2.5 million
over the next 12 months as we progress with our clinical trials and product development
programs. We will seek to enter into a strategic collaboration agreement, which would
offset a significant portion of the estimated costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | LeuTech: to date we have incurred approximately $43.9 million in allocated R&D
expenses. For the three months ended September 30, 2003, approximately $3.3 million of
R&D expense was allocated to LeuTech compared to approximately $1.0 million for the
three months ended September 30, 2002. We anticipate incurring approximately $1.5 million
of expenses over the next 12 months.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | MIDAS: to date we have incurred approximately $10.5 million in allocated R&D expenses.
For the three months ended September 30, 2003, approximately $0.8 million of R&D
expense was allocated to MIDAS compared to approximately $0.7 for the three months ended
September 30, 2002. Based on this effort, we have identified several molecules that are
now in preclinical development as potential treatments for obesity, sexual dysfunction and
inflammation. We expect to file an Investigational New Drug Application (IND)
with the FDA for at least one of these preclinical compounds and initiate clinical testing
in the first half of calendar year 2004. We anticipate incurring approximately $2.0
million of expenses over the next 12 months.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General
and Administrative  General and administrative expenses increased to $1,614,672 for
the three months ended September 30, 2003 compared to $1,179,627 for the three months
ended September 30, 2002. The increase in general and administrative expenses is mainly
attributable to an increase in salaries and other stock based compensation and related
personnel expenses.

Interest
Income  Interest income increased to $86,518 for the three months ended September
30, 2003 compared to $46,504 for the three months ended September 30, 2002. The increase
in interest income is due to higher amounts cash, cash equivalents and investments
available to be invested.

Net
Loss  Net loss increased to $6,719,356 for the three months ended September 30, 2003
compared to $4,099,106 for the three months ended September 30, 2002. The increase was
attributable to the increase in expenses explained above.

Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses. As of September 30, 2003, we had a
deficit accumulated during development stage of $97,528,181. We have financed our net
operating losses through September 30, 2003 by a series of debt and equity financings. At
September 30, 2003, we had cash and cash equivalents of $9,793,033 and investments of
$4,023,486.

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

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

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

During
the three months ended September 30, 2003, our operating activities used net cash of
approximately $5.3 million and during the three months ended September 30, 2002 our
operating activities used net cash of approximately $4.3 million. The increase resulted
primarily from increased R&D spending on both PT-141 and LeuTech.

During
the three months ended September 30, 2003, we used cash in investing activities of
approximately $36,000 consisting almost entirely of capital expenditures. During the three
months ended September 30, 2002, we used cash in investing activities of approximately
$913,000, consisting of approximately $5,000 for investment securities and approximately
$908,000 of capital expenditures.

During
the three months ended September 30, 2003, net cash provided by financing activities was
approximately $855,000, consisting of approximately $908,000 from the exercise of common
stock options and warrants, partially offset by approximately $53,000 for payments on
capital lease obligations.

We
have three license agreements that require minimum yearly payments. Future minimum
payments under the license agreements are: 2004  $250,000, 2005  $200,000,
2006  $200,000, 2007  $200,000 and 2008  $200,000.

We
are and expect to continue actively searching for certain products and technologies to
license or acquire, now or in the future. If we are successful in identifying a product or
technology for acquisition, we may require substantial funds for such an acquisition and
subsequent development or commercialization. We do not know whether any acquisition will
be consummated in the future.

We
have incurred negative cash flows from operations since our inception, and have expended,
and expect to continue to expend in the future, substantial funds to complete our planned
product development efforts. We expect that our existing capital resources will be
adequate to fund our projected operations through September 30, 2004, based on current and
projected expenditure levels. No assurance can be given that we will not consume a
significant amount of our available resources before that time. We plan to continue to
refine our operations, control expenses, evaluate alternative methods to conduct our
business and seek available and attractive sources of financing and sharing of development
costs through strategic collaboration agreements or other resources. Should appropriate
sources of financing not be available, we would delay certain trials and research
activities until such time as appropriate financing was available.

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We
anticipate incurring additional losses over at least the next few years. To achieve
profitability, we, alone or with others, must successfully develop and commercialize our
technologies and proposed products, conduct pre-clinical studies and clinical trials,
obtaining required regulatory approvals and successfully manufacturing and market such
technologies and proposed products. The time required to reach profitability is highly
uncertain, and we do not know whether we will be able to achieve profitability on a
sustained basis, if at all.

Item 3. Quantitative and Qualitative Disclosures
About Market Risk.

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

As
of September 30, 2003, our cash and cash equivalents were $9,793,033 and investments,
which consisted of commercial paper, were $4,023,486. 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.

Item 4. Controls and Procedures.

Evaluation
of Disclosure Controls and Procedures.  Our chief executive officer and chief financial
officer, after evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Quarterly Report on Form 10-Q, have concluded that, based on their evaluation, our
disclosure controls and procedures were adequate and effective to ensure that material
information relating to Palatin, including our consolidated subsidiaries, was made known
to them by other within those entities, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.

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

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PART II  OTHER
INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities and Use of
Proceeds.

None.

Item 3. Defaults Upon Senior
Securities.

None.

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

None.

Item 5. Other Information.

None.

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

(a)  
          Exhibits filed with this report:

| | 10.1 | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and
Carl Spana.
| | ---- | ----------------------------------------------------------------------------------------------------

| | 10.2 | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and
Stephen T. Wills.
| | ---- | ----------------------------------------------------------------------------------------------------------

| | 10.3 | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and
Shubh D. Sharma.
| | ---- | ---------------------------------------------------------------------------------------------------------

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

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

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

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

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(b)    
          Reports on Form 8-K

None.

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, 2003 |  | /s/ Carl Spana
     Carl Spana, Ph.D.
     President and 
     Chief Executive Officer                                                        
|                        |  |                                                                                                                                               
|                        |  |                                                                                                                                               
|Date: November 14, 2003 |  | /s/ Stephen T. Wills Stephen T. Wills Executive Vice President and  Chief Financial Officer
     (Principal  Financial and Accounting Officer)

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