---

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-Q  [X]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934       [  ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934          PALATIN TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)103 Carnegie Center - Suite 200Princeton, New Jersey
     08540(Address of principal executive
     offices)
     (Zip Code)  (609) 520-1911


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

As of May 14, 2001, 11,115,540 shares of the issuer's common stock, par value
$.01 per share, were outstanding.

---

PALATIN TECHNOLOGIES, INC.
                            Table of Contents

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                                     |        
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                                      |        
|        | CONSOLIDATED BALANCE SHEETS --
     As of March 31, 2001and June 30, 2000                                                                                                                                            | Page 3 
|        |                                                                                                                                                                                                                      |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --  For the Three and Nine Months Ended March 31, 2001 and
      March 31, 2000 and the Period from January 28, 1986
      (Commencement of Operations) through March 31, 2001 | Page 4 
|        |                                                                                                                                                                                                                      |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --  For the Nine Months Ended March 31, 2001 and 
     March 31, 2000 and the Period from January 28, 1986 
     (Commencement of Operations) through March 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
|------- | ----------------- | -------
|        |                   |        
|        | Signatures        | Page 14

2

---

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

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

`March 31, 2001  June 30, 2000
                                                                          --------------  -------------
ASSETS
Current assets:
  Cash and cash equivalents                                               $ 14,810,919    $  3,219,593
  Short-term investments                                                             -       2,155,617
  Accounts receivable                                                          192,075         953,163
  Prepaid expenses and other                                                   167,837         179,792
                                                                           ------------    ------------
      Total current assets                                                  15,170,831       6,508,165

Fixed assets, net of accumulated depreciation and amortization
  of  $1,051,167 and $914,846, respectively                                  1,927,851       1,573,140
Restricted cash                                                                263,075         263,075
Other                                                                           47,519         541,017
                                                                           ------------    ------------
                                                                          $ 17,409,276    $  8,885,397
                                                                           ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                        $    731,255    $  1,012,070
  Accrued expenses                                                           1,017,846         968,166
                                                                           ------------    ------------
      Total current liabilities                                              1,749,101       1,980,236
                                                                           ------------    ------------


Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 30,667 and 31,561 shares issued and outstanding
      as of March 31, 2001 and June 30, 2000, respectively;                        307             316
    Series B Convertible; zero and 2,000 shares issued and outstanding
      as of March 31, 2001 and June 30, 2000 respectively;                           -              20
    Series C Convertible; 700,000 shares issued and outstanding
      as of March 31, 2001 and June 30, 2000 respectively;                       7,000           7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
    issued and outstanding 11,115,585 and 7,902,372 shares as of
      March 31, 2001 and June 30, 2000, respectively;                          111,156          79,024
  Additional paid-in capital                                                65,742,330      50,324,603
  Deficit accumulated during development stage                             (50,200,618)    (43,505,802)
                                                                           ------------    ------------
      Total stockholders' equity                                            15,660,175       6,905,161
                                                                           ------------    ------------
                                                                          $ 17,409,276    $  8,885,397
                                                                           ============    ============`

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

3

---

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

`Inception
                                                                                                            (January 28, 1986)
                                             Three Months Ended March 31,      Nine Months Ended March 31,       through
                                                  2001            2000             2001             2000      March 31, 2001
                                            --------------   -------------    -------------   -------------   --------------
REVENUES:
  Grants and contracts                       $    101,551    $  1,428,099     $  1,621,425    $  3,687,690     $  9,543,165
  License fees                                          -               -                -         500,000        1,734,296
  Other                                                 -               -                -               -          318,917
                                             -------------   -------------    -------------   -------------    -------------
       Total revenues                             101,551       1,428,099        1,621,425       4,187,690       11,596,378
                                             -------------   -------------    -------------   -------------    -------------

OPERATING EXPENSES:
  Research and development                      2,423,701       2,105,623        7,128,819       6,929,905       39,876,107
  General and administrative                      589,535       1,236,742        2,139,584       3,542,426       21,491,858
  Net intangibles write down                            -               -                -               -          259,334
                                             -------------   -------------    -------------   -------------    -------------
       Total operating expenses                 3,013,236        3,342,36        9,268,403      10,472,331       61,627,299

                                             -------------   -------------    -------------   -------------    -------------

OTHER INCOME (EXPENSES):
  Interest income                                 264,710         107,537          631,197         293,926        1,985,187
  Interest expense                                   (558)         (1,161)          (4,187)        (27,022)      (1,955,036)
  Merger costs                                          -               -                -               -         (525,000)
                                             -------------   -------------    -------------   -------------    -------------
       Total other income (expenses)              264,152         106,376          627,010         266,904         (494,849)
                                             -------------   -------------    -------------   -------------    -------------

LOSS BEFORE INCOME TAXES                       (2,647,533)     (1,807,890)      (7,019,968)     (6,017,737)     (50,525,770)
  Income tax benefit                                    -               -          325,152               -          325,152
                                             -------------   -------------    -------------   -------------    -------------

NET LOSS                                       (2,647,533)     (1,807,890)      (6,694,816)     (6,017,737)     (50,200,618)

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

NET LOSS ATTRIBUTABLE TO COMMON
  STOCKHOLDERS                                 (2,647,533)   $ (1,807,890)    $ (6,694,816)   $ (6,017,737)    $(53,322,143)
                                              ============   =============    =============   =============    =============


Basic and diluted net loss per common share   $     (0.24)   $      (0.24)    $      (0.68)   $      (0.82)    $     (24.74)
                                              ============   =============    =============   =============    =============
Weighted average number of common shares
  outstanding used in computing basic and
  diluted net loss per common share            11,000,017       7,461,321        9,794,356       7,301,911        2,155,472
                                              ============   =============    =============   =============    =============`

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

4

---

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

`Inception
                                                                                        (January 28, 1986)
                                                          Nine Months Ended March 31,        Through
                                                               2001           2000        March 31, 2001
                                                         -------------   ------------     --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                               $ (6,694,816)   $(6,017,737)    $(50,200,618)                                                                                           $
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Depreciation and amortization                           230,891        186,366        1,316,661
      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)
      Change in terms of options previously granted           335,315              -        1,505,315
      Amortization of stock based compensation                109,375      1,095,058        3,554,301
      Changes in certain operating assets and liabilities:
        Accounts receivable                                   761,088     (2,563,834)        (192,075)
        Prepaid expenses and other                            497,948       (304,517)        (798,537)
        Accounts payable                                     (280,815)         1,404          731,255
        Accrued expenses                                       49,680       (803,882)         556,679
                                                         -------------  -------------    -------------
            Net cash used for operating activities         (4,991,334)    (8,407,142)     (41,149,729)
                                                         -------------  -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Maturity of short-term investments, net                   2,155,617              -                -
  Purchases of property and equipment                        (578,095)      (287,980)      (3,121,422)
                                                         -------------  -------------    -------------
     Net cash provided/(used) for investing activities      1,577,522       (287,980)      (3,121,422)
                                                         -------------  -------------    -------------

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                            15,005,138        403,746       32,873,411
  Proceeds from Preferred stock, net                                -     11,000,000       24,210,326
  Purchase of treasury stock                                        -              -           (1,667)
                                                         -------------  -------------    -------------
     Net cash provided by financing activities              15,005,138     11,403,746       59,082,070
                                                         -------------  -------------    -------------

NET INCREASE IN CASH AND CASH
  EQUIVALENTS                                              11,591,326      2,708,624       14,810,919

CASH AND CASH EQUIVALENTS, beginning
  of period                                                 3,219,593      2,788,628                -
                                                         -------------  -------------    -------------

CASH AND CASH EQUIVALENTS, end of period                  $14,810,919    $ 5,497,252     $ 14,810,919                                                                                            $
                                                         =============  =============    =============`

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

5

---

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

## (1)     Organization
Activities:

Nature of Business -- Palatin Technologies, Inc. is a
development-stage biopharmaceutical company committed to the discovery,
development and commercialization of novel therapeutics. The Companys
product portfolio includes PT-141, a novel treatment currently in development
for erectile dysfunction, and LeuTech®, a radioimaging monoclonal antibody
for the rapid diagnosis and detection of equivocal appendicitis. Our proprietary
drug discovery platform, MIDAS (Metal Ion-induced Distinctive Array of
Structures), streamlines the drug discovery process with an efficient approach
to identify lead compounds from protein targets for drugs.

Business Risk and Liquidity  As shown in the
accompanying financial statements, we have incurred substantial net losses of
$6,694,816 for the nine months ended March 31, 2001 and have a deficit
accumulated during development stage of $50,200,618. We anticipate incurring
additional losses over at least the next several years, and such losses are
expected to increase as we expand our research and development activities
relating to various technologies and proposed products. To achieve
profitability, we must, alone or with others, successfully develop and
commercialize our technologies and proposed products, conduct pre-clinical
studies and clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed products. The
time required to reach profitability is highly uncertain, and there can be no
assurance that we will be able to achieve profitability on a sustained basis, if
at all.

Management plans to continue to refine operations, control
expenses, evaluate alternative methods to conduct its business, and seek
available and attractive sources of financing and sharing of development,
manufacturing and marketing costs. There can be no assurance that the
Companys efforts will be successful. Management believes that adequate
financing has been obtained to fund operations through March 31, 2002, based on
current expenditure levels.

## (2)     Basis of
Presentation:

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

The accompanying financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our Form 10-K for the year ended June 30, 2000.

6

---

## (3)     Recent Accounting
Pronouncements

In March 2000, the FASB issued interpretation No. 44, ("FIN
44"), "Accounting for certain transactions Involving Stock Compensation - an
Interpretation of APB 25." This Interpretation clarifies the definition of
employee for purposes of applying APB 25 and provides the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award. This Interpretation became effective July 1, 2000. The adoption
of FIN 44 did not have a material impact on our financial statements.

In December 1999, the Securities and Exchange Commission issued
Staff Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101) which is effective for fiscal years beginning after
December 15, 1999. SAB 101 draws on existing accounting rules and provides
specific guidance on how those accounting rules should be applied, and
specifically addresses revenue recognition for non-refundable technology access
fees in the biotechnology industry. In accordance with SAB 101, the Company will
adopt SAB 101 during its fourth quarter ending June 30, 2001 resulting in a
cumulative effect adjustment. The Company will defer a portion of the upfront
licensing fees from Mallinckrodt, Inc. (a subsidiary of Tyco Healthcare) related
to the licensing of LeuTech recognized in August 1999, which will be recorded as
deferred revenue with a corresponding one-time, non-cash expenses of
approximately $250,000.

## (4)     Summary of Significant
Accounting Policies

Principles of Consolidation -- The consolidated financial
statements include the accounts of our 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.

Fixed Assets -- Fixed assets consist of equipment, office
furniture and leasehold improvements. Fixed assets are stated at cost.
Depreciation is recognized using the straight-line method over the estimated
useful lives of 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 -- We comply with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. We review our 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, we
evaluate 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.

7

---

Revenue Recognition --Grant and contract revenues
are recognized as services stipulated in the underlying grants and/or contracts
are provided based on the time and materials incurred. License revenues are
recognized when the license fee is received and we have no further obligations.

Research and Development Costs -- The costs of research
and development activities are expensed as incurred.

Stock Options and Warrants -- Warrants and the majority
of common stock options have been issued at exercise prices greater than, or
equal to, their fair market value at the date granted. Accordingly, no value has
been assigned to these instruments.

Income Taxes -- We intend to file consolidated federal
and combined state income tax returns. We account for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes. SFAS 109 requires, among other things,
the use of the liability method in computing deferred income taxes.

We provide for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily relating
to depreciation, amortization and certain leases) for financial and tax
reporting purposes. Such amounts are measured using current tax laws and
regulations in accordance with the provisions of SFAS 109.

In accordance with SFAS 109, we have 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 our ability to utilize tax loss carryforwards.

Net Loss per Common Share -- We apply SFAS No. 128,
Earnings per Share (SFAS 128). SFAS 128 requires dual
presentation of basic and diluted earnings per share (EPS) for
complex capital structures on the face of the statement of operations. Basic EPS
is computed by dividing the income (loss) by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of securities into common stock, such
as stock options. For the three and nine months ended March 31, 2001 and 2000
and for the period from inception (January 28, 1986) through March 31, 2001,
there were no dilutive effects of stock options or warrants as we incurred a net
loss in each period. Options and warrants to purchase 6,205,769 shares of common
stock at prices ranging from $1.00 to $360 per share were outstanding at March
31, 2001.

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

Reclassifications Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.

8

---

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

## General

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

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, a number of which are described in
public filings, including our annual report on Form 10-K for the year ended June
30, 2000. Given these uncertainties, you should not place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. We will not revise these forward-looking statements to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.

We expect to incur substantial operating losses over the next
several years due to continuing expenses associated with our research and
development programs, including pre-clinical testing, clinical trials, obtaining
regulatory approvals and manufacturing. Operating losses may fluctuate from
quarter to quarter.

## Overview

Palatin Technologies, Inc., headquartered in Princeton, NJ with
its research facility in Edison, NJ, is a development-stage biopharmaceutical
company committed to the discovery, development and commercialization of novel
therapeutics, including products derived from its proprietary peptide chemistry
technology platform.

We are in the early stages of developing pharmaceutical products
and technologies. We are concentrating our efforts on the following:

| | MIDAS (Metal Ion-induced
     Distinctive Array of Structures), a proprietary technology platform that
     allows us to routinely design and synthesize novel pharmaceuticals that
     mimic the activity of peptides but offer significant advantages to
     conventional protein or peptide-based drugs. We have initiated a MIDAS
     program to discover and develop compounds that interact with the
     Melanocortin (MC) family of receptors. MC receptors regulate a diverse
     array of functions ranging from pigmentation, adrenocortical function,
     immune modulation, sexual arousal and energy maintenance. Based on this
     effort, we have identified several MIDAS molecules that are now in
     pre-clinical development as potential treatments for obesity and
     inflammation. The Company has additionally identified molecules that
     interact with uPAR receptors, and one of these is now in pre-clinical
     development as a potential treatment for cancer. The Company expects to
     file an Investigational New Drug application for at least one of these
     pre-clinical compounds and initiate clinical testing within two years.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

| | PT-141, a patented, nasally administered
     peptide-based therapeutic for the treatment of sexual dysfunction. Phase I
     clinical testing for Male Erectile Dysfunction (MED) began in
     February 2001. The double-blind, placebo-controlled study evaluated the
     safety, tolerability, pharmacokinetics and pharmacodynamics of single,
     escalating doses of PT-141 administered intranasally to 56 healthy adult
     male subjects. A Phase II efficacy trial in patients with MED is scheduled
     to begin in the third quarter of calendar year 2001. In addition, a
     proof-of-concept clinical study in female sexual arousal
     disorder is planned to begin later this calendar year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | LeuTech®, a diagnostic imaging
     product used to image and locate the site of infection or inflammation
     within the body. We have completed clinical trials with LeuTech for the
     diagnosis of equivocal appendicitis and filed an application with the
     United States Food and Drug Administration for approval to market LeuTech
     for that indication. FDA review of our clinical efficacy and safety data is
     complete and the FDA has not requested any further data on efficacy or
     safety. However, the FDA has requested additional manufacturing, quality
     control and process validation data prior to granting its marketing
     approval for this product. We have completed our review and assessment and
     now have commenced the implementation of a defined plan to address all of
     the concerns and issues raised. We anticipate completing the steps
     necessary for the filing of amendments to the Biologics License Application
     in the second half of calendar year 2002. Although we are attempting to
     address all matters set forth in the Complete Review Letter, there can be
     no assurance that the Company can remedy the outstanding manufacturing
     issues to the satisfaction of the FDA. We believe that LeuTech can be used
     to diagnose a wide range of other infections, including infections of bone
     and the intra-abdominal area, such as intestinal, spleen, liver or urinary
     tract infections.

## Results of Operations

Three and Nine Month Periods Ended March 31, 2001 Compared to
Three and Nine Month Periods Ended March 31, 2000.

Grants and Contracts - Contract revenue, related to the
shared development costs of LeuTech pursuant to our collaboration agreement,
decreased to $22,276 and $1,410,356, respectively, for the three and nine month
periods ended March 31, 2001 compared to $1,070,159 and $3,212,059,
respectively, for the three and nine month periods ended March 31, 2000. The
decrease was attributable to the cap on shared development costs of LeuTech
pursuant to our collaboration agreement with Mallinckrodt, Inc. Grant revenue
under the Small Business Innovation Research and the Small Business Technology
Transfer programs of the Department of Health and Human Services, decreased to
$79,275 and $211,069, respectively, for the three and nine month periods ended
March 31, 2001 compared to $357,940 and $475,631 for the three and nine month
periods ended March 31, 2000.

License Fees and Royalties  We did not record any
revenues from license fees for the three and nine month periods ended March 31,
2001. We recorded $500,000 in license fees as revenue during the nine month
period ended March 31, 2000. We received these license fees pursuant to our
collaboration agreement with Mallinckrodt, Inc.

10

---

Research and development  Research and
development expenses increased to $2,423,701 and $7,128,819, respectively, for
the three and nine month periods ended March 31, 2001 compared to $2,105,623 and
$6,929,905, respectively, for the three and nine month periods ended March 31,
2000. The increase in research and development expense is related to the
increased development efforts and expanding clinical trials of PT-141 and our
MIDAS technology.

General and administrative - General and administrative
expenses decreased to $589,535 and $2,139,584, respectively, for the three and
nine month periods ended March 31, 2001 compared to $1,236,742 and $3,542,426,
respectively, for the three and nine month periods ended March 31, 2000. The
decrease in general and administrative expenses is mainly attributable to the
decrease in administrative salaries and the decrease in amortization of stock
based compensation.

Interest income - Interest income increased to $264,710
and $631,197, respectively, for the three and nine month periods ended March 31,
2001 compared to $107,537 and $293,926, respectively, for the three and nine
month periods ended March 31, 2000. The increase in interest income is due to
the additional funds available for investment purposes pursuant to our financing
in calendar year 2000.

Interest expense  We recorded interest expense of
$558 and $4,187 for the three and nine month periods ended March 31, 2001
compared to $1,161 and $27,022, respectively, for the three and nine month
periods ended March 31, 2000. The decrease in interest expense was due to the
repayment of debt in the three months ended September 30, 1999.

Net loss - Net loss increased to $2,647,533 and
$6,694,816, respectively, for the three and nine month periods ended March 31,
2001 compared to $1,807,890 and $6,017,737, respectively, for the three and nine
month periods ended March 31, 2000. The increase is due to the reduction in
grant and contract revenue and the increase in research and development expenses
explained above.

## Liquidity and Capital Resources

Since inception, we have incurred net operating losses. As of
March 31, 2001, we had a deficit accumulated during development stage of
$50,200,618. We have financed our net operating losses through March 31, 2001 by
a series of debt and equity financings. At March 31, 2001, we had cash and cash
equivalents of $14,810,919.

For the nine months ended March 31, 2001, the net increase in
cash was $11,591,326. Net cash used for operating activities was $4,991,334, net
cash provided by investing activities was $1,577,522 and net cash provided by
financing activities was $15,005,138.

In September and October of 2000, we received gross proceeds of
$15.15 million in a private placement of common stock and warrants. Investors,
consisting of European financial institutions and other foreign accredited
investors, purchased approximately 2.5 million shares of common stock in two
tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per
share. For every five shares purchased, the investors also received a five-year
warrant to purchase one share of common stock at an exercise price of $7.50 for
the first tranche and $7.42 for the second tranche. The net proceeds of
approximately $14.1 million will be used primarily for general corporate
purposes, especially for the development and clinical trials of new products
based on our proprietary technologies.

11

---

On August 16, 1999, we entered into a collaboration agreement
with Mallinckrodt, a large international healthcare products company, to jointly
develop and market LeuTech. In October 2000, Tyco International, Ltd. acquired
Mallinckrodt. Under the terms of the agreement, Mallinckrodt:

| | received an exclusive worldwide license
     (excluding Europe) for sales, marketing and distributions of LeuTech and
     paid a licensing fee of $500,000;                                                                                                                                           
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | agreed to make milestone payments totaling
     $5,000,000 upon FDA approval of the first LeuTech indication and $5,000,000
     on the attainment of sales goals following product launch;                                                                                                            
| | agreed to reimburse us for 50% of all ongoing
     LeuTech development costs, subject to a cap of $5,200,000, which we are
     currently negotiating to increase the cap amount;                                                                                                                      
| | agreed to pay to us a transfer price for each
     LeuTech product unit delivered to Mallinckrodt and a quarterly royalty on
     Mallinckrodt's future net sales of LeuTech;                                                                                                                          
| | purchased 700,000 restricted shares of our
     non-voting Series C convertible preferred stock for $13,000,000;
     and                                                                                                                                                                              
| | agreed that the Series C convertible preferred
     stock would be convertible after five years, or earlier upon the occurrence
     of a change in control (as defined in the agreement), into 700,000 shares
     of our common stock with certain registration rights and anti-dilution
     rights.

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 and technology development
efforts. We expect our existing capital resources, including the funds we
received in September and October 2000, will be adequate to fund our projected
operations through March 31, 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 MIDAS, PT-141 and LeuTech. To achieve
profitability, we, alone or with others, must successfully develop and
commercialize our technologies and proposed products, conduct pre-clinical
studies and clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed products. The
time required to reach profitability is highly uncertain, and we do not know
whether we will be able to achieve profitability on a sustained basis, if at
all.

## Item 3.  Quantitative and
Qualitative Disclosures About Market Risk.

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

12

---

As of March 31, 2001, our cash and cash equivalents consisted of
$14,810,919, most of which were short term investments having a 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 consummation date of March 31, 2000 for our previously announced
proposed merger with San Diego-based Molecular Biosystems, Inc. and would 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, our
wholly-owned shell subsidiary, 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 merger agreement and $765,305 for
the purported costs and expenses 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.

We did not hear from them for several months. Recently, they
initiated actions for additional discovery and depositions.

We are involved in various claims and litigation arising in the
normal course of business, consisting of actions commenced against Palatin prior
to the RhoMed merger. We believe that the outcome of such claims and litigation
will not have a material adverse effect on our business.

13

---

# 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: March 15, 2001 |  | /s/ Carl Spana
     Carl Spana, Ph.D.
     President and 
     Chief Executive Officer                                                            
|                     |  |                                                                                                                                                   
|                     |  |                                                                                                                                                   
|Date: March 15, 2001 |  | /s/ Stephen T. Wills Stephen T. Wills Executive
     Vice President and Chief Financial Officer (Principal  Financial
     and Accounting Officer)

14

---