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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K [X]
     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2004 OR [   ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934  For the transition period from ___________ to
__________ Commission file number 0-22686  PALATIN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter) Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)4C Cedarbrook DriveCranbury, New Jersey
     08512(Address of principal executive
     offices)
     (Zip Code)


Registrant's telephone number, including area code:  (609)
495-2000

Securities registered pursuant to Section 12(b) of the Exchange
Act:

Common Stock, par value $.01 per share (Title
of class)

Securities registered pursuant to Section 12(g) of the Exchange
Act:  None

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 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 [  ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [X]

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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).   Yes [X]  No [  ]

As of September 13, 2004, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was approximately $102,282,865, computed by reference to the
price at which the common stock was last sold on December 31, 2003.

As of September 13, 2004, 53,980,506 shares of the registrant's
common stock, par value $.01 per share, were outstanding.

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TABLE OF CONTENTS

PART I

|        |                                                          | Page
|------- | -------------------------------------------------------- | ----
|        |                                                          |     
|Item 1. | Business                                                 | 4   
|        |                                                          |     
|Item 2. | Properties                                               | 15  
|        |                                                          |     
|Item 3. | Legal Proceedings                                        | 16  
|        |                                                          |     
|Item 4  | Submission of Matters to a Vote of
     Security Holders | 16  
|        |                                                          |     

PART II

|Item 5.  | Market for Registrant's Common Equity,
     Related Stockholder Matters and Issuer Purchases of Equity Securities | 16
|-------- | ----------------------------------------------------------------------------------------------------------------- | --
|         |                                                                                                                   |   
|Item 6.  | Selected Consolidated Financial Data                                                                              | 19
|         |                                                                                                                   |   
|Item 7.  | Management's Discussion and Analysis of
     Financial Condition and Results of Operations                        | 21
|         |                                                                                                                   |   
|Item 7A. | Quantitative and Qualitative
     Disclosures About Market Risk                                                   | 39
|         |                                                                                                                   |   
|Item 8.  | Financial Statements and Supplementary
     Data                                                                  | 40
|         |                                                                                                                   |   
|Item 9.  | Changes In and Disagreements With
     Accountants on Accounting and Financial Disclosure                         | 71
|         |                                                                                                                   |   
|Item 9A. | Controls and Procedures                                                                                           | 72
|         |                                                                                                                   |   
|Item 9B. | Other Information                                                                                                 | 72
|         |                                                                                                                   |   

PART III

|Item 10. | Directors and Executive Officers of the
     Registrant                                             | 72*
|-------- | --------------------------------------------------------------------------------------------------- | ---
|         |                                                                                                     |    
|Item 11. | Executive Compensation                                                                              | 72*
|         |                                                                                                     |    
|Item 12. | Security Ownership of Certain Beneficial
     Owners and Management and Related Stockholder Matters | 72*
|         |                                                                                                     |    
|Item 13. | Certain Relationships and Related
     Transactions                                                 | 72*
|         |                                                                                                     |    
|Item 14. | Principal Accountant Fees and
     Services                                                         | 72*

*Incorporated by reference from our definitive proxy statement relating to
the 2004 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days after our
June 30, 2004 fiscal year end.

PART IV

|Item 15. | Exhibits, Financial Statement Schedules
     and Reports on Form 8-K | Page 73
|-------- | -------------------------------------------------------------------- | -------
|         |                                                                      |        
|         | Signatures                                                           | Page 77

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Table of Contents

PART I

Item 1. Business.

Forward-looking statements

Statements
in this annual report on Form 10-K, 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 annual report on Form 10-K do not constitute
guarantees of future performance. Investors are cautioned that statements which are not
strictly historical statements contained in this annual report on Form 10-K, 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 under the caption Factors Affecting Our
Business Condition and elsewhere in this annual report, as well as in our other
Securities and Exchange Commission filings.

Overview

We
are primarily focused on discovering and 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, cachexia (extreme wasting,
generally secondary to a chronic disease), and inflammation. 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.

In
August 2004, we entered into a collaboration agreement with King Pharmaceuticals, Inc., a
specialty pharmaceutical company, to jointly develop and commercialize PT-141, our lead therapeutic
drug candidate for the treatment of both male and female sexual dysfunction.

In July 2004, we announced
the receipt of full approval from the U.S. Food and Drug Administration (FDA) to market NeutroSpec, our
proprietary radiolabeled monoclonal antibody product, for imaging of patients with equivocal signs and symptoms of appendicitis
who are five years of age or older. NeutroSpec is marketed and distributed by our strategic collaboration partner, Mallinckrodt
Imaging, a business unit of Tyco Healthcare (Mallinckrodt).

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Our
near-term business strategy focuses on the continued development of PT-141 and supporting
the commercial launch of NeutroSpec. Our long-term business strategy includes the
advancement of our preclinical product pipeline and identification of new product targets
through the utilization of our patented drug discovery platform, moving towards the
commercialization of a broad portfolio of therapeutic products. Key elements of our
business strategy include:

| |  | Selectively entering into alliances and partnerships with pharmaceutical companies to
facilitate the development, manufacture, marketing, sale and distribution of our product
candidates under investigation;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Expansion of our pipeline through the utilization of our MC expertise and patented drug
discovery platform;
|- | -----------------------------------------------------------------------------------------------------------

| | Opportunistic acquisition of synergistic products and technologies; and
|- | -----------------------------------------------------------------------

| | Partial funding of our development programs with the cash flow from our NeutroSpec and PT-141
collaboration agreements.
|- | -----------------------------------------------------------------------------------------------------------------------

We
incorporated in Delaware in 1986 and commenced operations in the biopharmaceutical area in
1996. Our executive offices and research facility are located at 4C Cedar Brook Drive,
Cranbury, New Jersey 08512 and our telephone number is (609) 495-2200. We maintain an
Internet site at http://www.palatin.com, where among other things, we make available free
of charge on and through this website our Forms 3, 4 and 5, annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) and Section 16 of the
Exchange Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission. Our website and the
information contained therein or connected thereto shall not be deemed to be incorporated
into this annual report on Form 10-K.

Products and Technologies
in Research and Development

We
are concentrating our efforts on the following proposed products and indications:

PT-141.
          PT-141, our lead therapeutic drug candidate, is a patented, nasally administered
          peptide that is in clinical development for the treatment of both male and
          female sexual dysfunction. 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 male Erectile Dysfunction (ED) therapies. As a
          result, it may offer significant safety and therapeutic benefits over currently
          marketed products.

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We
have completed various Phase 1 safety studies and Phase 2A and Phase 2B efficacy studies
in male subjects and patients. We plan to initiate an additional Phase 2B efficacy study
in male patients with ED during the first half of calendar year 2005. We have completed a
Phase 1 safety study in female subjects. We plan to initiate a Phase 2A efficacy study in
female patients with Female Sexual Arousal Disorder (FSAD) during the second
half of calendar year 2004.

We
completed a Phase 2B at-home dose-ranging study with PT-141 in patients with ED in
September 2003 and presented the safety and efficacy data at the 8th Annual Leadership
Conference on Sexual, Cardiovascular and Metabolic Syndrome Related Therapies held on
November 1, 2003 in Los Angeles. This placebo-controlled, randomized, double-blind,
parallel group study enrolled 271 sildenafil-responsive men with mild/moderate and severe
ED at 21 sites. Importantly, the trial included patients with co-morbidities such as
diabetes, hypertension, hyperlipidemia, and smoking. Participants were confirmed by
patient history to be responsive to sildenafil (Viagra®) and had a baseline
International Index of Erectile Function  Erectile Function domain (IIEF-EF) score
of between six and twenty-one. The IIEF-EF is a standardized sexual function questionnaire
used by urologists, which includes questions on a mans ability to achieve and
maintain an erection. To evaluate PT-141s effect versus placebo, researchers
compared baseline scores with scores reported after treatment. Enrolled patients were
randomized to either placebo, 5 mg, 10 mg, 15 mg or 20 mg of PT-141 for a one month
treatment period.

Results
show that treatment with PT-141 improved patients erectile function, achieving both
clinical and statistical significance for the following parameters (p < 0.05 or
better):

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| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | IIEF-EF domain scores, the primary efficacy endpoint for the study, at
     the 10 mg and higher doses relative to placebo;                                                      
| |  | Restoration of normal erectile function defined as a score of 26 or
     more points on the EF domain of the IIEF questionnaire at all four PT-141 doses relative to placebo; and
| |  | Improvement in the quality of erections as assessed by the Global
     Assessment Questionnaire score was highly significant for all four doses of PT-141 relative to placebo.   

All
doses of PT-141 demonstrated safety; importantly, there were no reports of hypotension or
syncope at any PT-141 dose level. The 5 mg and 10 mg doses were well-tolerated. The most
common adverse events in these doses were mild to moderate in intensity and included bad
aftertaste, facial flushing, nausea, post-nasal drip, fatigue and headache. Of the 271
patients randomized into the study, approximately 12% discontinued due to adverse events.
Discontinuations due to gastrointestinal adverse events were limited almost exclusively to
patients taking the 15 mg and 20 mg doses. Patients who took multiple 15 mg and 20 mg
doses of PT-141 tolerated the drug well.

A
total of 30 patients in this Phase 2B study from five different trial locations who
responded to PT-141 and were also sildenafil users were interviewed by an independent
market research firm following the study to better understand their experience with
PT-141. The research indicates that:

| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately 70% of patients considered PT-141 to be as or more
     effective than sildenafil;                                          
| |  | The quality of erection achieved with PT-141 is perceived to be
     comparable or superior to sildenafil in 83% of patients;             
| |  | PT-141 has a longer duration of action and onset time was more rapid
     than sildenafil; and                                            
| |  | Many patients highlighted the initiating aspect (could feel
     the drug working) of PT-141 as a positive differentiator to sildenafil.

In
May 2004, we announced that Hunter Wessells, M.D., FACS, Associate Professor with the
Urology Clinic of the University of Washington, Harborview Medical Center, presented the
results of this Phase 2B study at the American Urological Association (AUA) Annual
Meeting, which took place in San Francisco May 8  13, 2004.

In
June 2004, we announced an overview of the positive results from a clinical study
evaluating the co-administration of PT-141 and Viagra®. The purpose of the PT-141 and
Viagra co-administration clinical study was to evaluate the potential synergistic effect
of treating ED patients with both PT-141, which has a novel central nervous system
mechanism of action, and Viagra, a peripheral agent which is a type V phosphodiesterase
inhibitor. The results of this study indicate that the co-administration of low
doses of both PT-141 and Viagra resulted in an increased degree of erectile activity
relative to Viagra alone and that patients subjectively reported a better quality of
erection relative to Viagra alone.

Study Design

| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The objective of this clinical study was to evaluate the efficacy and
     safety of co-administration of Viagra with PT-141 to 20 patients with ED.                                                                                                                                                          
| |  | RigiScan® (a device for impotence testing) monitoring was employed
     over a six hour monitoring period to evaluate the duration and magnitude of each patients erectile response. Two
     30-minute episodes of visual sexual stimulation (VSS) were included in the six hour RigiScan monitoring period.
| |  | The study was designed as a double-blind, randomized,
     placebo-controlled, three-way crossover study evaluating the following three treatment arms:                                                                                                                                                       

| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  |  Co-administration : 25 mg Viagra and 7.5 mg PT-141
     intranasal spray;
| |  |  Viagra-alone : 25 mg Viagra and placebo intranasal
     spray;           
| |  |  Placebo : placebo tablet and placebo intranasal spray.                   

Study Results

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Over the six hour RigiScan monitoring period, patients receiving the
     Co-administration treatment had, on average, increased erectile activity as compared to patients receiving either the
     Viagra-alone or Placebo treatment. The differences were statistically significant.                                                                                                                                                  
| |  | Patients were also asked to evaluate the quality of their erection on a
     visual analog scale (1-10 scale). Patients receiving the Co-administration treatment rated their best erection an average
     score of 8.2 compared to 6.8 for the Viagra-alone treatment and 5.7 for the Placebo treatment. This difference between
     Co-administration and Viagra-alone quality-of-erection scores was also statistically significant.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Importantly, there were no serious or significant adverse events in the
     study, including no significant differences in blood pressure, between any of the treatment arms. The only adverse event for
     patients receiving the Co-administration that was significantly different than either the Viagra-alone or Placebo treatment
     arms was flushing. Flushing occurred in 21% of patients receiving the Co-administration and 0% of the patients in the
     Viagra-alone and Placebo treatment arms.

Collaborative
Development and Marketing Agreement with King. In August 2004, we entered into a
collaboration agreement with King Pharmaceuticals, Inc., a
specialty pharmaceutical company, to jointly develop and commercialize PT-141. Pursuant to the terms
of the agreement, Palatin has granted King a co-exclusive license with Palatin to develop
and market PT-141 in North America and an exclusive right to collaborate in the licensing
or sublicensing the development and marketing of PT-141 with Palatin outside North
America. Palatin has the option to create, with King, a urology specialty sales force to
co-promote the product in the U.S.

King
paid us $20.0 million at closing, $5.0 million of which was designated as an equity investment in
Palatin. King may pay potential milestone payments to Palatin totaling up to $100.0
million for achieving certain ED and Female Sexual Dysfunction (FSD)
development and regulatory approval targets, a portion of which would consist of an
additional equity investment in Palatin. After regulatory approval and commercialization
of PT-141, King may also pay one-time milestone payments to us totaling up to an
additional $130.0 million upon achieving specified annual North American net sales
thresholds.

Under
the terms of the agreement, King and Palatin will share all collaboration development and
marketing costs and all collaboration net profits derived from net sales of PT-141 in
North America based on an agreed percentage. King and Palatin currently plan to seek a
partner for PT-141 for territories outside of North America and will jointly share in
collaboration development and marketing costs and all collaboration revenues generated
from those territories.

ED
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 ED. According to the
Massachusetts Male Aging Study, more than 50% of men aged 40-70 report episodes of ED and
more than 30 million men in the United States may be afflicted with some form of ED, with
less than 20% seeking treatment. The current market size for ED 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. FSD includes
disorders associated with desire, arousal, orgasm and pain. There is tremendous
competition to develop, market and sell drugs for the treatment of ED and FSD.

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NeutroSpec.
NeutroSpec includes a radioactive technetium-labeled anti-CD 15 monoclonal antibody which selectively binds to a type of white
blood cell, neutrophils, involved in the immune response. When injected into the blood stream, NeutroSpec binds to neutrophils
accumulated at the infection site, labeling these cells with a radioactive tracer. As a result, physicians can rapidly image and
locate an infection using a gamma camera, a common piece of hospital equipment that detects radioactivity within the body.
NeutroSpec 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 radiolabeled 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 usually not available until 12-24 hours later.

In
July 2004, we announced that we received full approval from the U.S. Food & Drug Administration (FDA) to market NeutroSpec, a
novel imaging agent, indicated for imaging of patients with equivocal signs and symptoms of appendicitis who are five years of age
or older. NeutroSpec is marketed and distributed by our strategic collaboration partner, Mallinckrodt Imaging, a business unit of
Tyco Healthcare (Mallinckrodt).

We
are also conducting additional clinical trials with NeutroSpec to evaluate 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.

Strategic
Collaboration Agreement with Mallinckrodt. On May 13, 2002, we entered into an agreement
with Mallinckrodt 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 $13.0 million to
purchase 700,000 restricted unregistered shares of our preferred stock. We shared
NeutroSpec development expenses prior to FDA approval equally with Mallinckrodt.
Mallinckrodt agreed to pay us milestone payments of an additional $10.0 million on FDA
approval of the first NeutroSpec indication and on attainment of certain sales goals
following product launch. We agreed to be responsible for the manufacture of NeutroSpec
and Mallinckrodt agreed to pay us a transfer price on each product unit transferred to
Mallinckrodt and a royalty on the net sales of NeutroSpec.

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 $10.0 million in milestone payments was revised to
coincide with NeutroSpecs FDA approval and achievement of future sales goals. The
$3.2 million has been paid in full as of March 31, 2004 and we received $2.0 million on
August 6, 2004 upon FDA approval.

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 misdiagnosed 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.

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We
believe that NeutroSpec may improve patient diagnosis for appendicitis and that it has the
potential to improve diagnosis of other acute and chronic infections, such as
osteomyelitis, fever of unknown origin, post-surgical abscess, inflammatory bowel disease
and pulmonary imaging. In 2003, over 700,000 patients were diagnosed with
NeutroSpecs target indications.

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 small molecule, non-peptide
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 Investigational New Drug Application
(IND) for at least one of these preclinical compounds to initiate clinical
testing within the next 12 months.

We
have recently identified a series of lead compounds that decrease food intake and body
weight in normal and genetically-obese animals. In June 2004, we announced that data on
this activity of our lead series of melanocortin receptor, small molecule agonists, under
development for the treatment of obesity, were presented at the 8th Annual American
Neuroendocrine Society (ANS) Neuroendocrine Workshop. The ANS Workshop, titled
Neuroendocrinology of Energy Balance and Obesity, took place June 13, 2004 at
the Hotel Monteleone in New Orleans, LA.

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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Research
and Development. Our current research and development efforts primarily focus on
melanocortin based therapeutics. We believe our technologies will facilitate the
development of a portfolio of potential products. Over the last three fiscal years, we
have spent the following amounts on company-sponsored research and development activities:

| |   |                                         
| | - | ----------------------------------------
| |  | year ended June 30, 2004:  $23.3 million
| |  | year ended June 30, 2003:  $17.4 million
| |  | year ended June 30, 2002:  $12.1 million

Competition

Our
products under development will compete on the basis of quality, performance, cost
effectiveness, and application suitability with numerous established products and
technologies. Additional products using new technologies which may be competitive with our
proposed products may also be introduced by others. Many of the companies selling or
developing competitive products have financial, manufacturing and distribution resources
significantly greater than ours.

The
pharmaceutical and biotechnology industry is characterized by extensive research efforts
and rapid technological change and there are many companies that have developed or are
working to develop products similar to ours. There are currently several FDA-approved
drugs for ED in the United States and in certain foreign markets. We are aware of several
products under clinical development for both MED and FSAD. We cannot assure you that our
competitors will not succeed in the future in developing products that are more effective
than any that we are developing. We believe that our ability to compete in the sexual
dysfunction market depends on a number of factors including the success and timeliness
with which we complete FDA trials, the breadth of applications, if any, for which our
products receive approval, and the effectiveness, cost, safety and ease of use of our
products in comparison to the products of our competitors.

We
are aware of one company marketing an antibody-based product which may compete with
NeutroSpec as to certain indications. The competing product is marketed in some European
countries. We are also aware of at least one other company developing a peptide-based
product which may also compete with NeutroSpec as to certain indications. In addition,
other technologies may also be used to diagnose appendicitis, including computerized
tomography or CT scan, and ultrasound technologies.

We
have many competitors, including pharmaceutical and biotechnology companies. Many of these
competitors have substantially greater capital and other resources than we do and may
represent significant competition for us. Such companies may succeed in developing
technologies and products that are more effective or less costly than any of those that we
may develop. Such companies may be more successful than us in developing, manufacturing
and marketing products. Furthermore, there are several well-established products in our
target markets that we will have to compete against. We cannot guarantee that we will be
able to compete successfully in the future or that developments by others will not render
our proposed products under development or our future product candidates obsolete or
non-competitive or that our collaborators or customers will not choose to use competing
technologies or products.

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Patents and Proprietary
Information

Patent
protection. Our success will depend in substantial part on our ability to obtain, defend
and enforce patents, maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the United States and abroad. We aggressively seek
patent protection for our technology and products in the United States and, selectively,
in those foreign countries where protection is important to the development of our
business.

We
own or have rights to United States and foreign patents and pending applications directed
to radiolabeling of antibodies, antibody fragments, and peptides; MIDAS peptides; small
molecules; and methods for making and using the foregoing in diagnostic and therapeutic
applications.

We
have exclusive rights to patents and applications relating to PT-141 for sexual
dysfunction, and own an issued United States patent and pending United States and foreign
applications covering PT-141. The claims of patents that issue covering PT-141 may not
provide meaningful protection. In addition, even if such patents issue they may not be
valid.

We
own patents covering certain aspects of the NeutroSpec product, but the claims of those
patents may not be effective to prevent others from developing competing products. In
addition, the validity of these patents has not been determined.

In
the event that a third party has also filed a patent application relating to an invention
we claimed in a patent application, we may be required to participate in an interference
proceeding adjudicated by the United States Patent and Trademark Office to determine
priority of invention. The possibility of an interference proceeding could result in
substantial uncertainties and cost, even if the eventual outcome is favorable to us. An
adverse outcome could result in losing patent protection for the subject of the
interference, subjecting us to significant liabilities to third parties and requiring us
to obtain licenses from third parties at undetermined cost or to cease using the
technology.

Future
patent infringement. We do not know for certain that our commercial activities will not
infringe upon patents or patent applications of third parties, some of which may not even
have been issued yet. Although we are not aware of any valid U.S. patents which are
infringed by PT-141 or NeutroSpec or by our methods of making PT-141 and NeutroSpec, we
cannot exclude the possibility that such patents might exist or arise in the future. We
may be unable to avoid infringement of any such patents and may have to seek a license,
defend an infringement action, or challenge the validity of such patents in court. Patent
litigation is costly and time consuming. If we do not obtain a license under any such
patents, are found liable for infringement, or if such patents are not found to be
invalid, we may be liable for significant money damages, may encounter significant delays
in bringing products to market, or may be precluded from participating in the manufacture,
use or sale of products or methods of treatment covered by such patents.

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Government
rights. Some of our patents are directed to inventions developed internally or within
academic institutions from which we previously acquired rights to such patents with funds
from United States government agencies. As a result of these arrangements, the United
States government may have rights in certain inventions developed during the course of the
performance of federally funded projects, as required by law or agreements with the
funding agency. In addition, we may be required to manufacture in the United States
products to be sold in the United States.

Proprietary
information. We rely on proprietary information, such as trade secrets and know-how, which
is not patented. We have taken steps to protect our unpatented trade secrets and know-how,
in part through the use of confidentiality agreements with our employees, consultants and
certain contractors. If our employees, scientific consultants or collaborators or
licensees develop inventions or processes independently that may be applicable to our
product candidates, disputes may arise about ownership of proprietary rights to those
inventions and processes. Such inventions and processes will not necessarily become our
property, but may remain the property of those persons or their employers. Protracted and
costly litigation could be necessary to enforce and determine the scope of our proprietary
rights.

If
trade secrets are breached, our recourse will be solely against the person who caused the
secrecy breach. This might not be an adequate remedy to us, because third parties other
than the person who causes the breach will be free to use the information without
accountability to us. This is an inherent limitation of the law of trade secret
protection.

Governmental Regulation

The
FDA, comparable agencies in foreign countries and state regulatory authorities have
established regulations and guidelines which apply to, among other things, the clinical
testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising,
promotion and marketing of our proposed products. Noncompliance with applicable
requirements can result in fines, recalls or seizures of products, total or partial
suspension of production, refusal of the regulatory authorities to approve marketing
applications, withdrawal of approvals and criminal prosecution.

After
approving a product for marketing, the FDA may require post-marketing testing, including
extensive Phase 4 studies, and surveillance to monitor the safety and effectiveness of the
product in general use. The FDA may withdraw product approvals if compliance with
regulatory standards is not maintained or if problems occur following initial marketing.
In addition, the FDA may impose restrictions on the use of a drug that may limit its
marketing potential.

Good
manufacturing practices. In addition to obtaining approval of either a biologics license
application or new drug application from the FDA for any of our proposed products; any
facility that manufactures such a product must comply with current good manufacturing
practices. This means, among other things, that the drug manufacturing establishment must
be registered with, and will be inspected by, the FDA. Foreign manufacturing
establishments must also comply with good manufacturing practices and are subject to
periodic inspection by the FDA or by corresponding regulatory agencies in such other
countries under reciprocal agreements with the FDA. In complying with standards
established by the FDA, manufacturing establishments must continue to expend time, money
and effort in the areas of production and quality control to ensure full technical
compliance. We depend on contract manufacturing establishments, both in the United States
and in foreign countries, to manufacture components of NeutroSpec and PT-141. We currently
have agreements in place for the manufacture of NeutroSpec. We anticipate that contract
manufacturing establishments will continue to manufacture PT-141 and proposed products
resulting from MIDAS technology.

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Third-Party Reimbursements

Successful
sales of our proposed products in the United States and other countries will depend on the
availability of adequate reimbursement from third-party payors such as governmental
entities, managed care organizations and private insurance plans. Reimbursement by a
third-party payor may depend on a number of factors, including the payors
determination that the product has been approved by the FDA for the indication for which
the claim is being made and the use of the product is safe and efficacious, neither
experimental nor investigational, medically necessary, appropriate for the specific
patient and cost effective. Since reimbursement by one payor does not guarantee
reimbursement by another, we may be required to seek approval from each payor
individually. Seeking such approvals is a time-consuming and costly process. Third-party
payors routinely limit the product that they will cover and the amount of money that they
will pay and in many instances are exerting significant pressure on medical suppliers to
lower their prices. There is significant uncertainty concerning third-party reimbursement
for the use of any pharmaceutical product incorporating new technology, and we are not
sure whether third-party reimbursement will be available for our proposed products once
approved, or that the reimbursement, if obtained, will be adequate. Less than full
reimbursement by governmental and other third-party payors for our proposed products would
adversely affect the market acceptance of these proposed products. Further, health care
reimbursement systems vary from country to country, and we are not sure whether
third-party reimbursement will be made available for our proposed products under any other
reimbursement system.

Manufacturing and
Marketing

To
be successful, our proposed products will need to be manufactured in commercial quantities
under current good manufacturing practices requirements prescribed by the FDA and at
acceptable costs. We do not have the facilities to manufacture any of our proposed
products in commercial quantities under good manufacturing practices. We intend to rely on
collaborators, licensees or contract manufacturers for the commercial manufacture of our
proposed products.

We
are dependent on DSM N.V. of the Netherlands for the manufacture of the NeutroSpec drug
substance and intermediate drug product stages and on Ben Venue Laboratories of Cleveland,
Ohio for the manufacture of the NeutroSpec drug product stage. The failure of either of
these manufacturers to comply with FDA current good manufacturing practices or to supply
these key components of NeutroSpec on a timely basis or at all, would force us to seek
alternative sources of supply and could interfere with our ability to deliver product on a
timely basis or at all. Establishing relationships with new suppliers, any of whom must be
FDA-approved, is a time-consuming and costly process.

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Proposed
products resulting from PT-141 and our MIDAS technology are synthetic peptides. The
peptides are synthesized from readily available amino acids, and the production process
involves well-established technology. We currently contract with third-party manufacturers
for the production of peptides and anticipate doing so in the future.

We
rely on our arrangement with Mallinckrodt to market, sell and distribute NeutroSpec. We
have limited control over these activities.

We
package and ship our radiopharmaceutical products in the form of non-radioactive kits.
Prior to patient administration, the product is radiolabeled with the specified
radioisotope, generally by a specialized radiopharmacy. We do not sell or distribute any
radioactive substances.

Product Liability and
Insurance

Our
business may be affected by potential product liability risks which are inherent in the
testing, manufacturing and marketing of our proposed products. We have liability insurance
providing up to $10.0 million coverage in the aggregate as to product and to certain
clinical trial risks.

Employees

As
of September 1, 2004, we employed 66 persons full time, of whom 56 are engaged in research
and development activities and 10 are engaged in administration and management. 21 of our
employees hold Ph.D. degrees. We have been successful in attracting skilled and
experienced scientific personnel, however, competition for personnel in our industry is
intense.

None
of our employees are covered by a collective bargaining agreement. All of our employees
have executed confidentiality agreements. We consider relations with our employees to be
good.

From
time to time, we hire scientific consultants to work on specific research and development
programs. We also rely on independent organizations, advisors and consultants to provide
services, including most aspects of manufacturing and some aspects of regulatory approval
and clinical management. Our independent advisors and consultants sign agreements that
provide for confidentiality of our proprietary information.

Item 2. Properties.

Our
corporate offices and research and development facility are located at 4C Cedar Brook
Drive, Cedar Brook Corporate Center, Cranbury, NJ 08512, where we lease approximately
28,000 square feet under a lease which expires July 17, 2012. Our previous corporate
offices were located at 103 Carnegie Center, Suite 200, Princeton, NJ 08540, and we have
sublet approximately 7,300 square feet to a third party under a lease which expires
December 15, 2004. The leased properties are in good condition.

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Item 3. Legal Proceedings.

There
are no material legal proceedings pending against us.

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

We
did not submit any matters to a vote of security holders during the fourth quarter of the
fiscal year ended June 30, 2004.

PART II

Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.

Our
common stock has been quoted on The American Stock Exchange (AMEX) under the symbol PTN,
since December 21, 1999. It had previously traded on The Nasdaq SmallCap Market under the
symbol PLTN.

The
table below provides, for the fiscal quarters indicated, the reported high and low sales
prices for the common stock on AMEX since July 1, 2002.

`YEAR ENDED JUNE 30, 2004           HIGH             LOW

             Fourth Quarter                          $4.49           $3.35

             Third Quarter                           $4.24           $2.55

             Second Quarter                          $5.89           $2.19

             First Quarter                           $5.25           $2.66


                  YEAR ENDED JUNE 30, 2003           HIGH             LOW

             Fourth Quarter                          $4.01           $1.62

             Third Quarter                           $1.93           $1.29

             Second Quarter                          $2.10           $1.11

             First Quarter                           $2.20           $1.10`

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Holders
of common stock. On September 8, 2004, we had approximately 280 holders of record of
common stock. On September 8, 2004 the closing sales price of our common stock as reported
on the AMEX was $2.82 per share.

Dividends
and dividend policy. We have never declared or paid any dividends. We currently intend to
retain earnings, if any, for use in our business. We do not anticipate paying dividends in
the foreseeable future.

Dividend
restrictions. Our outstanding Series A Preferred Stock, consisting of 11,697 shares,
provides that we may not pay a dividend or make any distribution to holders of any class
of stock unless we first pay a special dividend or distribution of $100 per share to the
holders of the Series A Preferred Stock.

Securities
authorized for issuance under equity compensation plans.

`EQUITY COMPENSATION PLAN INFORMATION
                                                 AS OF JUNE 30, 2004

                                                                                     Number of securities
                                                                                   remaining available for
                            Number of securities to be     Weighted-average      future issuance under equity
                              issued upon exercise of      exercise price of        compensation plans
                               outstanding options,       outstanding options,    (excluding securities
Plan category                 warrants and rights (1)     warrants and rights     reflected in column (a)
-------------                 -----------------------     -------------------     -----------------------
                                        (a)                        (b)                      (c)

Equity compensation plans
approved by security
holders (2)                          4,755,684                    $3.45                    355,956

Equity compensation plans
not approved by security
holders                              1,456,187                    $3.14                          0
                                     ---------                                             -------

Total                                6,211,871                                             355,956
                                     =========                                             =======`

_______________________

|(1) |  | Does not include a total of 19 shares of aggregate fractions. No fractional
          shares will be issued on exercise of options or warrants.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes individual option and warrant agreements we assumed when we merged with
          RhoMed Incorporated in 1996. Options and warrants to purchase 471,127 shares of
          common stock are outstanding under the assumed agreements, with a weighted
          average exercise price of $2.03 per share. No additional options or warrants are
          available for issuance under the assumed agreements, except that the number of
          shares purchasable under certain warrants may increase due to anti-dilution
          provisions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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We
have authorized the issuance of equity securities under the compensation plans described
below, without the approval of stockholders. No additional options, warrants or rights are
available for issuance under any of these plans, except for additional shares which may
become purchasable under warrants with anti-dilution protection as noted below. We have
already registered for resale the common stock underlying all of these options and
warrants.

| |  | 1997
Executive Officers Stock Option Agreement, dated June 3, 1997: provided common stock
purchase options to three executive officers. Options to purchase 26,766 shares at $4.96
per share remain outstanding with an expiration date of June 3, 2007.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Richard J. Murphy Stock Option Agreement, dated December 4, 1997: provided common stock
purchase options to a former director to purchase 5,000 shares at $5.44 per share and
1,066 shares at $7.50 per share, with an expiration date of December 4, 2007. These
options replaced options for the same number of shares at the same prices which terminated
under our 1996 Stock Option Plan.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Watson Laboratories settlement warrants, dated March 15, 2000: provided common stock
purchase warrants to eight individuals who participated in a privately negotiated resale
of 363,636 shares of our common stock, to purchase an aggregate of 50,000 shares at $0.01
per share, with an expiration date of March 15, 2005. Warrants to purchase 15,125 shares
remain outstanding.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Griffin Financial Services Advisory Agreement warrants, dated June 8, 2000: provided
common stock purchase warrants to Griffin Securities, Inc., a financial consultant, to
purchase 5,000 shares at $7.00 per share, with an expiration date of June 8, 2005.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Wistar Institute of Anatomy and Biology warrants, dated December 15, 2000: provided common
stock purchase warrants to a technology licensor to purchase 15,000 shares at $4.00 per
share, with an expiration date of December 15, 2010.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Cedar Brook II Corporate Center, L.P. warrants, dated April 6, 2001 and December 17, 2001:
provided common stock purchase warrants to the lessor of our office and laboratory
facility to purchase 30,000 shares at $2.90 per share, with an expiration date of April 6,
2006, and 25,000 shares at $3.65 per share with an expiration date of December 17, 2006.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Wistar Institute of Anatomy and Biology warrants, dated May 13, 2002: provided common
stock purchase warrants to a technology licensor to purchase 15,000 shares at $2.82 per
share, with an expiration date of May 13, 2012.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Placement warrants: provided common stock purchase warrants as compensation to various
private offering placement agents to purchase an aggregate of 1,318,230 shares. These
warrants have the following share amounts, prices (rounded to the nearest cent) and
expiration dates:
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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`Shares        Exercise      Expiration
    Offering         Purchasable        Price         Date
    --------         -----------        -----         ----
    Fall 2000           216,000         $6.60       10-05-05

    Fall 2000            87,884         $6.53       10-27-05

    Fall 2001           134,188         $2.66       10-29-06

    Fall 2001           221,872         $2.70       10-29-06

    June 2002           109,510         $2.75       06-13-07

    July 2002            51,502         $1.46       07-29-07

    July 2002            38,627         $1.37       07-29-07

    Fall 2002           458,647         $1.54       11-15-07`

Recent
sales of unregistered securities. In January 2004, we concluded a private placement of
common stock and warrants in which we sold 6,992,500 shares of our $0.01 par value common
stock at an offering price of $3.25 per share. The investors also received 15% warrant
coverage on the number of shares they purchased. Each five-year warrant entitles the
holder to purchase one share of common stock at an exercise price of $4.06 per share. The
gross proceeds were approximately $22.7 million and the net proceeds were approximately
$21.0 million. We made the private placement solely to financial institutions and
accredited investors pursuant to Regulation D under the Securities Act of 1933. The
investors represented to us that they were purchasing the securities for their own
accounts for investment and not with a view toward resale or distribution to others. The
certificates representing the shares of common stock and warrants bear restrictive
legends. A registration statement covering the resale of the shares by the investors was
filed and subsequently declared effective by the Security and Exchange Commission in April
2004. In connection with the private placement, we paid placement fees totaling
approximately $1.7 million.

Item 6. Selected Consolidated Financial Data.

The
following selected consolidated financial data has been derived from the audited
consolidated financial statements of Palatin Technologies, Inc. This data should be read
in conjunction with our consolidated financial statements, including the notes to the
consolidated financial statements, and the Managements Discussion and Analysis
of Financial Condition and Results of Operations in Item 7 of this report.

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`SELECTED CONSOLIDATED FINANCIAL DATA

                                         (In thousands, except per share data)

                                                                               Year Ended June 30,
                                                   ---------------------
                                                      2004             2003           2002            2001            2000
                                                   ------------     -----------    ------------    ------------    ------------
STATEMENT OF OPERATIONS DATA:

REVENUES

  Grants and contracts                          $        2,150   $         641  $           81  $        1,621  $        4,617

  License fees and royalties                               165             629             200             167             500
                                                   ------------     -----------    ------------    ------------    ------------
    Total revenues                                       2,315           1,270             281           1,788           5,117
                                                   ------------     -----------    ------------    ------------    ------------
OPERATING EXPENSES

  Research and development                              23,333          17,439          12,117          10,109           9,110

  General and administrative                             5,740           4,867           5,004           3,025           4,567

    Total operating expenses                            29,073          22,306          17,121          13,134          13,677

OTHER INCOME (EXPENSE)

  Investment income, net of realized loss                  222             248             312             788             405

  Interest expense                                        (23)            (22)             (3)             (5)            (29)
                                                   ------------     -----------    ------------    ------------    ------------
    Total other income                                     199             226             309             783             376
                                                   ------------     -----------    ------------    ------------    ------------
Loss before income taxes and cumulative
effect of accounting change                           (26,559)        (20,810)        (16,531)        (10,563)         (8,184)

Income tax benefit                                         241             245             392             325              --
                                                   ------------     -----------    ------------    ------------    ------------
Loss before cumulative effect of
 accounting change                                    (26,318)        (20,565)        (16,139)        (10,238)         (8,184)

Cumulative effect of accounting change (1)                  --              --              --           (361)              --
                                                   ------------     -----------    ------------    ------------    ------------
NET LOSS                                              (26,318)        (20,565)        (16,139)        (10,599)         (8,184)

DEEMED DIVIDEND                                             --           (203)           (297)              --              --
                                                   ------------     -----------    ------------    ------------    ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                                                $     (26,318)   $    (20,768)  $     (16,436)  $     (10,599)  $      (8,184)
                                                   ============     ===========    ============    ============    ============
Basic and diluted net loss attributable to
common stockholders before cumulative effect
of accounting change                            $       (0.55)   $      (0.73)  $       (1.16)  $       (1.01)  $       (1.10)

Cumulative effect of accounting change (1)                  --              --              --          (0.04)              --
                                                   ------------     -----------    ------------    ------------    ------------
Basic and diluted net loss attributable to
common stockholders per common share            $       (0.55)   $      (0.73)  $       (1.16)  $       (1.05)  $       (1.10)
                                                   ============     ===========    ============    ============    ============
Weighted average common shares
  outstanding                                           47,688          28,362          14,195          10,131           7,441
                                                   ============     ===========    ============    ============    ============`

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`Pro forma amounts assuming accounting
  change applied retroactively:

Net loss attributable to common stockholders                                                    $     (10,238)  $      (8,545)
                                                                                                   ============    ============
Basic and diluted net loss attributable to
common stockholders per common share                                                            $       (1.01)  $       (1.15)
                                                                                                   ============    ============


BALANCE SHEET DATA (AT PERIOD END):

Cash, cash equivalents and investments          $       20,412   $      18,383  $        9,105  $       11,456  $        5,375

Property and equipment, net                              2,935           3,399           2,416           1,925           1,573

Working capital                                         15,879          14,742           5,783           9,360           4,528

Total assets                                            24,379          22,721          12,358          14,244           8,885

Long term debt, net of current portion                      30              76              --              --              --

Stockholders' equity                                    19,387          18,657           8,687          11,916           6,905
-------------------------------------------------------------------------------------------------------------------------------`

(1)    
          In fiscal 2001, we recorded a non-cash charge for the cumulative effect related
          to the adoption of SEC Staff Accounting Bulletin No. 101. See Note 2 to the
          Consolidated Financial Statements.

Item 7. 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 notes to the consolidated financial statements filed as part of
this annual report on Form 10-K.

Critical Accounting
Policies.

Our
significant accounting policies are described in Note 2 to the consolidated financial
statements included in this annual report on Form 10-K. 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 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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Certain Recent
Significant Events

In
August 2004, we entered into a collaboration agreement with King Pharmaceuticals, Inc., a
specialty pharmaceutical company, to jointly develop and commercialize PT-141, our lead therapeutic
drug candidate for the treatment of both male and female sexual dysfunction.

In July 2004, we announced
the receipt of full approval from the FDA to market NeutroSpec, our proprietary radiolabeled monoclonal antibody product, for
imaging of patients with equivocal signs and symptoms of appendicitis who are five years of age or older. NeutroSpec is marketed
and distributed by our strategic collaboration partner, Mallinckrodt.

In
January 2004, we concluded a private placement of our common stock and warrants, which
yielded gross proceeds of approximately $22.7 million. Investors, consisting of domestic
financial institutions and other accredited investors, purchased 6,992,500 shares of
common stock and 1,048,875 warrants, which equates to 15% warrant coverage on the number
of shares they purchased, at an offering price of $3.25 per share. Each warrant entitles
the purchaser to purchase one share of common stock at an exercise price of $4.06 per
share.

Results of Operations

Year Ended June 30, 2004
Compared to the Year Ended June 30, 2003

Grants
and contracts  For the year ended June 30, 2004, we recognized $2.0 million in
contract revenue related to the shared development costs of NeutroSpec pursuant to our
collaboration agreement with Mallinckrodt, as compared to $504,000 in contract revenue for
the year ended June 30, 2003. The increase in contract revenue was attributable to
additional shared development costs of NeutroSpec pursuant to the amended collaboration
agreement. For the year ended June 30, 2004, we recorded $149,738 in grant revenue
pursuant to the Small Business Technology Transfer programs of the Department of Health
and Human Services compared to $137,417 for the year ended June 30, 2003.

License
Fees and Royalties  During the year ended June 30, 2001, we adopted 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 in
fiscal 2001, which reflected the deferral of an up-front license fee received from
Mallinckrodt, Inc. related to licensing of NeutroSpec recognized in the 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 year ended June 30, 2004, we recorded $165,420 of license
revenue compared to $628,598 of license revenue recorded for the year ended June 30, 2003.
Of the license revenue recorded for the year ended June 30, 2004, $11,569 was included in
the cumulative effect adjustment as of July 1, 2000 and $153,851 was recorded as a result
of the initial $800,000 payment received from Mallinckrodt pursuant to our amended
collaboration agreement in May 2002. Of the license revenue recorded for the year ended
June 30, 2003, $43,987 was included in the cumulative effect adjustment as of July 1, 2000
and $584,611 was recorded as a result of the initial $800,000 payment received from
Mallinckrodt.

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Research
and development  Research and development (R&D) expenses increased to $23.3
million for the year ended June 30, 2004 compared to $17.4 million for the year ended June
30, 2003. The increase in R&D was primarily related to our increased development
efforts and expanding clinical trials of PT-141 and NeutroSpec. Our R&D efforts, and
their respective allocated costs, are currently concentrated on the following:

| |  | PT-141  to date we have incurred approximately $33.8 million in allocated R&D
expenses. For the year ended June 30, 2004, approximately $11.7 million of R&D expense
was related to PT-141 compared to approximately $9.0 million for the year ended June 30,
2003. We anticipate incurring approximately $10.0 million of expenses over the next 12
months as we progress with our clinical trials and product development programs.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | NeutroSpec  to date we have incurred approximately $48.8 million in allocated
R&D expenses. For the year ended June 30, 2004, approximately $8.2 million of R&D
expense was related to NeutroSpec compared to approximately $5.4 million for the year
ended June 30, 2003. We anticipate incurring approximately $1.0 million of additional
development expenses over the next 12 months to evaluate 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | MIDAS  to date we have incurred approximately $13.1 million in allocated R&D
expenses. For the year ended June 30, 2004, approximately $3.4 million of R&D expense
was related to MIDAS compared to approximately $3.0 million for the year ended June 30,
2003. 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 anticipate incurring approximately $1.0 million of expenses over the next
12 months.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General
and administrative  General and administrative (G&A) expenses increased to $5.7
million for the year ended June 30, 2004 compared to $4.9 million for the year ended June
30, 2003. The increase in G&A expenses is primarily attributable to the increases in
marketing and business development expenses, salaries and other stock based compensation
and related personnel expenses.

Investment
income  Interest income increased to $350,999 for the year ended June 30, 2004
compared to $247,552 for the year ended June 30, 2003. The increase in interest income is
attributable to higher amounts of cash, cash equivalents and investments available for
investment purposes. Realized losses on the sale of investments were $129,355 for the year
ended June 30, 2004 compared to no realized gains or losses for the year ended June 30,
2003.

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Income
tax benefit  During 2004 and 2003, the Company sold New Jersey State net operating
loss carryforwards and research and development credits, which resulted in the recognition
of $240,836 and $245,093 of income tax benefits, respectively. Assuming the State of New
Jersey continues to fund this program, which is uncertain, the actual amount of net
operating losses and tax credits we may sell will also depend upon the allocation among
qualifying companies of an annual pool established by the State of New Jersey.

Deemed
dividend  Based on the sales price of the common stock in private placements, the
exercise prices of certain outstanding warrants were adjusted downward in accordance with
their existing terms. As a result, a deemed dividend of $203,138 has been reflected in the
Companys consolidated statement of operations for the year ended June 30, 2003.
There was no deemed divided reflected in the Companys consolidated statement of
operations for the year ended June 30, 2004 since there was no downward adjustment of the
exercise prices of certain outstanding warrants.

Year Ended June 30, 2003
Compared to the Year Ended June 30, 2002

Grants and contracts
 For the year ended June 30, 2003, we recognized $504,000 in contract revenue related to the shared development costs of
NeutroSpec pursuant to our collaboration agreement with Mallinckrodt, as compared to no recognition of contract revenue for the
year ended June 30, 2002. The increase in contract revenue was attributable to additional shared development costs of NeutroSpec
pursuant to the amended collaboration agreement. For the year ended June 30, 2003, we recorded $137,417 in grant revenue pursuant
to the Small Business Technology Transfer programs of the Department of Health and Human Services compared to $80,929 for the year
ended June 30, 2002.

License
Fees and Royalties  During the year ended June 30, 2001, we adopted 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 in
fiscal 2001, which reflected the deferral of an up-front license fee received from
Mallinckrodt related to licensing of NeutroSpec recognized in the 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 year ended June 30, 2003, we recorded $628,598 of license
revenue compared to $200,426 of license revenue recorded for the year ended June 30, 2002.
Of the license revenue recorded for the year ended June 30, 2003, $43,987 was included in
the cumulative effect adjustment as of July 1, 2000 and $584,611 was recorded as a result
of the initial $800,000 payment received from Mallinckrodt pursuant to our amended
collaboration agreement in May 2002. Of the license revenue recorded for the year ended
June 30, 2002, $138,888 was included in the cumulative effect adjustment as of July 1,
2000 and $61,538 was recorded as a result of the initial $800,000 payment received from
Mallinckrodt.

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Research
and development  Research and development (R&D) expenses increased to $17.4
million for the year ended June 30, 2003 compared to $12.1 million for the year ended June
30, 2002. The increase in R&D was primarily related to our increased development
efforts and expanding clinical trials of PT-141 and NeutroSpec.

General
and administrative  General and administrative (G&A) expenses decreased to $4.9
million for the year ended June 30, 2003 compared to $5.0 million for the year ended June
30, 2002. The decrease in G&A expenses is primarily attributable to the reduction in
legal expenses since the settlement with Molecular Biosystems in August 2002, which was
accrued as of June 30, 2002.

Interest
income  Interest income decreased to $247,552 for the year ended June 30, 2003
compared to $312,015 for the year ended June 30, 2002. The decrease in interest income is
attributable to lower average amounts of cash, cash equivalents and investments available
for investment purposes throughout the year and the decrease in interest rates these
investments earn.

Income
tax benefit  During 2003 and 2002, the Company sold New Jersey State net operating
loss carryforwards and research and development credits, which resulted in the recognition
of $245,093 and $392,410 of income tax benefits, respectively. Assuming the State of New
Jersey continues to fund this program, which is uncertain, the actual amount of net
operating losses and tax credits we may sell will also depend upon the allocation among
qualifying companies of an annual pool established by the State of New Jersey.

Deemed
dividend  Based on the sales price of the common stock in private placements, the
exercise prices of certain outstanding warrants were adjusted downward in accordance with
their existing terms. As a result, a deemed dividend of $203,138 and $297,603 has been
reflected in the Companys consolidated statement of operations for the years ended
June 30, 2003 and 2002, respectively. The decrease in deemed dividend between years is
primarily the result of the difference in the sales price of the common stock in the
private placements and the changes to the total securities outstanding during 2003
compared to 2002.

Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses. As of June 30, 2004, we had a deficit
accumulated during the development stage of $117.1 million. We have financed our net
operating losses through June 30, 2004 by a series of debt and equity financings. As of
June 30, 2004, we had cash and cash equivalents of $17.9 million and investments of $2.5
million. On January 28, 2004, we completed a private placement of our common stock and
warrants, which yielded gross proceeds of approximately $22.7 million. Pursuant to the
private placement, investors purchased approximately 7 million shares of common stock at
$3.25 per share and received five year warrants to purchase approximately 1 million shares
of common stock at an exercise price of $4.06 per share. The net proceeds of approximately
$21.0 million are being used for the continued development of PT-141, NeutroSpec, drug
discovery efforts and general corporate purposes. On August 17, 2004, we received $20.0
million upon the closing of the collaborative agreement with King Pharmaceuticals, Inc.

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

| |   |                                                               
| | - | --------------------------------------------------------------
| |  | 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, sales and competition.                             

During
the year ended June 30, 2004, our operating activities used net cash of $23.7 million and
during the year ended June 30, 2003 our operating activities used net cash of $19.9
million. The increase resulted primarily from increased R&D spending on both PT-141
and NeutroSpec.

During
the year ended June 30, 2004, cash provided by investing activities was $1.2 million,
consisting of $198,000 used for the purchase of capital expenditures and $1.4 million
provided by the sale of investment securities. During the year ended June 30, 2003, we
used cash in investing activities of $4.1 million, consisting of $1.1 million of capital
expenditures and $3.0 million for investment securities.

During
the year ended June 30, 2004, net cash provided by financing activities was $26.2 million,
consisting of $26.4 million in proceeds from the issuance of common stock
and warrants in private placements and the exercise of options and warrants, partially
offset by $200,753 for payments on capital lease obligations. During the year ended June
30, 2003, net cash provided by financing activities was $30.3 million, consisting of $30.5
million in proceeds from the issuance of common stock and warrants in private placements,
partially offset by $153,473 of payments on capital lease obligations.

In
January 2004, we concluded a private placement of our common stock and warrants, which
yielded gross proceeds of $22.7 million. Investors, consisting of domestic financial
institutions and other accredited investors, purchased 7.0 million shares of common stock
and 1.0 million warrants, which equates to 15% warrant coverage on the number of shares
they purchased, at an offering price of $3.25 per share. Each warrant entitles the
purchaser to purchase one share of common stock at an exercise price of $4.06 per share.
The net proceeds were $21.0, which continue to be used primarily for general corporate
purposes, especially for the development and clinical trials of new products based on our
proprietary technologies.

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In
November 2002 and March 2003, we received aggregate gross proceeds of $30.6 million in
private placements of common stock and warrants. Investors, consisting of domestic and
European financial institutions and other accredited investors, purchased 22.8 million
shares of common stock: 9,373,940 shares at $1.23 per share and 13,433,096 at $1.42 per
share. For every five shares purchased in the November 2002 offering and for every four
shares purchased in the March 2003 offering, the investors also received a five-year
warrant to purchase one share of common stock at an exercise price of $1.54 for the
November 2002 offering and $1.77 for the March 2003 offering. The net proceeds of $28.8
million were used primarily for general corporate purposes, especially for the development
and clinical trials of new products based on our proprietary technologies.

In
July 2002, we received additional gross proceeds of $1.8 million pursuant to the second
tranche of the Spring 2002 private placement of common stock and warrants. Investors,
consisting of domestic and European financial institutions and other accredited investors,
purchased approximately 1.5 million shares of common stock shares at $1.17 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 $1.46 per share. The net proceeds of
$1.7 million were used primarily for general corporate purposes, especially for the
development and clinical trials of new products based on our proprietary technologies.

On
May 13, 2002, we entered into an agreement with Mallinckrodt 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 $13.0 million to purchase 700,000 restricted unregistered
shares of our preferred stock. We shared NeutroSpec development expenses prior to FDA
approval equally with Mallinckrodt. Mallinckrodt agreed to pay us milestone payments of an
additional $10.0 million on FDA approval of the first NeutroSpec indication and on
attainment of certain sales goals following product launch. We agreed to arrange for the
manufacture of NeutroSpec and we would receive a transfer price on each product unit and a
royalty on NeutroSpec net sales.

Under
the terms of the amended agreement, Mallinckrodt 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 $10.0 million in milestone payments has been revised to
coincide with NeutroSpecs FDA approval and achievement of future sales goals. All of
the $3.2 million and $2.0 million, upon FDA approval, of the milestone payments has been
paid to date.

On
July 17, 2002, we moved into our new leased facility of approximately 28,000 square feet
in Cranbury, New Jersey that combines both the research and development facility formerly
located in Edison, New Jersey and the corporate offices formerly located in Princeton, New
Jersey. Minimum annual lease payments escalate currently from approximately $925,000 per
year to $1.6 million per year in 2007. The lease will expire in July 2012.

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We
have three license agreements that require minimum yearly payments. Future minimum
payments under the license agreements are: 2005  $500,000, 2006  $200,000,
2007  $200,000, 2008  $200,000 and 2009  $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, including the
funds received from King in August 2004, will be adequate to fund the Companys
projected operations through the fiscal year ending June 30, 2005, 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 clinical trials and research
activities until such time as appropriate financing was available.

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,
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.

Commitments

As
outlined in Note 5 of the Notes to our Consolidated Financial Statements, we have entered
into various contractual obligations and commercial commitments. The following table
summarizes our most significant contractual obligations as of June 30, 2004:

`PAYMENTS DUE BY PERIOD

                                                LESS THAN 1                                      AFTER 5
                                        TOTAL        YEAR      1 - 3 YEARS     4 - 5 YEARS        YEARS

Facility operating leases         $10,719,000    $1,515,000     $2,651,000      $2,585,000     $3,968,000

Capital lease obligations              64,000        34,000         24,000           6,000              -

License agreements                  1,300,000       500,000        400,000         400,000              -
                                  ------------------------------------------------------------------------
Total contractual obligations     $12,083,000    $2,049,000     $3,075,000      $2,991,000     $3,968,000
                                  ========================================================================`

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Factors Affecting our
Business Condition

In
addition to the other information included in this annual report on Form 10-K, the
following factors should be considered in evaluating our business and future prospects:

We expect to continue to incur
substantial losses over the next few years and we may never become profitable.

We
have never been profitable and we may never become profitable. As of June 30, 2004, we had
a deficit accumulated during development stage of $117.1 million and a loss for the year
then ended of $26.3 million. We anticipate substantial losses over the next few years
associated with the manufacturing and marketing of NeutroSpec for diagnosis of
appendicitis, and continued research and development of PT-141, MIDAS and NeutroSpec for
other indications. We cannot be certain whether additional funds will be available when
needed, or on acceptable terms. If we are unable to obtain additional financing as needed,
we may reduce the scope of our operations, which would have a material adverse effect on
our business.

We currently have no revenues from
product sales and will need to raise additional capital to operate our business.

To
date, we have generated no revenues from the sale of any approved products. Unless and
until we receive approval from the U.S. Federal Drug Administration and other regulatory
authorities for our other product candidates, we cannot sell our other products and will
not have product revenues from them. Therefore, for the foreseeable future, we will have
to fund all of our operations and capital expenditures from net proceeds from the sale of
NeutroSpec products and from cash, cash equivalents and investments on hand. We will need
to seek additional sources of financing, which may not be available on favorable terms, if
at all. If we do not succeed in raising additional funds on acceptable terms, we may be
unable to complete planned pre-clinical and clinical trials or obtain approval of our
product candidates from the FDA and other regulatory authorities. In addition, we could be
forced to discontinue product development, reduce or forego sales and marketing efforts
and forego attractive business opportunities, which would have a material adverse effect
on our business.

We have a limited operating history
upon which to base an investment decision.

We
are an emerging company and have not yet demonstrated our ability to perform the functions
necessary for the continued success of the commercialization of NeutroSpec or the
successful commercialization of any of our other product candidates. The successful
commercialization of our other product candidates will require us to perform a variety of
functions, including:

| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | continuing to undertake pre-clinical development and clinical trials;
| |  | participating in regulatory approval processes;                      

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| |   |                                               
| | - | ----------------------------------------------
| |  | formulating and manufacturing products;       
| |  | conducting sales and marketing activities; and
| |  | obtain additional capital.                    

Our operations have been limited to
organizing and staffing our Company, acquiring, developing and securing our proprietary
technology and undertaking pre-clinical trials and clinical trials of our principal
product candidates. These operations provide a limited basis for you to assess our ability
to commercialize our product candidates and the advisability of investing in our common
stock.

Development and commercialization of
our proposed product and technologies involves a lengthy, complex and costly process and
we may never develop or commercialize any other products other than NeutroSpec.

Our
other product candidates are at various stages of research and development, will require
regulatory approval, and may never be successfully developed or commercialized. We are
still conducting clinical trials on the use of NeutroSpec for other indications. PT-141
and MIDAS products will require significant further research, development and testing. You
should evaluate us in light of the uncertainties, delays, difficulties and expenses
commonly experienced by early stage biopharmaceutical companies, which may include
unanticipated problems and additional costs relating to:

| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | the research, 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.                                                   

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The regulatory approval process is
lengthy, expensive and uncertain, and may prevent us from obtaining the approval we
require.

Government authorities in
the United States and other countries extensively regulate the advertising, labeling, storage, record-keeping, safety, efficacy,
research, development, testing, manufacture, promotion, marketing and distribution of drug products. Drugs are subject to rigorous
regulation by the FDA in the United States and similar regulatory bodies in other countries. The steps ordinarily required by the
FDA before a new drug may be marketed in the United States:

| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completion of pre-clinical laboratory tests, pre-clinical trial and
     formulation studies;                                                        
| |  | submission to the FDA of an investigational new drug application, or
     IND, which must become effective before clinical trials may begin;         
| |  | performance of adequate and well-controlled human clinical trials to
     establish the safety and efficacy of the drug for each proposed indication;
| |  | the submission of a new drug application, or NDA, to the FDA; and                                                                                    
| |  | FDA review and approval of the NDA before any commercial marketing or
     sale.                                                                     

The results of product
development, pre-clinical studies and clinical studies are submitted to the FDA as part of a NDA. The NDA also must contain
extensive manufacturing information. Once the submission has been accepted for filing, the FDA generally has 180 days to review
the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to
whether the application should be approved, but the FDA is not bound by the recommendation of an advisory committee. The FDA may
deny or delay approval of applications that do not meet applicable regulatory criteria or if the FDA determines that the clinical
data do not adequately establish the safety and efficacy of the drug. Upon approval, a drug candidate may be marketed only in
those dosage forms and for those indications approved in the NDA. Once approved, the FDA may withdraw the product approval if
compliance with pre- and post-market regulatory standards is not maintained or if problems occur after the product reaches the
marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase 4 studies, to monitor the effect of
approved products, and may limit further marketing of the product based on the results of these post-market studies. The FDA has
broad post-market regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay
issuance of approvals, seize or recall products, and withdraw approvals.

Satisfaction of FDA
pre-market approval requirements for new drugs typically takes several years and the actual time required may vary substantially
based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of
potential products for a considerable period of time and impose costly procedures upon our activities. Success in early stage
clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always
conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a
product receives regulatory approval, later discovery of previously unknown problems with a product may result in restrictions on
the product or even complete withdrawal of the product from the market.

The FDA has required
specific post-marketing studies for NeutroSpec, including additional clinical studies with pediatric patients and patients with
specified conditions, and additional testing and development of assays. These post-marketing studies must be completed by various
deadlines over the next two years.

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If regulatory approval of
any of our products is granted, it will be limited to certain disease states or conditions. The manufacturers of approved products
and their manufacturing facilities will be subject to continual review and periodic inspections by the FDA and other authorities
where applicable, and must comply with ongoing regulatory requirements, including the FDA=s current Good Manufacturing Practices
("cGMP") regulations. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal
or regulatory action, such as Warning Letters, suspension of manufacturing, seizure of product, voluntary recall of a product,
injunctive action or possible civil penalties. Adverse experiences with the product must be reported to the FDA and could result
in the imposition of market restriction through labeling changes or in product removal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur
following approval. Because we intend to contract with third parties for manufacturing of these products, our ability to control
third party compliance with FDA requirements will be limited to contractual remedies and rights of inspection. Failure of
third-party manufacturers to comply with cGMP or other FDA requirements may result in legal or regulatory action by the FDA.

Outside the United States
our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory
authorities. The foreign regulatory approval process includes all of the risks associated with FDA approval described above. The
requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. At present,
foreign marketing authorizations are applied for at a national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product to more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficiency has been presented, a marketing authorization will be granted.

We could lose our rights to
NeutroSpec and PT-141, which would adversely affect our potential revenues.

Our
rights to a key antibody used in NeutroSpec are dependent upon an exclusive license
agreement with The Wistar Institute of Biology and Anatomy. Our rights to technology
related to PT-141 are dependent upon an exclusive field-of-use license agreement with
Competitive Technologies, Inc. These agreements contain specific performance criteria and
require us to pay royalties and make milestone payments. Failure to meet these
requirements, or any other event of default under the license agreements, could lead to
termination of the license agreements. If a license agreement is terminated we may be
unable to make or market the covered product, in which case we may lose the value of our
substantial investment in developing the product, as well as any future revenues from
selling the product.

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We rely on third parties to conduct
clinical trials for our product candidates and their failure to timely perform their
obligations could significantly harm our product development.

We
rely on outside scientific collaborators such as researchers at clinical research
organizations and universities in certain areas that are particularly relevant to our
research and product development plans, such as the conduct of clinical trials. The
competition for these relationships is intense, and we may not be able to maintain our
relationships with them on acceptable terms. These outside collaborators generally may
terminate their engagements with us at any time. As a result, we can control their
activities only within certain limits, and they will devote only a certain amount of their
time to conduct research on our product candidates and develop them. If they do not
successfully carry out their duties under their agreements with us, fail to inform us if
these trials fail to comply with clinical trial protocols or fail to meet expected
deadlines, this may adversely affect our ability to develop our product candidates and
obtain regulatory approval.

The results of our clinical trials
may not support our product claims.

Even
if our clinical trials are completed as planned, we cannot be certain that their results
will support our product claims. Success in pre-clinical testing and early clinical trials
does not ensure that later clinical trials will be successful, and we cannot be sure that
the results of later clinical trials will replicate the results of prior clinical trials
and pre-clinical testing. The clinical trial process may fail to demonstrate that our
product candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and could delay development of other product
candidates. Any delay in, or termination of, our clinical trials will delay or eliminate
our ability to commercialize our product candidates and generate product revenues.

Production and supply of NeutroSpec
and PT-141 depend on contract manufacturers over whom we have no control.

We
do not have the facilities to manufacture NeutroSpec or PT-141. We depend on DSM N.V. of
the Netherlands for the manufacture of the antibody used in NeutroSpec, on Ben Venue
Laboratories of Cleveland, Ohio for the manufacture of NeutroSpec kits, and on UCB
Bioproducts, SA in Belgium for the manufacture of PT-141. Our contract manufacturers must
perform these manufacturing activities in a manner that complies with FDA regulations.
Failure to conduct their activities in compliance with FDA regulations could negatively
impact our ability to receive continued FDA approval of NeutroSpec or receive FDA approval
of our other potential products. The failure of these manufacturers to supply these key
components of NeutroSpec, or their inability to comply with FDA manufacturing regulations,
could force us to seek other manufacturers and could interfere with our ability to deliver
product. Establishing relationships with new suppliers, any of whom must be FDA-approved,
is a time-consuming and costly process.

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We have limited or no experience in
marketing, distributing and selling diagnostic imaging products and will rely on our
marketing partner to provide these capabilities.

We
depend on our arrangement with Mallinckrodt to market, sell and distribute NeutroSpec.
Tyco Healthcare is our worldwide (excluding Europe) marketing, distribution and sale
partner for NeutroSpec. If Tyco Healthcare fails to market NeutroSpec or devote enough
resources to NeutroSpec, our potential revenues from the sale of NeutroSpec will be
adversely affected. If the arrangement with Tyco Healthcare fails, we may have difficulty
establishing new marketing relationships, and in any event, we will have limited control
over these activities. In addition, if the FDA approves PT-141 for marketing and sale, we
will depend on our arrangements with potential partners for the potential marketing,
distribution and sale of PT-141. If these potential partners fail to market PT-141 or
devote enough resources to PT-141, our potential revenues from the sale of PT-141 will be
adversely affected. If the arrangements with these potential partners fail, we may have
difficulty establishing new marketing relationships, and in any event, we will have
limited control over these activities.

If NeutroSpec does not achieve market
acceptance, our business will suffer.

Approval
of NeutroSpec for marketing and sale does not assure the products commercial
success. NeutroSpec will compete with other diagnostic imaging modalities and drugs
manufactured and marketed by major pharmaceutical and other biotechnology companies.
Imaging agents such as NeutroSpec generally take longer to achieve market acceptance
following marketing approval than other drugs. The degree of market acceptance of
NeutroSpec will depend on a number of factors, including:

| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | perceptions by members of the health care community, including
     physicians, about the safety and effectiveness of NeutroSpec;
| |  | cost-effectiveness of NeutroSpec relative to competing products and
     technologies;                                           
| |  | availability of reimbursement for our products from government or other
     healthcare payors;                                  
| |  | the establishment and demonstration of the clinical efficacy and
     safety; and                                                
| |  | potential advantage over alternative treatment methods.                                                                          

If NeutroSpec does not achieve
adequate market acceptance, our business, financial condition and results of operations
will be adversely affected.

Competing products and technologies
may make NeutroSpec and our other potential products noncompetitive.

We
are aware of one company marketing an antibody-based product which may compete with
NeutroSpec as to certain indications. The competing product is marketed in some European
countries. We are also aware of at least one other company developing a peptide-based
product which may also compete with NeutroSpec as to certain indications. In addition,
other technologies may also be used to diagnose appendicitis, including computerized
tomography or CT scan, and ultrasound technologies.

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We
are aware that there are three oral FDA-approved drugs for the treatment of erectile
dysfunction. These products are also approved in Europe, Japan and most of the
worlds pharmaceutical markets. In addition, we are aware of at least two other
products treating erectile dysfunction that have been submitted for approval in the United
States, Europe and most of the worlds pharmaceutical markets. In order to achieve
approval and market acceptance, PT-141 may potentially be required to demonstrate efficacy
and safety equivalent or superior to these other products.

The
biopharmaceutical and diagnostic industries are highly competitive. We are likely to
encounter significant competition with respect to NeutroSpec, PT-141 and our other
potential products. Many of our competitors have substantially greater financial and
technological resources than we do. Many of them also have significantly greater
experience in research and development, marketing, distribution and sales than we do.
Accordingly, our competitors may succeed in developing, marketing, distributing and
selling products and underlying technologies more rapidly than we may. These competitive
products or technologies may be more effective and useful and less costly than NeutroSpec,
PT-141 or our other potential products. In addition, academic institutions, hospitals,
governmental agencies and other public and private research organizations are also
conducting research and may develop competing products or technologies on their own or
through strategic alliances or collaborative arrangements.

Our ability to achieve significant
revenues from the sale of our future products will depend, in part, on the ability of
healthcare providers to obtain adequate reimbursement from Medicare, Medicaid, private
insurers and other health care payers.

The
continuing efforts of government and insurance companies, health maintenance organizations
and other payers of health care costs to contain or reduce costs of health care may
adversely affect our future revenues and ability to achieve profitability. Our ability to
successfully commercialize our future products will depend, in significant part, on the
extent to which health care providers can obtain appropriate reimbursement levels for the
cost of our products and related treatment. Third-party payers are increasingly
challenging the prices charged for diagnostic and therapeutic products and related
services. Also, the trend towards managed health care in the U.S. and the concurrent
growth of organizations such as HMOs, could control or significantly influence the
purchase of health care services and products. In addition, legislative proposals to
reform health care or reduce government insurance programs may result in lower prices or
the actual inability of prospective customers to purchase our future products. The cost
containment measures that health care payers and providers are instituting and the effect
of any health care reform could materially and adversely affect our ability to operate
profitably. Furthermore, even if reimbursement is available, it may not be available at
price levels sufficient for us to realize a positive return on our investment

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If we fail to adequately protect or
enforce our intellectual property rights or secure rights to patents of others, the value
of our intellectual property rights would diminish.

Our
success, competitive position and future revenues will depend in part on our ability and
the abilities of our licensors to obtain and maintain patent protection for our products,
methods, processes and other technologies, to preserve our trade secrets, to prevent third
parties from infringing on our proprietary rights and to operate without infringing the
proprietary rights of third parties. We cannot predict:

| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the degree and range of protection any patents will afford us against
     competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;
| |  | if and when patents will be issued;                                                                                                                                                      
| |  | whether or not others will obtain patents claiming aspects similar to
     those covered by our patents and patent applications;                                                         
| |  | whether we will need to initiate litigation or administrative
     proceedings which may be costly whether we win or lose.                                                               

If our products, methods, processes
and other technologies infringe the proprietary rights of other parties, we could incur
substantial costs and we may have to:

| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain licenses, which may not be available on commercially reasonable
     terms, if at all;                                                                                  
| |  | redesign our products or processes to avoid infringement;                                                                                                                      
| |  | stop using the subject matter claimed in the patents held by
     others;                                                                                                      
| |  | pay damages; or                                                                                                                                                                
| |  | defend litigation or administrative proceedings which may be costly
     whether we win or lose, and which could result in a substantial diversion of our management resources.

If we are unable to keep our trade
secrets confidential, our technologies and other proprietary information may be used by
others to compete against us.

In
addition to our reliance on patents, we attempt to protect our proprietary technologies
and processes by relying on trade secret laws, nondisclosure and confidentiality
agreements, and licensing arrangements with our employees and other persons who have
access to our proprietary information. These agreements and arrangements may not provide
meaningful protection for our proprietary technologies and processes in the event of
unauthorized use or disclosure of such information. In addition, our competitors may
independently develop substantially equivalent technologies and processes or otherwise
gain access to our trade secrets or technology, either of which could materially and
adversely affect our competitive position.

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Our collaboration agreements may fail
or be terminated unexpectedly, which could result in significant delays and substantial
increases in the cost of our research, development and the commercialization of our
potential products.

We
are party to various arrangements with academic, governmental and corporate partners. The
successful development and commercialization of the potential products covered by these
arrangements will depend upon the ability of these third parties to fully perform their
contractual responsibilities. If any of these parties breaches or unexpectedly terminates
their agreement with us, or otherwise fails to conduct their activities in a timely
manner, the development or commercialization of our potential products may be delayed. For
example, we have an agreement with Mallinckrodt under which they have agreed to sell
NeutroSpec. If Mallinckrodt were to become unwilling or unable to provide these services,
we would have to quickly make alternative arrangements with third parties, which could
significantly delay and increase the expenses associated with the commercialization of
NeutroSpec.

We
intend to continue to enter into additional collaborations to develop and commercialize
our potential products in the future. We may not be able to negotiate these arrangements
on favorable terms, if at all, and these relationships may not be successful. In addition,
our collaborative partners may pursue alternative technologies or develop alternative
compounds designed to treat the same diseases that are the target of their collaborative
programs with us.

We are subject to extensive
regulation in connection with the laboratory practices and the hazardous materials we use.

We
are subject to various laws and regulations regarding laboratory practices, the
experimental use of animals and the use and disposal of hazardous or potentially hazardous
substances in connection with our research. In each of these areas, as noted above, the
FDA and other regulatory authorities have broad regulatory and enforcement powers,
including the ability to levy fines and civil penalties, suspend or delay issuance of
approvals, seize or recall products and withdraw approvals, any one or more of which could
have a material adverse effect upon us. We are also subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such laws and
regulations now or in the future.

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Contamination or injury from
hazardous materials used in the development of NeutroSpec, PT-141 and MIDAS could result
in a liability exceeding our financial resources.

Our
research and development of NeutroSpec, PT-141 and MIDAS involves the use of hazardous
materials and chemicals, including radioactive compounds. We cannot completely eliminate
the risk of contamination or injury from these materials. In the event of contamination or
injury, we may be responsible for any resulting damages. Damages could be significant and
could exceed our financial resources, including the limits of our insurance.

We may incur substantial liabilities
and may be required to limit commercialization of our products in response to product
liability lawsuits.

The
testing and marketing of medical products entails an inherent risk of product liability.
If we cannot successfully defend ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization of our products, or
cease clinical trials. Our inability to obtain sufficient product liability insurance at
an acceptable cost to protect against potential product liability claims could prevent or
inhibit the commercialization of pharmaceutical products we develop, alone or with
corporate collaborators. We currently carry product/medical professional liability
insurance, which includes liability insurance for our clinical trials. We, or any
corporate collaborators, may not be able to obtain insurance at a reasonable cost or in
sufficient amounts, if at all. Even if our agreements with any future corporate
collaborators entitle us to indemnification against losses, such indemnification may not
be available or adequate should any claim arise.

Trading in our stock over the last 12
months has been limited, so investors may not be able to sell as much stock as they want
at prevailing prices.

The
average daily trading volume in our common stock for the 12 month period ended September
8, 2004 was approximately 440,000 shares. If limited trading in our stock continues, it
may be difficult for investors to sell their shares in the public market at any given time
at prevailing prices.

Our management and principal
stockholders together control approximately 30% of our voting securities, a concentration
of ownership which could delay or prevent a change in control.

As
of June 30, 2004, our executive officers and directors beneficially own approximately 5%
of our voting securities and our 5% or greater stockholders beneficially own approximately
25% of our voting securities. These stockholders, acting together, will be able to
influence and possibly control most matters submitted for approval by our stockholders,
including the election of directors, delaying or preventing a change of control, and the
consideration of transactions in which stockholders might otherwise receive a premium for
their shares over then current market prices.

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We will face increased costs as a
result of changes to the regulations governing public companies, including the
Sarbanes-Oxley Act of 2002.

Enacted
and proposed changes in the laws and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the Securities and
Exchange Commission and by the American Stock Exchange, could result in increased costs to
us to evaluate the implications of any new rules and respond to their requirements. The
new rules could make it more difficult or more costly for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of directors, our
board committees or as executive officers. We are presently evaluating and monitoring
developments with respect to new and proposed rules and cannot predict or estimate the
amount of the additional costs we may incur or the timing of such costs.

Item 7A. 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 June 30, 2004, our cash and cash equivalents were $17.9 million and investments, which
consisted of corporate debt securities and mutual funds, were $2.5 million. Due to the
average maturity and conservative nature of our investment portfolio, we do not believe
that short term fluctuations in interest rates would materially affect the value of our
securities.

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Item 8. Financial Statements and
Supplementary Data

Table of ContentsConsolidated Financial
Statements

The following consolidated financial statements of the Company are filed as
part of this Report:

| |                                                                | Page
| | -------------------------------------------------------------- | ----
| |                                                                |     
| | Report of Independent Registered Public
     Accounting Firm   | 41  
| |                                                                |     
| | Report of Independent Public
     Accountants                  | 42  
| |                                                                |     
| | Consolidated Balance Sheets                                    | 43  
| |                                                                |     
| | Consolidated Statements of
     Operations                     | 44  
| |                                                                |     
| | Consolidated Statements of Stockholders'
     Equity (Deficit) | 45  
| |                                                                |     
| | Consolidated Statements of Cash Flows                          | 50  
| |                                                                |     
| | Notes to Consolidated Financial
     Statements                | 52  

40

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

The Board of Directors
and StockholdersPalatin Technologies, Inc.:

We have audited the
accompanying consolidated balance sheets of Palatin Technologies, Inc. and subsidiary (a development stage enterprise) as of June
30, 2004 and 2003, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for
each of the years in the three-year period ended June 30, 2004 and for the period from January 28, 1986 (inception) to June 30,
2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. The cumulative statements of operations,
stockholders equity (deficit), and cash flows for the period January 28, 1986 (inception) to June 30, 2004 include amounts
for the period from January 28, 1986 (inception) to June 30, 2001 and for each of the years in the three-year period ending June
30, 2001, which were audited by other auditors who have ceased operations and whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for the period January 28, 1986 (inception) through June 30, 2001 is based
solely on the report of other auditors.

We
conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In
our opinion, based on our audits and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Palatin Technologies, Inc. and subsidiary (a development stage
enterprise) as of June 30, 2004 and 2003, and the results of their operations and their
cash flows for each of the years in the three-year period ended June 30, 2004 and for the
period January 28, 1986 (inception) to June 30, 2004, in conformity with U.S. generally
accepted accounting principles.

/s/ KPMG LLP

Philadelphia, PennsylvaniaAugust 13, 2004

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The following report is a copy of a
previously issued Arthur Andersen LLP (Andersen) report and the report has not
been reissued by Andersen. The Andersen report refers to financial statements as of June
30, 2001 and 2000 and for the years ended June 30, 2001, 2000 and 1999, which are no
longer included in the accompanying financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Palatin Technologies,
Inc.:

We
have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. (a
Delaware corporation in the development stage) and subsidiaries as of June 30, 2001 and
2000, and the related consolidated statements of operations, stockholders equity
(deficit) and cash flows for each of the three years in the period ended June 30, 2001 and
the period from January 28, 1986 (inception) through June 30, 2001. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosure in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Palatin Technologies, Inc. and
subsidiaries as of June 30, 2001 and 2000 and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 2001 and the period
from January 28, 1986 (inception) through June 30, 2001, in conformity with accounting
principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Philadelphia, PennsylvaniaSeptember 10, 2001

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

`June 30, 2004         June 30, 2003
                                                                    ----------------      ---------------
                              ASSETS
Current assets:

  Cash and cash equivalents                                          $   17,947,076        $  14,294,603

  Available for sale investments                                          2,465,350            4,088,384

  Prepaid expenses and other                                                428,917              347,510
                                                                    ----------------      ---------------
      Total current assets                                               20,841,343           18,730,497

Property and equipment, net                                               2,934,739            3,399,181

Restricted cash                                                             428,075              428,075

Other                                                                       174,930              163,381
                                                                    ----------------      ---------------
      Total assets                                                   $   24,379,087        $  22,721,134
                                                                    ================      ===============

               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Current portion of capital lease obligations                       $       33,491        $     188,015

  Accounts payable                                                        2,019,970            1,344,789

  Accrued expenses                                                        2,067,183            1,619,382

  Accrued compensation                                                      599,600              428,500

  Deferred revenue                                                          242,000              407,420
                                                                    ----------------      ---------------
      Total current liabilities                                           4,962,244            3,988,106
                                                                    ----------------      ---------------

Capital lease obligations                                                    30,203               76,432
                                                                    ----------------      ---------------
Commitments and contingencies (Note 5)

Stockholders' equity:

  Preferred stock of $.01 par value - authorized 10,000,000 shares;

    Series A Convertible; issued and outstanding 11,697 and 14,867
      shares as of June 30, 2004 and 2003, respectively;                        117                  149

  Common stock of $.01 par value - authorized 75,000,000 shares;

    Issued and outstanding 52,790,589 and 42,994,050 shares as of
      June 30, 2004 and 2003, respectively;                                  527,906              429,941

  Additional paid-in capital                                            136,148,482          109,085,115

  Deferred compensation                                                     (78,407)             (37,977)

  Accumulated other comprehensive income (loss)                             (84,772)             (11,805)

  Deficit accumulated during development stage                         (117,126,686)         (90,808,827)
                                                                    ----------------      ---------------
      Total stockholders' equity                                         19,386,640           18,656,596
                                                                    ----------------      ---------------
      Total liabilities and stockholders' equity                     $   24,379,087        $  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

`Inception
                                                  (January 28,
                                                      1986)                       Year Ended June 30,
                                                    through
                                                 June 30, 2004           2004              2003              2002
                                                 --------------     -------------     -------------     -------------
REVENUES:
     Grants and contracts                        $  12,415,249      $  2,149,738      $    641,417      $     80,929
     License fees and royalties                      2,895,407           165,420           628,598           200,426
     Other                                             318,917                 -                 -                 -
                                                 --------------     -------------     -------------     -------------
          Total revenues                            15,629,573         2,315,158         1,270,015           281,355
                                                 --------------     -------------     -------------     -------------

OPERATING EXPENSES:
     Research and development                       95,745,833        23,333,329        17,439,191        12,117,026
     General and administrative                     37,987,420         5,739,519         4,866,642         5,004,143
     Net intangibles write down                        259,334                 -                 -                 -
                                                 --------------     -------------     -------------     -------------
          Total operating expenses                 133,992,587        29,072,848        22,305,833        17,121,169
                                                 --------------     -------------     -------------     -------------
OTHER INCOME (EXPENSE):
     Investment income, net of realized losses       2,922,776           221,644           247,552           312,015
     Interest expense                               (2,003,828)          (22,649)          (22,038)           (3,188)
     Merger costs                                    (525,000)                 -                 -                 -
                                                 --------------     -------------     -------------     -------------
          Total other income, net                      393,948           198,995           225,514           308,827
                                                 --------------     -------------     -------------     -------------
Loss before income taxes and cumulative
   effect of accounting change                    (117,969,066)      (26,558,695)      (20,810,304)      (16,530,987)
Income tax benefit                                   1,203,491           240,836           245,093           392,410
                                                 --------------     -------------     -------------     -------------
Loss before cumulative effect of
   accounting change                              (116,765,575)      (26,317,859)      (20,565,211)      (16,138,577)
Cumulative effect of accounting change (Note 2)       (361,111)                -                 -                 -
                                                 --------------     -------------     -------------     -------------

NET LOSS                                          (117,126,686)      (26,317,859)      (20,565,211)      (16,138,577)

DEEMED DIVIDEND                                     (3,511,765)                -         (203,138)         (297,603)
                                                 --------------     -------------     -------------     -------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                                                 $(120,638,451)     $(26,317,859)     $(20,768,349)     $(16,436,180)
                                                 ==============     =============     =============     =============

Basic and diluted net loss attributable to common stockholders
per common share                                                    $      (0.55)     $      (0.73)     $      (1.16)
                                                                    =============     =============     =============
Weighted average number of common shares outstanding used in
computing basic and diluted net loss attributable to common
stockholders per common share                                         47,687,679        28,362,121        14,195,466
                                                                    =============     =============     =============`

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 Stockholders' Equity (Deficit)

`Preferred Stock
                                                      ------------------------------------------------------
                                                                                    Subscrip-
                                                         Shares         Amount       tions        Receivable
                                                       -----------     --------     --------      ----------
Balance at inception                                            -      $     -      $     -       $     -
   Preferred stock subscriptions                                -            -        4,000        (4,000)
   Net loss from inception                                      -            -            -             -
                                                       -----------     --------     --------      --------

Balance, August 31, 1995                                        -            -        4,000        (4,000)
   Preferred stock subscriptions                                -            -       (4,000)        4,000
   Issuance of preferred shares                         4,000,000        4,000            -             -
   Issuance of common shares in
      $10,395,400 private placement                             -            -            -             -
   Shares earned but not issued                                 -            -            -             -
   Net loss                                                     -            -            -             -
                                                       -----------     --------     --------      --------

Balance, June 25, 1996                                  4,000,000        4,000            -             -
   Conversion to Palatin Technologies, Inc.            (4,000,000)      (4,000)           -             -
Adjusted balance, June 25, 1996                                 -            -            -             -
   Shares outstanding of Palatin Technologies, Inc.             -            -            -             -
   Purchase of treasury stock                                   -            -            -             -
   Net loss                                                     -            -            -             -
                                                       -----------     --------     --------      --------

Balance, June 30, 1996                                          -            -            -             -
   Issuance of preferred shares, net of expenses          137,780        1,378            -             -
   Net loss                                                     -            -            -             -
Balance, June 30, 1997                                    137,780        1,378            -             -
   Issuance of preferred shares, net of expenses           18,875          189            -             -
   Conversion of preferred shares into common shares      (49,451)        (495)           -             -
   Net loss                                                     -            -            -             -
                                                       -----------     --------     --------      --------`

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 Stockholders' Equity (Deficit)(continued)

`Preferred Stock
                                                      ------------------------------------------------------
                                                                                    Subscrip-
                                                         Shares         Amount       tions        Receivable
                                                       -----------     --------     --------      ----------
Balance, June 30, 1998                                    107,204      $ 1,072      $     -       $     -
   Conversion of preferred shares into common shares      (51,145)        (511)           -             -


   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 1999                                     56,059           561           -             -
   Issuance of preferred shares, net of expenses          700,000         7,000           -             -

   Conversion of preferred shares into common shares      (22,498)         (225)          -             -
   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 2000                                    733,561         7,336           -             -
   Conversion of preferred shares into common shares       (4,244)          (43)          -             -
   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 2001                                    729,317         7,293           -             -
   Conversion of preferred shares into common shares       (3,125)          (31)          -             -
   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 2002                                    726,192         7,262           -             -
   Conversion of preferred shares into common shares     (711,325)       (7,113)          -             -
   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 2003                                     14,867           149           -             -
   Conversion of preferred shares into common shares       (3,170)          (32)          -             -
   Net loss                                                     -             -           -             -
                                                       -----------     --------     --------      --------
Balance, June 30, 2004                                     11,697      $    117     $     -       $     -
                                                       ===========     ========     ========      ========`

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 Stockholders' Equity (Deficit)(continued)

`PALATIN TECHNOLOGIES, INC.
                                                                  (A Development Stage Enterprise)
                                                      Consolidated Statements of Stockholders' Equity (Deficit)
                                                                             (continued)

                                                                                                                       Accumulated     Deficit
                                         Common Stock              Additional                              Deferred      Other Com-     Accumulated
                                 -----------------------------      Paid-In      Earned But    Treasury   Compensa-     prehensive   During Develop-
                                      Shares         Amount         Capital      Not Issued     Stock        tion      Income (Loss)   ment Stage         Total
                                 -------------- -------------- --------------- ------------- ----------- ------------- ----------- --------------- ----------------
Balance at inception                         -   $               $                $             $         $              $          $                $           $
                                                            -               -             -           -             -           -               -                -
  Issuance of shares from            6,922,069      1,177,786         100,000       110,833           -             -           -               -        1,388,619
    inception
  Net loss from inception                    -              -               -             -           -             -           -      (4,235,059)      (4,235,059)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, August 31, 1995             6,922,069      1,177,786         100,000       110,833           -             -           -      (4,235,059)      (2,846,440)
  Issuance of preferred shares               -              -               -             -           -             -           -               -            4,000
  Issuance of common shares in
    $10,395,400 private placement   41,581,600      9,139,303               -             -           -             -           -               -        9,139,303
  Shares earned but not issued               -              -               -       266,743           -             -           -               -          266,743
  Issuance of common shares          1,054,548        458,977        (100,000)     (324,546)          -             -           -               -           34,431
  Net loss                                   -              -               -             -           -             -           -      (3,897,879)      (3,897,879)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 25, 1996              49,558,217     10,776,066               -        53,030           -             -           -      (8,132,938)       2,700,158
  Conversion to Palatin
    Technologies, Inc.             (46,807,465)   (10,748,558)     10,752,558             -           -             -           -               -                -
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Adjusted balance, June 25, 1996      2,750,752         27,508      10,752,558        53,030           -             -           -      (8,132,938)       2,700,158
  Shares outstanding of Palatin
    Technologies, Inc.                 108,188          1,082          (1,082)            -           -             -           -               -                -
  Issuance of common shares             25,754            257         139,459             -           -             -           -               -          139,716
  Purchase of treasury stock                 -              -               -             -      (1,667)            -           -               -          (1,667)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 1996               2,884,694         28,847      10,890,935        53,030      (1,667)            -           -      (8,132,938)       2,838,207
  Issuance of preferred shares,
    net of expenses                          -              -      11,635,653             -           -             -           -               -       11,637,031
  Shares earned but not issued               -              -               -       250,141           -             -           -               -          250,141
  Issuance of common shares            135,987          1,360         316,761      (303,171)          -             -           -               -           14,950
  Retirement of treasury shares           (308)            (3)         (1,664)            -       1,667             -           -               -                -
  Issuance of stock options below
    fair market value                        -              -       1,472,716             -           -    (1,472,716)          -               -                -`

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PALATIN TECHNOLOGIES, INC.
                      (A Development Stage Enterprise)Consolidated Statements of Stockholders' Equity (Deficit)(continued)

`Accumulated     Deficit
                                         Common Stock              Additional                              Deferred      Other Com-     Accumulated
                                 -----------------------------      Paid-In      Earned But    Treasury   Compensa-     prehensive   During Develop-
                                      Shares         Amount         Capital      Not Issued     Stock        tion      Income (Loss)   ment Stage         Total
                                 -------------- -------------- --------------- ------------- ----------- ------------- ----------- --------------- ----------------
  Amortization of deferred
    compensation                             -              -               -             -           -       394,383           -               -          394,383
  Net loss                                   -              -               -             -           -             -           -      (5,300,164)      (5,300,164)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 1997               3,020,373         30,204      24,314,401             -           -    (1,078,333)          -     (13,433,102)       9,834,548
  Issuance of preferred shares,
    net of expenses                          -              -       1,573,295             -           -             -           -               -        1,573,295
  Issuance of preferred shares
    expense recapture                        -              -          49,733             -           -             -           -               -           49,733
  Issuance of common shares             66,696            666          94,873             -           -             -           -               -           95,539
  Issuance of common shares upon
    conversion of preferred shares   1,012,554         10,126         (9,820)             -           -             -           -               -                -
  Issuance of stock options below
      fair market value                      -              -       1,161,156             -           -    (1,161,156)          -               -                -
  Amortization of deferred
    compensation                             -              -               -             -           -     1,723,310           -               -        1,723,310
  Net loss                                   -              -               -             -           -             -           -      (9,886,878)      (9,886,878)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 1998               4,099,623         40,995      27,183,638             -           -      (516,179)          -     (23,319,980)       3,389,547
  Issuance of common shares          1,842,101         18,421       7,594,182             -           -             -           -               -        7,612,603
  Issuance of common shares upon
    conversion of preferred shares   1,115,740         11,158         (10,655)            -           -             -           -               -               (9)
  Issuance of common shares upon
    exercise of warrants                 9,874             99          18,676             -           -             -           -               -           18,775
  Issuance of common shares upon
    exercise of options                 70,257            703          13,348             -           -             -           -               -           14,051
  Issuance of stock options below
    fair market value                        -              -         811,054             -           -      (811,054)          -               -                -`

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PALATIN TECHNOLOGIES, INC.
                      (A Development Stage Enterprise)Consolidated Statements of Stockholders' Equity (Deficit)(continued)

`Accumulated     Deficit
                                         Common Stock              Additional                              Deferred      Other Com-     Accumulated
                                 -----------------------------      Paid-In      Earned But    Treasury   Compensa-     prehensive   During Develop-
                                      Shares         Amount         Capital      Not Issued     Stock        tion      Income (Loss)   ment Stage         Total
                                 -------------- -------------- --------------- ------------- ----------- ------------- ----------- --------------- ----------------
  Amortization of deferred
    compensation                             -              -               -             -           -     1,308,675           -               -        1,308,675
   Net loss                                  -              -               -             -           -             -           -     (12,002,384)     (12,002,384)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 1999               7,137,595         71,376      35,610,243             -           -       (18,558)          -     (35,322,364)         341,258
  Issuance of preferred shares,
    net of expenses                          -              -      12,999,058             -           -             -           -               -       12,999,058
  Issuance of preferred shares               -              -               -             -           -             -           -               -            7,000
  Issuance of common shares upon
    conversion of preferred            572,374          5,724          (5,462)            -           -             -           -               -               37
shares
  Issuance of common shares upon
    exercise of warrants               111,551          1,115         451,097             -           -             -           -               -          452,212
  Issuance of common shares upon
    exercise of options                 80,852            809          99,667             -           -             -           -               -          100,476
  Acceleration of options
    previously granted                       -              -       1,170,000             -           -             -           -               -        1,170,000
  Amortization of deferred
    compensation                             -              -               -             -           -        18,558           -               -           18,558
  Net loss                                   -              -               -             -           -             -           -      (8,183,438)      (8,183,438)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 2000               7,902,372         79,024      50,324,603             -           -             -           -     (43,505,802)       6,905,161
  Issuance of common shares, net
    of expenses                      2,532,369         25,324      13,954,928             -           -             -           -               -       13,980,252
  Issuance of common shares upon
    conversion of Preferred shares     104,886          1,049          (1,006)            -           -             -           -               -                -
  Issuance of common shares upon
    exercise of warrants               173,015          1,730         486,736             -           -             -           -               -          488,466`

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PALATIN TECHNOLOGIES, INC.
                      (A Development Stage Enterprise)Consolidated Statements of Stockholders' Equity (Deficit)(continued)

`Accumulated     Deficit
                                         Common Stock              Additional                              Deferred      Other Com-     Accumulated
                                 -----------------------------      Paid-In      Earned But    Treasury   Compensa-     prehensive   During Develop-
                                      Shares         Amount         Capital      Not Issued     Stock        tion      Income (Loss)   ment Stage         Total
                                 -------------- -------------- --------------- ------------- ----------- ------------- ----------- --------------- ----------------
  Issuance of common shares upon
    exercise of options                487,016          4,870         634,883             -           -             -           -               -          639,753
  Stock based compensation                   -              -         246,109             -           -      (105,534)          -               -          140,575
  Acceleration of options
     previously granted                      -              -         335,315             -           -             -           -               -          335,315
  Amortization of deferred
    compensation                             -              -               -             -           -        25,415           -               -           25,415
  Net loss                                   -              -               -             -           -             -           -     (10,599,237)     (10,599,237)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 2001              11,199,658        111,997      65,981,568             -           -       (80,119)          -     (54,105,039)      11,915,700
  Issuance of common shares, net
    of expenses                      5,997,578         59,976      12,380,727             -           -             -           -               -       12,440,703
  Issuance of common shares upon
    conversion of preferred shares      76,590            766            (735)            -           -             -           -               -                -
  Issuance of common shares upon
    exercise of options                149,250          1,492         339,098             -           -             -           -               -          340,590
  Stock based compensation                   -              -          91,582             -           -       (21,147)          -               -           70,435
  Amortization of deferred
    compensation                             -              -               -             -           -        47,324           -               -           47,324
  Unrealized gain on investments             -              -               -             -           -             -      10,604               -           10,604
  Net loss                                   -              -               -             -           -             -           -     (16,138,577)      (16,138,577)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 2002              17,423,076        174,231      78,792,240             -           -       (53,942)     10,604     (70,243,616)        8,686,779
  Issuance of common shares, net    24,352,099        243,521      30,127,905             -           -             -           -               -        30,371,426
    of expenses
  Issuance of common shares upon     1,121,576         11,216          (4,103)            -           -             -           -               -                -
    conversion of preferred shares
  Issuance of common shares upon
    exercise of options and             97,299            973         127,445             -           -             -           -               -          128,418
    warrants
  Stock based compensation                   -              -          41,628             -           -       (13,153)          -               -           28,475`

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PALATIN TECHNOLOGIES, INC.
                      (A Development Stage Enterprise)Consolidated Statements of Stockholders' Equity (Deficit)(continued)

`Accumulated     Deficit
                                         Common Stock              Additional                              Deferred      Other Com-     Accumulated
                                 -----------------------------      Paid-In      Earned But    Treasury   Compensa-     prehensive   During Develop-
                                      Shares         Amount         Capital      Not Issued     Stock        tion      Income (Loss)   ment Stage         Total
                                 -------------- -------------- --------------- ------------- ----------- ------------- ----------- --------------- ----------------
  Amortization of deferred                   -              -               -             -           -        29,118           -               -           29,118
    compensation
  Unrealized loss on investments             -              -               -             -           -             -     (22,409)              -          (22,409)
  Net loss                                   -              -               -             -           -             -           -     (20,565,211)     (20,565,211)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 2003              42,994,050        429,941     109,085,115                                 (37,977)    (11,805)    (90,808,827)      18,656,596
  Issuance of common shares, net     6,992,500         69,925      20,889,594             -           -             -           -               -       20,959,519
    of expenses
  Issuance of common shares upon       120,465          1,205          (1,173)            -           -             -           -               -                -
    conversion of preferred shares
  Issuance of common shares upon
    exercise of options and          2,683,574         26,835       5,385,934             -           -             -           -               -        5,412,769
    warrants
  Stock based compensation                   -              -         789,012             -           -       (86,157)          -               -          702,855
  Amortization of deferred                   -              -               -             -           -        45,727           -               -           45,727
    compensation
  Unrealized loss on investments             -              -               -             -           -             -     (72,967)              -          (72,967)
  Net loss                                   -              -               -             -           -             -           -     (26,317,859)    (26, 317,859)
                                    ----------    ------------   -------------    ----------    --------  ------------   ---------  --------------   --------------
Balance, June 30, 2004              52,790,589    $   527,906    $136,148,482     $       -     $     -   $   (78,407)   $(84,772)  $(117,126,686)   $  19,386,640
                                   ===========    ============   =============    ==========    ========  ============   =========  ==============   ==============`

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

`Inception
                                                               (January 28,
                                                                  1986)                         Year Ended June 30,
                                                                 through       ---------------------------------------------
                                                              June 30, 2004         2004            2003            2002
                                                              --------------   -------------   -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                    $(117,126,686)   $(26,317,859)   $(20,565,211)   $(16,138,577)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Cumulative effect of accounting change                        361,111               -               -               -
      Depreciation and amortization                               3,781,977         671,989         579,258       1,156,874
      Realized loss on investments                                  129,355         129,355               -               -
      License fee                                                   500,000               -               -               -
      Interest expense and accrued interest on note payable
        and financings                                              876,665               -               -               -
      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                                    4,863,366         748,582          57,593         117,759
      Changes in certain operating assets and liabilities:
        Prepaid expenses and other                               (1,346,173)       (102,962)        (91,858)         34,079
        Accounts payable                                          2,019,970         675,181        (234,547)        449,676
        Accrued expenses and other                                2,205,616         618,901         749,799         293,678
        Deferred revenue                                           (119,111)       (165,420)       (386,598)        599,574
                                                              --------------   -------------   -------------   -------------
            Net cash used in operating activities              (101,347,970)    (23,742,233)    (19,891,564)    (13,486,937)
                                                              --------------   -------------   -------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale/maturities of investments                                  3,539,313       1,420,712           9,464               -
  Purchase of investments                                        (6,261,061)              -      (2,979,917)     (1,172,007)
  Purchases of property and equipment                            (6,139,291)       (197,541)     (1,134,015)     (1,634,509)
                                                              --------------   -------------   -------------   -------------
            Net cash (used in) provided by investing
              activities                                         (8,861,039)      1,223,171      (4,104,468)     (2,806,516)
                                                              --------------   -------------   -------------   -------------
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable and other long-term debt            6,103,327               -               -               -
  Payments on notes payable and other long-term debt             (4,103,327)              -               -               -
  Payments on capital lease obligations                            (354,226)       (200,753)       (153,473)              -
  Proceeds from common stock, stock option and
    warrant issuances, net                                      102,301,652      26,372,288      30,499,844      12,781,293
  Proceeds from preferred stock, net                             24,210,326               -               -               -
  Purchase of treasury stock                                         (1,667)              -               -               -
                                                              --------------   -------------   -------------   -------------
            Net cash provided by financing activities           128,156,085      26,171,535      30,346,371      12,781,293
                                                              --------------   -------------   -------------   -------------
NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                         17,947,076       3,652,473       6,350,339      (3,512,160)
CASH AND CASH EQUIVALENTS, beginning of period                            -      14,294,603       7,944,264      11,456,424
                                                              --------------   -------------   -------------   -------------
CASH AND CASH EQUIVALENTS, end of period                      $  17,947,076    $ 17,947,076    $ 14,294,603    $  7,944,264
                                                              ==============   =============   =============   =============`

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(continued)

`Inception
                                                    (January 28,
                                                       1986)
                                                      through                 Year Ended June 30,
                                                      June 30,       -------------------------------------
                                                        2004           2004           2003          2002
                                                     ---------       --------       --------      --------
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                            $ 680,569       $ 22,649       $ 22,038      $  3,188
                                                     =========       ========       ========      ========

NON-CASH TRANSACTION:
   Settlement of accounts payable with
      equipment                                      $     900       $      -       $      -      $      -
                                                     =========       ========       ========      ========

NON-CASH STOCK ACTIVITY:
   Conversion of loans from employees to
      common stock                                   $  74,187       $      -       $      -      $      -
                                                     =========       ========       ========      ========
   Conversion of note payable to common stock        $  16,000       $      -       $      -      $      -
                                                     =========       ========       ========      ========
   Common stock issued for equipment                 $   2,327       $      -       $      -      $      -
                                                     =========       ========       ========      ========
   Common stock and warrants issued for expenses     $ 960,909       $      -       $ 20,000      $ 14,144
                                                     =========       ========       ========      ========
   Common stock issued for accrued salaries
      and bonuses                                    $  16,548       $      -       $      -      $      -
                                                     =========       ========       ========      ========
   Accrued interest paid in common stock             $ 679,097       $      -       $      -      $      -
                                                     =========       ========       ========      ========`

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

(1)    
          ORGANIZATION ACTIVITIES:

Nature
of Business  Palatin Technologies, Inc. (Palatin or the
Company) is a development-stage biopharmaceutical company. The Company is
primarily focused on discovering and 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, cachexia (extreme wasting,
generally secondary to a chronic disease) and inflammation. The Companys objective
is to become a worldwide leader in MC-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.

In
July 2004, the Company announced the receipt of full approval from the U.S. Food and Drug
Administration (FDA) to market NeutroSpec, the Companys
proprietary radiolabeled monoclonal antibody product, for imaging equivocal appendicitis in
patients (see Note 11). The Company is currently conducting additional clinical trials
with NeutroSpec 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.

PT-141,
the Companys lead therapeutic drug candidate, is a patented, nasally administered
peptide that is in clinical development for the treatment of both male and female sexual
dysfunction. The Company completed various Phase 1 safety studies and Phase 2A efficacy
studies in male subjects and patients. The Company completed a Phase 2B at-home
dose-ranging study with PT-141 in male patients. The Company also completed a Phase 1
safety study in female subjects. In addition, the Company has several preclinical drug
candidates under investigation based on the MC family of receptors for various therapeutic
indications including sexual dysfunction, obesity, cachexia and inflammation.

In
August 2004, the Company entered into a collaborative agreement with King Pharmaceuticals,
Inc. (King), for the purpose of developing and commercializing PT-141 (see
Note 11).

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 and
discovery programs with the cash flow from our NeutroSpec and PT-141 collaboration
agreements.

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Business
Risk and Liquidity  As shown in the accompanying financial statements, the Company
incurred a net loss of $26,317,859, for the year ended June 30, 2004 and has a deficit
accumulated in the development stage of $117,126,686, cash and cash equivalents of
$17,947,076 and investments of $2,465,350 as of June 30, 2004. The Company anticipates
incurring additional losses in the future as it continues development of NeutroSpec for
diagnosis of appendicitis and expands clinical trials for other indications of NeutroSpec
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, conduct pre-clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture and market such technologies and proposed products.
The time required to reach profitability is highly uncertain, and there can be no
assurance that the Company will be able to achieve profitability on a sustained basis, if
at all.

The
Company has incurred negative cash flows from operations since its inception, and 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, including the funds received from King in August 2004, will be adequate to fund
the Companys projected operations through its fiscal year ending June 30, 2005,
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)    
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles
of Consolidation  The consolidated financial statements include the accounts of
Palatin and its wholly owned inactive subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Use
of Estimates  The preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Statements
of Cash Flows  Cash and cash equivalents include cash on hand, cash in banks and all
highly liquid investments with a purchased maturity of less than three months. As of June
30, 2004 and 2003, $428,075 of cash was restricted to secure letters of credit for
security deposits on leases.

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Table of Contents (Financial)

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 and mutual funds. Unrealized holding
gains and losses, net of the related tax effect, if any, are excluded from earnings and
are reported in other comprehensive income (loss) 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 June 30, 2004:

`Gross          Gross
                                          Unrealized     Unrealized
                              Cost           Gains          Losses      Fair Value
                          ---------------------------------------------------------
Corporate debt
securities                $    50,000    $       521    $         -    $    50,521

Mutual funds              $ 2,500,122    $         -    $   (85,293)   $ 2,414,829
                          ---------------------------------------------------------
Total                     $ 2,550,122    $       521    $   (85,293)   $ 2,465,350
                          =========================================================`

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    $              $   (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 lab equipment, seven years for office furniture and equipment 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.

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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. If impairment is indicated, the long-lived asset would be written down to 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.

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 adjusts 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 $149,738, $137,417 and $80,929, respectively, in grant revenue pursuant
to the Small Business Technology Transfer (STTR) programs of the Department of
Health and Human Services for the years ended June 30, 2004, 2003 and 2002.

The
Company recognized $2,000,000 and $504,000, respectively, in contract revenue related to
the attainment of certain milestones and other shared development costs of NeutroSpec
pursuant to our collaboration agreement, as amended, with Mallinckrodt, Inc., a division
of Tyco International, Ltd. (Mallinckrodt), described below for the years
ended June 30, 2004 and 2003. The Company did not recognize any contract revenue related
to the shared development costs of NeutroSpec for the year ended June 30, 2002.

In
August 1999, the Company entered into a strategic collaboration agreement with
Mallinckrodt to jointly develop and market one of its proposed products (see Note 8).
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 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 was recorded as deferred revenue to be recognized as license revenue
over the remaining development term of this agreement. For the years ended June 30, 2004,
2003 and 2002, the Company recognized $11,569, $43,987 and $138,888, respectively, in
license revenue that was included in the cumulative effect adjustment as of July 1, 2000.

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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 $3,200,000, 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 NeutroSpec. Pursuant to this amendment, $800,000 was
received upon execution of this agreement. Under SAB 101, this payment was recorded as
deferred revenue to be recognized as license revenue over the remaining development term
of this agreement. For the years ended June 30, 2004, 2003 and 2002, the Company
recognized $153,851, $584,611 and $61,538, respectively, in license revenue under this
agreement.

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 cost 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 permitted 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
options. 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 equal to the following pro
forma amounts:

`For the year ended June 30,
                                                       ---------------------------------------------------
                                                          2004              2003               2002
                                                       ---------------------------------------------------
Net loss attributable to common stockholders:

  As reported                                           $(26,317,859)     $(20,768,349)     $(16,436,180)

  Stock-based employee compensation expense
included in the determination of  net loss as
reported                                                     626,639                 -                 -

  Impact of total stock-based compensation
expense determined under fair-value-based
method                                                    (1,801,218)       (1,297,069)       (1,660,290)
                                                       ---------------------------------------------------
  Pro forma                                             $(27,492,438)     $(22,065,418)     $(18,096,470)
                                                       ===================================================`

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`Basic and diluted net loss attributable to common
stockholders per common share:

  As reported                                           $      (0.55)     $      (0.73)     $      (1.16)
                                                       ===================================================
  Pro forma                                             $      (0.58)     $      (0.78)     $      (1.27)
                                                       ===================================================`

The assumptions used in the
Black-Scholes option-pricing model are as follows: dividend yield of 0%, weighted average
risk-free interest rate of 3.72% in 2004, 3.54% in 2003, and 4.5% in 2002, expected
volatility of 90.5% in 2004, 101% in 2003 and 60% in 2002, and an expected option life of
seven years.

The
Company accounts for options granted to consultants in accordance with EITF 96-18,
Accounting for Equity Instruments with Variable Terms That Are Issued for
Consideration Other Than Employee Services. The Company determines the value of
consultants stock options utilizing the Black-Scholes option pricing model.

Income
Taxes  The Company and its subsidiary 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 carryforwards.

Net
Loss per Common Share  The Company applies Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128), which 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) attributable to common stockholders 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 and warrants. For the years ended June 30, 2004, 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 12,392,034 shares of common stock at prices
ranging from $0.01 to $21.70 per share were outstanding at June 30, 2004 (see Note 6).

Fair
Value of Financial Instruments  The Companys financial instruments consist
primarily of cash and cash equivalents, marketable securities and
accounts payable. Management believes that the carrying value of these assets and
liabilities are representative of their respective fair values.

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Other
Comprehensive Loss  Other comprehensive loss consists of the following:

`For the year ended June 30,
                                           --------------------------------------------------
                                                 2004              2003              2002
                                           --------------------------------------------------
  Net loss                                  $(26,317,859)     $(20,565,211)     $(16,138,577)

  Unrealized gain (loss) on investments          (72,967)          (22,409)            10,604
                                           --------------------------------------------------
  Comprehensive loss                        $(26,390,826)     $(20,587,620)     $(16,127,973)
                                           ==================================================`



Reclassifications
 Certain prior year balances have been reclassified to conform to the current year presentation.

(3)    
          PROPERTY AND EQUIPMENT:

Property
and equipment consists of the following:

`June 30,
                                                     -------------------------------
                                                          2004             2003
                                                     -------------    --------------
             Office equipment                         $ 1,120,467      $ 1,063,610
             Laboratory equipment                       2,292,039        2,153,787
             Leasehold improvements                     3,089,365        3,086,932
                                                     -------------    --------------
                                                        6,501,871        6,304,329
             Less: Accumulated depreciation and
                  amortization                         (3,567,132)      (2,905,148)
                                                     -------------    --------------
                                                      $ 2,934,739      $ 3,399,181
                                                     =============    ==============`

For
the years ended June 30, 2004, 2003 and 2002, depreciation expense was $663,208, $569,253
and $1,146,566, respectively.

(4)       
          ACCRUED EXPENSES:

Accrued
expenses consist of the following:

`June 30,
                                                     -------------------------------
                                                          2004             2003
                                                     -------------    --------------
             Product development costs                $ 1,079,000      $   784,007
             Accrued rent                                 464,095          397,872`

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`Other                                        524,088          437,503
                                                     -------------    --------------
                                                      $ 2,067,183      $ 1,619,382
                                                     =============    ==============`

(5)       
          COMMITMENTS AND CONTINGENCIES

Leases
 The Company currently leases two facilities in New Jersey under non-cancelable
operating leases and have sublet to a third party one of those leases, which is for the
Companys former corporate offices located 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. Future minimum lease payments under these two leases are as follows:

`Fiscal Year Ending June 30,

                      2005                   $  1,515,000

                      2006                      1,047,000

                      2007                      1,604,000

                      2008                      1,284,000

                      2009                      1,301,000

                      2010 and thereafter       3,968,000
                                             -------------
                                             $ 10,719,000
                                             =============`

As
of June 30, 2004, the Company has accrued approximately $33,000 related to the
Companys share of estimated costs until termination of the Princeton lease, which is
currently being subleased. For the years ended June 30, 2004, 2003 and 2002, rent expense
was $1,332,442, $1,554,838 and $656,850, respectively.

Capital
Leases  In September 2002, the Company acquired $417,920 of laboratory equipment
under capital leases. The term of these leases range from 24 to 60 months. As of June 30,
2004, $63,694 remains outstanding pursuant to these lease obligations. The capitalized
cost and accumulated depreciation for the equipment under capital leases is $417,920 and
$146,272, respectively, as of June 30, 2004.

Employment
Agreements  Effective October 1, 2003, Dr. Spana, Mr. Wills and Shubh D. Sharma,
Ph.D. have each entered into an employment agreement with the Company for a two-year
period. The agreements do not contain automatic renewal provisions. Dr. Spana is serving
as chief executive officer and president at a salary of $320,000 per year. Mr. Wills is
serving as chief financial officer at a salary of $265,000 per year. Dr. Sharma is serving
as a vice president and chief technical officer at a salary of $185,000 per year. Each
agreement also provides for:

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| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | annual bonus compensation, in an amount to be decided by the
     compensation committee and approved by the board, based on achievement of yearly objectives; and                                       
| |  | participation in all benefit programs that the Company establish, to
     the extent the employees position, tenure, salary, age, health and other qualifications make him eligible to
     participate.

Each agreement allows the Company or
the employee to terminate the agreement upon written notice, and contains other provisions
for termination by the Company for cause, or by the employee for good
reason or due to a change in control (as these terms are defined in the
employment agreements). Early termination may, in some circumstances, result in severance
pay at the salary then in effect, for a period of 24 months (Spana), 18 months (Wills) or
nine months (Sharma) plus continuation of medical and dental benefits then in effect for
18 months. Termination following a change in control will result in a lump sum payment of
two times (Spana) or one and one-half times (Wills) the salary then in effect,
continuation of medical and dental benefits then in effect for 18 months, and immediate
vesting of all stock options. Each agreement includes non-competition, non-solicitation
and confidentiality covenants.

License
Agreements  The Company has three license agreements that require minimum annual
payments. Future minimum payments under the license agreements for the years ending June
30 are: 2005  $500,000, 2006  $200,000, 2007  $200,000, 2008 
$200,000 and 2009  $200,000.

(6)    
          STOCKHOLDERS EQUITY:

Series
A Preferred Offering  On December 2, 1996, the Company commenced the Series A
Preferred Offering of units at a price of $100,000 per unit, each unit consisting of 1,000
shares of Series A Convertible Preferred Stock. The final closing on the Series A
Preferred Offering was effective as of May 9, 1997, with the Company having sold an
aggregate total of 137.78 units, representing 137,780 shares of Series A Convertible
Preferred Stock, for net proceeds to the Company of approximately $11,635,000, after
deducting commission and other expenses of the Series A Preferred Offering.

Each
share of Series A Convertible Preferred Stock is convertible at any time, at the option of
the holder, into the number of shares of common stock equal to $100 divided by the
Series A Conversion Price. The current Series A Conversion Price is $2.63, so
each share of Series A Convertible Preferred Stock is currently convertible into
approximately 38 shares of common Stock. The Series A Conversion Price is subject to
adjustment, under certain circumstances, upon the sale or issuance of common stock for
consideration per share less than either (i) the Conversion Price in effect on the date of
such sale or issuance, or (ii) the market price of the common stock as of the date of such
sale or issuance. The Series A Conversion Price is also subject to adjustment upon the
occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or
stock split which will result in an increase or decrease in the number of shares of common
stock outstanding. During the fiscal year ended June 30, 2004, 3,170 shares of the Series
A Convertible Preferred Stock was converted into 120,465 shares of common stock. As of
June 30, 2004, 11,697 shares of Series A Convertible Preferred Stock, currently
convertible into 444,752 shares of common stock, are outstanding.

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Series
C Preferred Offering  As of August 16, 1999, pursuant to the strategic collaboration
agreement with Mallinckrodt (see Note 2), the Company sold 700,000 restricted shares of
Series C Convertible Preferred Stock for $13,000,000. During June 2003, the Series C
Convertible Preferred Stock was converted into 700,000 shares of common stock.

Common
Stock Transactions  In January 2004, the Company concluded a private placement of
common stock and warrants in which the Company sold 6,992,500 shares of its $.01 par value
common stock and 1,048,875 warrants, which equates to 15% warrant coverage on the number
of shares sold, at an offering price of $3.25 per share. Each five-year warrant entitles
the holder to purchase one share of common stock at an exercise price of $4.06 per share.
The gross proceeds were approximately $22,700,000 and the net proceeds were approximately
$21,000,000. The Company made the private placement solely to financial institutions and
accredited investors pursuant to Regulation D under the Securities Act of 1933. The
investors represented that they were purchasing the securities for their own accounts for
investment and not with a view toward resale or distribution to others. The certificates
representing the shares of common stock and warrants bear restrictive legends. A
registration statement covering the resale of the shares by the investors was filed and
subsequently declared effective by the Security and Exchange Commission in April 2004. In
connection with the private placement, the Company paid placement fees totaling
approximately $1,700,000.

In
private placements of common stock and warrants in July 2002, November 2002 and March
2003, the Company sold an aggregate of 24,352,099 shares of its common stock to investors
consisting of domestic and European financial institutions and other accredited investors:
1,545,063 shares were sold at a market value of approximately $1.17 per share in the July
offering, 9,373,940 shares of common stock were sold at a market value of approximately
$1.23 per share in the November offering, and 13,433,096 shares of common stock were sold
at a market value of approximately $1.42 per share in the March offering. For every five
shares purchased in the July and the November offerings, and for every four shares
purchased in the March offering, the investors received a five-year warrant to purchase
one share of common stock at an exercise price of $1.46 for the July offering, $1.54 for
the November offering, and $1.77 for the March offering. Based on the sales price of the
common stock in these private placements, the exercise prices of certain outstanding
warrants were adjusted downward in accordance with the existing terms of those warrants.
As a result, a deemed dividend of $203,138 has been reflected in the Companys
consolidated statement of operations for year the ended June 30, 2003.

In
connection with these private placements, the Company paid cash placement agent fees of
$126,000 for the July offering, $790,433 for the November offering and $985,250 for the
March offering and issued five-year warrants to purchase (i) 103,004 shares of common
stock at prices ranging from $1.37 to $1.46 per share pursuant to the July offering, and
(ii) 458,647 shares of common stock at $1.54 per share pursuant to the November offering.

In
private placements of common stock and warrants in November 2001 and June 2002, the
Company sold an aggregate of 5,997,578 shares of its common stock to investors consisting
of domestic and European financial institutions and other domestic accredited investors:
4,902,481 shares were sold at $2.25 per share in the November offering and 1,095,097
shares were sold at $2.20 per share in the June offering. For every four shares purchased
in the November offering, and for every five shares purchased in the June offering, the
investors received a five-year warrant to purchase one share of common stock at an
exercise price of $2.70 for the November offering and $2.75 for the June offering. Based
on the sales price of the common stock in these private placements, the exercise prices of
certain outstanding warrants were adjusted downward in accordance with the existing terms
of those warrants. As a result, a deemed dividend of $297,603 has been reflected in the
Companys consolidated statement of operations for the year ended June 30, 2002.

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In
connection with these private placements, the Company paid placement agents fees of
$771,879 for the November offering and $168,000 for the June offering and issued five-year
warrants to purchase (i) 356,060 shares of common stock at prices ranging from $2.66 to
$2.70 per share pursuant to the November offering and (ii) 109,510 shares of common stock
at $2.75 per share pursuant to the June offering.

In
a private placement of common stock and warrants in September and October 2000, the
Company sold 2,532,368 shares of its common stock to a total of nine investors in two
tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per share for
total net proceeds of approximately $14,000,000. For every five shares purchased, the
investors received an immediately exercisable five-year warrant to purchase one share of
common stock at 125% of the closing price. As a result, the Company issued warrants to
purchase 360,000 shares at an exercise price of $7.50 per share and warrants to purchase
146,472 shares at an exercise price of $7.42 per share.

In
connection with the private placement, the Company paid a placement agents fee of
$1,060,391 and issued five-year warrants to the placement agent to purchase 216,000 shares
of common stock at $6.60 per share and 87,884 shares of common stock at $6.53 per share.

Outstanding
Stock Purchase Warrants  As of June 30, 2004, the Company had the following warrants
outstanding (prices are rounded to the nearest cent).

`Common         Exercise Price        Latest
                           Stock Shares          per Share      Termination Date
                              15,125              $ 0.01          03/15/05
                              32,487                0.22          09/13/05
                              38,627                1.37          07/29/07
                             154,506                1.46          06/13/07
                           1,450,473                1.54          11/29/07
                           2,464,789                1.77          03/21/08
                              32,654                1.78          02/15/06
                             404,263                2.36          06/25/06
                             134,188                2.66          10/29/06
                           1,057,864                2.70          04/30/07
                             292,215                2.75          06/13/07
                              15,000                2.82          05/13/12
                              30,000                2.90          04/06/06
                              25,000                3.65          12/17/06`

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Table of Contents (Financial)

`Common         Exercise Price        Latest
                           Stock Shares          per Share      Termination Date
                              15,000              $ 4.00          12/15/10
                           1,048,875                4.06          01/28/09
                              87,884                6.53          10/27/05
                             216,000                6.60          10/05/05
                               5,000                7.00          06/06/05
                             146,475                7.42          10/27/05
                             360,000                7.50          10/05/05
                             -------                ----
                Total      8,026,425        $0.01 - 7.50
                           =========        ============`

In
December 2002, the Company issued warrants to purchase 15,000 shares of its common stock
at $2.82 per share to the Wistar Institute of Anatomy and Biology, as part of the
consideration for a second agreement with Wistar to amend a technology license which
Wistar previously granted to the Company. The warrants expire on May 13, 2012. The fair
value of these warrants of approximately $20,000, as calculated by the Black-Scholes
option pricing model, has been charged to expense in the statement of operations.

In
April 2002, the Company issued warrants to purchase 15,000 shares of its common stock at
$2.70 per share to Albert Fried, Jr. in consideration for a consulting agreement. The
warrants expire on April 30, 2007. The fair value of these warrants of approximately
$14,000, as calculated by the Black-Scholes option pricing model, has been charged to
expense in the statement of operations. These options have been exercised in full as of
June 30, 2004.

In
April and December 2001, the Company issued warrants to purchase 30,000 shares of its
common stock at $2.90 per share and 25,000 shares at $3.65 per share, respectively, to the
Cedar Brook Corporate Center as part of the consideration for the lease agreement for the
Cranbury, NJ facility. These warrants expire five years from the date of issuance. The
fair value of these warrants of approximately $47,000, as calculated by the Black-Scholes
option pricing model, will be charged ratably to expense in the statement of operations
over the lease term of ten years.

Stock
Option Plan  The Company has one stock option plan currently in effect under which
future grants may be issued, the 1996 Stock Option Plan, as amended. This plan was
approved by the Companys stockholders on November 15, 2000, for which 5,000,000
shares of common stock have been reserved. The Company has also granted options under
agreements with individuals, and not under any plan. The options granted by the Company
generally expire ten years from the date of grant and generally vest over three to four
years. As of June 30, 2004, there were 355,956 options available for grant under the 1996
Stock Option Plan.

The
status of the plan and individual agreements during the three years ended June 30, 2004
was as follows:

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Table of Contents (Financial)

`Number of shares        Range of prices      Weighted average
                                              subject to options          per share         Prices per share

    Outstanding at July 1, 2001                           3,385,175        $.22 - $360.00          $4.14
       Granted                                              695,000       $2.86 - $6.063
       Expired                                             (384,330)       $3.50 - $6.00
       Forfeitures                                          (27,500)       $3.50 - $6.00
       Exercised                                           (149,275)       $.22 - $3.875
                                                        -----------
    Outstanding at June 30, 2002                          3,519,070         $.22 - $21.70          $4.30
       Granted                                              799,900        $1.16 - $3.53
       Expired                                             (114,216)      $2.50 - $21.70
       Forfeitures                                          (63,333)      $1.36 - $5.125
       Exercised                                             (5,184)        $.22 - $2.50
                                                        -----------
    Outstanding at June 30, 2003                          4,136,237       $1.00 - $21.70           $3.79
       Granted                                              957,500        $1.16 - $4.70
       Expired                                             (290,021)      $1.36 - $21.70
       Forfeitures                                         (297,683)       $1.36 - $4.25
       Exercised                                           (140,432)      $1.36 - $3.063
                                                        -----------
    Outstanding at June 30, 2004                          4,365,601        $1.00 - $21.70          $3.58
                                                        ===========
    Exercisable at June 30, 2004                          3,353,207        $1.00 - $21.70          $3.76
                                                        ===========



                          Shares        Weighted         Weighted                             Weighted
                       Purchasable    Average Option     Average             Shares         Average Price
        Range of          Under           Life           Exercise      Exercisable As of    of Exercisable
    Exercise Prices      Options        (Years)           Price           June 30, 2004        Shares
    ---------------      -------        -------           -----           -------------        ------
$1.00 - $2.49               732,663       7.84             $1.62            485,384             $1.64

$2.50 - $3.99             2,215,278       7.14             $3.21          1,561,232             $3.18

$4.00 - $5.99             1,136,071       5.62             $4.72          1,025,002             $4.76

$6.00 - $8.00               281,387       3.11             $6.96            281,387             $6.96

$8.01 - $21.70                  202       0.92            $15.77                202            $15.77`

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`Shares        Weighted         Weighted                             Weighted
                       Purchasable    Average Option     Average             Shares         Average Price
        Range of          Under           Life           Exercise      Exercisable As of    of Exercisable
    Exercise Prices      Options        (Years)           Price           June 30, 2004        Shares
    ---------------      -------        -------           -----           -------------        ------
                                         all outstanding options:

$1.00 - $21.70            4,365,601       6.93             $3.58          3,353,207             $3.76`

During the year ended June
30, 2004, the Company made modifications to stock options held by an employee and a director. As a result of these modifications,
the Company recorded an expense of $156,239 during the year ended June 30, 2004. In addition, there were stock options granted to
certain officers which included vesting provisions which were contingent on achievement of certain performance objectives and one
these objectives was met in September 2003. As a result, a compensation expense charge in the amount of $470,400 was recorded in
connection with these performance based options.

(7)       INCOME TAXES:

The Company has had no income
tax expense or benefit since inception because of operating losses except for amounts recognized for sales of New Jersey State
operating loss carry-forwards and research and development credits. Deferred tax assets and liabilities are determined based on
the estimated future tax effect of differences between the financial statements and tax reporting basis of assets and liabilities,
as well as for operating loss carryforwards and research and development costs, given the provisions of the tax laws. Based on the
Company's historical losses, a valuation allowance for the net deferred tax assets has been recorded at June 30, 2004 and has been
recorded since inception.

As of June 30, 2004, the
Company had Federal net operating loss carryforwards of approximately $112,000,000, which will expire in the years 2004 through
2024, if not utilized. At June 30, 2004 the Company had federal research and development credits of approximately $2,400,000 that
will expire in year 2004 through 2024 if not utilized.

 The Tax Reform Act of 1986
(the "Act") provides for limitation on the use of net operating loss and research and development tax credit carryforwards
following certain ownership changes (as defined by the Act) that could limit the Company's ability to utilize these carryforwards.
The Company may have experienced various ownership changes, as defined by the Act, as a result of past financings. Accordingly,
the Company's ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time
during which these carryforwards may be applied against future taxes; therefore the Company may not be able to take full advantage
of these carryforwards for federal income tax purposes.

The Company's net deferred tax assets are as follows:

`June 30,
                                                    ---------------------------------
                                                         2004                2003
                                                    -------------       -------------
      Net operating loss carryforwards ............ $ 38,097,000        $ 29,149,000
      Research and development tax credits ........    2,386,000           1,736,000
      Accrued expenses ............................      798,000             455,000
                                                    -------------       -------------
                                                      41,281,000          31,340,000
      Valuation allowances ........................  (41,281,000)        (31,340,000)
                                                    -------------       -------------
      Net deferred tax assets......................      $     -             $     -
                                                    =============       =============`

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In assessing the
realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the temporary differences representing future deductible amounts become
deductible. Due to the Company's history of losses, the deferred tax assets are fully offset by a valuation allowance as of June
30, 2004 and 2003. The valuation allowance for the years ended June 30, 2004 and 2003 increased by $9,941,000 and $5,069,000,
respectively, related primarily to additional net operating losses incurred by the Company.

During
the years ended June 30, 2004, 2003 and 2002, the Company sold New Jersey State operating
loss carryforwards and research and development credits, which resulted in the recognition
of $240,836, $245,093 and $392,410, respectively, in tax benefits.

(8)    
          GRANTS AND CONTRACTS:

The
Company applies for and has received grants and contracts under the Small Business
Innovative Research (SBIR) program and other federally funded grant and
contract programs. Since inception, approximately $4,025,000 of the Companys
revenues has been derived from federally or state funded grants and contracts. Under
federal grants and contracts, there are no royalties or other forms of repayment; however,
in certain limited circumstances the government can acquire rights to technology which is
not being commercially exploited.

On
May 13, 2002, the Company entered into an agreement with Mallinckrodt to amend the
strategic collaboration agreement dated as of August 17, 1999 for the development of
NeutroSpec. Under the terms of the original agreement, Mallinckrodt paid a licensing fee
of $500,000 (see Note 2) and purchased 700,000 restricted unregistered shares of Series C
Convertible Preferred Stock for $13,000,000 (see Note 6). The Company shared NeutroSpec
development expenses prior to FDA approval equally with Mallinckrodt. Mallinckrodt agreed
to pay the Company milestone payments of an additional $10,000,000 on FDA approval of the
first NeutroSpec indication and on attainment of certain sales goals following product
launch. The Company agreed to arrange for the manufacture of NeutroSpec and would receive
a transfer price on each product unit and a royalty on NeutroSpec net sales.

Under
the terms of the amended agreement, Mallinckrodt committed up to an additional
$3,200,000 subject to certain conditions and attaining certain milestones, to offset a
portion of the Companys estimated expenses associated with completing the FDA review
process. Additionally, timing of the $10,000,000 in future milestone payments has been
revised to coincide with NeutroSpecs FDA approval and achievement of future sales
goals (see Note 2). All of the $3,200,000 has been paid as of June 30, 2004.

During
the years ended June 30, 2004, 2003 and 2002, the Company recognized $2,000,000, $504,000
and $0, respectively, as contract revenue related to the development of NeutroSpec.

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(9)       
          RELATED PARTY TRANSACTIONS:

One of the Company's
directors is the president and sole stockholder of a company which provides strategic and technology consulting services. The
Company paid the consulting firm $43,125, $112,500 and $119,333 during the years ended June 30, 2004, 2003 and 2002,
respectively, for consulting services provided to the Company.

(10)       
          CONSOLIDATED QUARTERLY FINANCIAL DATA  UNAUDITED:

The
following tables provide quarterly data for the fiscal years ended June 30, 2004 and 2003:

`Three Months Ended
                                                    ----------------------------------------------------------------
                                                    September 30,     December 31,       March 31,        June 30,
                                                        2003               2003            2004             2004
                                                    ------------      ------------     ------------     ------------
                                                         (amounts in thousands except share and per share data)

Total revenues                                      $     1,833       $       291      $       181      $   $    10
Total operating expenses                                  8,633             5,203            8,292            6,945
Total other income (expense)                                 81                80               84              (46)
                                                    ------------      ------------     ------------     ------------
    Loss before income taxes                             (6,719)           (4,832)          (8,027)          (6,981)`

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`Three Months Ended
                                                    ----------------------------------------------------------------
                                                    September 30,     December 31,       March 31,        June 30,
                                                        2002               2002            2003             2003
                                                    ------------      ------------     ------------     ------------
                                                         (amounts in thousands except share and per share data)
Income tax benefit                                            -               241                -                -
                                                    ------------      ------------     ------------     ------------
Net loss attributable to common stockholders        $    (6,719)      $    (4,591)     $    (8,027)     $    (6,981)
                                                    ============      ============     ============     ============
Basic and diluted net loss attributable to
common stockholders per common share                $     (0.16)      $     (0.10)     $     (0.16)     $     (0.13)
                                                    ============      ============     ============     ============
Weighted average number of common shares
outstanding, used in computing basic and
diluted net loss attributable to common
stockholders per common share                        43,161,281        44,531,302       50,455,484       52,687,077
                                                    ============      ============     ============     ============



                                                                         Three Months Ended
                                                    ----------------------------------------------------------------
                                                    September 30,     December 31,       March 31,        June 30,
                                                        2002               2002            2003             2003
                                                    ------------      ------------     ------------     ------------
                                                         (amounts in thousands except share and per share data)

Total revenues                                      $       624       $       234      $       330      $        82
Total operating expenses                                  4,768             4,875            6,025            6,638
Total other income (expense)                                 45                44               43               94
                                                    ------------      ------------     ------------     ------------
       Loss before income taxes                          (4,099)           (4,597)          (5,652)          (6,462)
Income tax benefit                                            -               245                -                -
                                                    ------------      ------------     ------------     ------------
Net loss                                                 (4,099)           (4,352)          (5,652)          (6,462)
Deemed dividend                                             (17)              (98)             (88)               -
                                                    ------------      ------------     ------------     ------------
Net loss attributable to common stockholders        $    (4,116)      $    (4,450)     $    (5,740)     $    (6,462)
                                                    ============      ============     ============     ============
Basic and diluted net loss attributable to
common stockholders per common share                $     (0.22)      $     (0.17)     $     (0.19)     $     (0.15)
                                                    ============      ============     ============     ============`

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`Three Months Ended
                                                    ----------------------------------------------------------------
                                                    September 30,     December 31,       March 31,        June 30,
                                                        2002               2002            2003             2003
                                                    ------------      ------------     ------------     ------------
                                                         (amounts in thousands except share and per share data)
Weighted average number of common shares
outstanding, used in computing basic and
diluted net loss attributable to common
stockholders per common share                        18,497,853         24,871,723      30,162,510       42,039,097
                                                    ============      ============     ============     ============`

(11)       
          SUBSEQUENT EVENTS:

In
July 2004, the Company announced the receipt of full approval from the FDA to market
NeutroSpec, the Companys proprietary radiolabeled monoclonal antibody product for
imaging equivocal appendicitis. NeutroSpec is marketed and distributed by our strategic
collaboration partner, Mallinckrodt.

In
August 2004, the Company entered into a collaboration agreement with King, a
specialty pharmaceutical company, to jointly develop and commercialize PT-141. Pursuant to the terms
of the agreement, Palatin has granted King a co-exclusive license with Palatin to PT-141
in North America and an exclusive right to collaborate in the licensing or sublicensing of
PT-141 with Palatin outside North America. Palatin has the option to create a urology
specialty sales force to co-promote the product in the U.S., upon commercialization.

King paid the Company
$20,000,000 at closing, $5,000,000 of which was designated as an equity investment in Palatin. Certain of he proceeds received at
closing will be recorded as an equity contribution based on the fair value of the common stock and common warrants issued in
connection with the collaboration agreement with the remaining balance recorded as deferred revenue. The deferred revenue will be
amortized to revenue over the related performance period. King may pay potential milestone payments to Palatin totaling up to
$100,000,000 for achieving certain Erectile Dysfunction and Female Sexual Dysfunction development and regulatory approval targets,
a portion of which would consist of an equity investment in Palatin. After regulatory approval and commercialization of PT-141,
King may also pay potential one-time milestone payments to Palatin totaling up to $130,000,000 upon achieving specified annual
North American net sales thresholds.

Under
the terms of the agreement, King and Palatin will share all collaboration development and
marketing costs and all collaboration net profits derived from net sales of PT-141 in
North America based on an agreed percentage. King and Palatin will seek a partner for
PT-141 for territories outside of North America and will jointly share in collaboration
revenues generated from those territories.

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Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

Item 9A.  Controls and
Procedures

The Companys
management, with the participation of the Companys Chief Executive Officer and Chief financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and procedures as of June 30, 2004. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and
procedures were effective as of June 30, 2004. There were no changes that materially affected, or that are reasonably likely to
materially affect the Companys internal control over financial reporting during the fourth quarter of the fiscal year ended
June, 30, 2004.

Item 9B.  Other Information

None.

# PART III

The information required by
Part III of Form 10-K under

| | Item 10  Directors and Executive
     Officers of the Registrant                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                       
| | Item 11  Executive Compensation                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                       
| | Item 12  Security Ownership of
     Certain Beneficial Owners and Management and Related Stockholder Matters, except for the information required by Regulation
     S-K, Item 201(d), which is set forth under Item 5 of this report
|  |                                                                                                                                                                                                                                       
| | Item 13  Certain Relationships and
     Transactions                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                       
| | Item 14  Principal Accountant Fees
     and Services                                                                                                                                                                                 

is incorporated by reference from our definitive proxy statement relating to
the 2004 Annual Meeting of Stockholders, which we will file with the SEC within 120 days after our June 30, 2004 fiscal year end.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.

(a)     Documents filed as part of the report:

1.       
          Financial statements: the following financial statements are filed as a part of
          this report under Item 8  Financial Statements and Supplementary Data:

 Report of Registered
Independent Public Accounting Firm

 Report
of Independent Public Accountants


Consolidated Balance Sheets

 Consolidated
Statements of Operations


Consolidated Statements of Stockholders Equity (Deficit)

 Consolidated
Statements of Cash Flows


Notes to Consolidated Financial Statements

2.       
          Financial statement schedules: none.

3.       
          Exhibits: The following exhibits are filed with this report, or incorporated by
          reference as noted. Exhibits filed with this report are marked with an asterisk
          (*). Exhibits which consist of or include a management contract or compensatory
          plan or arrangement are marked with an obelisk ().

|No. |  | Description
|--- |  | -----------

|3.01 |  | Certificate of incorporation. Incorporated by reference to Exhibit 3.01 of our annual
report on Form 10-K for the year ended June 30, 2000, filed with the SEC on September 29,
2000.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.02 |  | Bylaws. Incorporated by reference to Exhibit 3.2 of our quarterly report on Form 10-QSB
for the quarter ended December 31, 1997, filed with the SEC on February 13, 1998.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.01 |  | RhoMed Incorporated 1995 Employee Incentive Stock Option Plan. Incorporated by reference
to Exhibit 10.04 of our annual report on Form10-KSB for the year ended June 30, 1996,
filed with the SEC on September 27, 1996.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.02 |  | 1996 Stock Option Plan, as amended effective January 1, 2001. Incorporated by reference to
Exhibit 4.1 of our registration statement on Form S-8, Commission File No. 333-83876,
filed with the SEC on March 6, 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.03 |  | Carl Spana Stock Option Agreement. Incorporated by reference to Exhibit 4.15 of our Form S-8 filed with the SEC on June 17, 1998.

|----- |  | -----------------------------------------------------------------------------------------------------------------------------------

|10.04 |  | Executive Officers Stock Option Agreement. Incorporated by reference to Exhibit 4.18 of our Form S-8 filed with the SEC on June
17, 1998. 
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

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|10.05 |  | Form of Placement Agent Warrant for the RhoMed common stock offering. Incorporated by
reference to Exhibit 10.22 of our annual report on Form 10-KSB for the year ended June 30,
1996, filed with the SEC on September 27, 1996.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.06 |  | Strategic Collaboration Agreement dated as of August 17, 1999, between Palatin and
Mallinckrodt, Inc. Incorporated by reference to Exhibit 10.21 of our amended annual report
on Form 10-KSB/A for the year ended June 30, 1999, filed with the SEC on December 28,
1999.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.07 |  | Amendment To Strategic Collaboration Agreement dated as of May 13, 2002 between Palatin
and Mallinckrodt, Inc. Incorporated by reference to Exhibit 10.1 of our quarterly report
on Form 10-Q for the quarter ended March 31, 2002, filed with the SEC on May 15, 2002. We
have obtained confidential treatment of certain provisions contained in Exhibit 10.15. The
copy filed as an exhibit omits the information subject to the confidentiality request.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.08 |  | Form of warrant and registration rights for the warrant issued in April 2000 with an
expiration date of March 15, 2005. Incorporated by reference to Exhibit 10.22 of our
annual report on Form 10-K for the year ended June 30, 2000, filed with the SEC on
September 29, 2000.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.09 |  | Form of warrant issued to purchasers in the September-October 2000 private placement.
Incorporated by reference to Exhibit 10.3 of our quarterly report on Form 10-Q for the
quarter ended September 30, 2000, filed with the SEC on November 14, 2000.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Employment Agreement dated as of July 17, 2001 between Palatin Technologies, Inc. and Perry B. Molinoff. Incorporated by reference
to Exhibit 10.30 of our annual report on Form 10-K for the year ended June 30, 2001, filed with the SEC on September 28, 2001.

|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and Carl Spana. Incorporated by reference to
Exhibit 10.1 of our quarterly report on Form 10-Q for the quarter ended September 30, 2003, filed with the SEC on November 14,
2003. 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and Stephen T. Wills. Incorporated by
reference to Exhibit 10.2 of our quarterly report on Form 10-Q for the quarter ended September 30, 2003, filed with the SEC on
November 14, 2003. 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Employment Agreement dated as of October 1, 2003, between Palatin Technologies, Inc. and Shubh D. Sharma. Incorporated by
reference to Exhibit 10.3 of our quarterly report on Form 10-Q for the quarter ended September 30, 2003, filed with the SEC on
November 14, 2003. 
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|10.14 |  | Form of stock purchase agreement for our October 2001 private placement. Incorporated by
reference to Exhibit 10.1 of our quarterly report on Form 10-Q for the quarter ended
September 30, 2001, filed with the SEC on November 14, 2001.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Form of registration rights agreement for our October 2001 private placement. Incorporated
by reference to Exhibit 10.2 of our quarterly report on Form 10-Q for the quarter ended
September 30, 2000, filed with the SEC on November 14, 2000.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Form of warrant issued to purchasers in our October 2001 private placement. Incorporated
by reference to Exhibit 10.3 of our quarterly report on Form 10-Q for the quarter ended
September 30, 2000, filed with the SEC on November 14, 2000.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Form of stock purchase agreement for our June-July 2002 private placement. Incorporated by
reference to Exhibit 10.27 of our annual report on Form 10-K for the year ended June 30,
2002, filed with the SEC on September 30, 2002.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Form of registration rights agreement for our June-July 2002 private placement.
Incorporated by reference to Exhibit 10.28 of our annual report on Form 10-K for the year
ended June 30, 2002, filed with the SEC on September 30, 2002.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Form of warrant issued to purchasers in our June-July 2002 private placement. Incorporated
by reference to Exhibit 10.29 of our annual report on Form 10-K for the year ended June
30, 2002, filed with the SEC on September 30, 2002.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Form of stock purchase agreement for our November 2002 private placement. Incorporated by
reference to Exhibit 10.30 of our annual report on Form 10-K for the year ended June 30,
2003, filed with the SEC on September 29, 2003.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | Form of registration rights agreement for our November 2002 private placement.
Incorporated by reference to Exhibit 10.31 of our annual report on Form 10-K for the year
ended June 30, 2003, filed with the SEC on September 29, 2003.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Form of warrant issued to purchasers in our November 2002 private placement. Incorporated
by reference to Exhibit 10.32 of our annual report on Form 10-K for the year ended June
30, 2003, filed with the SEC on September 29, 2003.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Form of stock purchase agreement for our March 2003 private placement. Incorporated by
reference to Exhibit 10.33 of our annual report on Form 10-K for the year ended June 30,
2003, filed with the SEC on September 29, 2003.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | Form of warrant issued to purchasers in our March 2003 private placement. Incorporated by
reference to Exhibit 10.34 of our annual report on Form 10-K for the year ended June 30,
2003, filed with the SEC on September 29, 2003.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|10.25 |  | Form of stock purchase agreement, including warrant certificate, for our January 2004
private placement. Incorporated by reference to Exhibit 10.01 of our quarterly report on
Form 10-Q for the quarter ended December 31, 2003, filed with the SEC on February 17,
2004.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 |  | Development and Manufacturing Agreement between Palatin and DSM Biologics Company B.V.
Incorporated by reference to Exhibit 10.30 of our annual report on Form 10-K for the year
ended June 30, 2003, filed with the SEC on September 29, 2003. We have requested
confidential treatment of certain provisions contained in this exhibit. The copy filed as
an exhibit omits the information subject to the confidentiality request.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Securities Purchase Agreement between Palatin and King Pharmaceuticals, Inc. We have requested
confidential treatment of certain provisions contained in this exhibit. The copy filed as
an exhibit omits the information subject to the confidentiality request. *
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Collaborative Development and Marketing Agreement between Palatin and King
Pharmaceuticals, Inc. We have requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the information subject to
the confidentiality request. *
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 |  | Form of warrant certificate issued to King Pharmaceuticals, Inc. *
|----- |  | ------------------------------------------------------------------

|21 |  | Subsidiaries of the registrant. *
|-- |  | ---------------------------------

|23 |  | Consent of KPMG LLP.  *
|-- |  | -----------------------

|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 *
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

_______________________________

* Exhibit filed with this report.

 Management contract

(b)     Reports on Form 8-K:

| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On November 6, 2003, we filed a current report on Form 8-K reporting an
     Item 5 event regarding the presentation of positive safety and efficacy data from our Phase 2B at home study of
     PT-141 for male sexual dysfunction.

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| |  | On August 13, 2004, we filed a Form 8-K including the press release in
     which we announced an agreement between Palatin and King Pharmaceuticals, Inc. to jointly develop and, on obtaining necessary
     regulatory approvals, commercialize Palatins PT-141 for the treatment of male and female sexual dysfunction.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On August 18, 2004, we filed a Form 8-K including the press release in
     which we announced that we conducted the initial closing and received proceeds of $20 million from King Pharmaceuticals, Inc.
     pursuant to the collaborative agreement between Palatin and King, which we announced on August 13, 2004.     

# SIGNATURES

Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

PALATIN TECHNOLOGIES, INC.

By: /s/ Carl Spana
      Carl Spana, Ph.D.
      President and Chief Executive Officer

Date: September 13, 2004

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

|Signature                 | Title                                                | Date              
|------------------------- | ---------------------------------------------------- | ------------------
|                          |                                                      |                   
|/s/ Carl Spana            | President, Chief Executive Officer and Director      | September 13, 2004
|Carl Spana                | (principal executive officer)                        |                   
|                          |                                                      |                   
|/s/ Stephen T. Wills      | Executive Vice President and Chief Financial Officer | September 13, 2004
|Stephen T. Wills          | (principal financial and accounting officer)         |                   
|                          |                                                      |                   
|/s/ John K.A. Prendergast | Chairman and Director                                | September 13, 2004
|John K.A. Prendergast     |                                                      |                   
|                          |                                                      |                   
|/s/ Perry B. Molinoff     | Director                                             | September 13, 2004
|Perry B. Molinoff         |                                                      |                   
|                          |                                                      |                   
|/s/ Robert K. deVeer, Jr. | Director                                             | September 13, 2004
|Robert K. deVeer, Jr.     |                                                      |                   

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|/s/ Zola P. Horovitz | Director | September 13, 2004
|-------------------- | -------- | ------------------
|Zola P. Horovitz     |          |                   
|                     |          |                   
|/s/ Robert I. Taber  | Director | September 13, 2004
|Robert I. Taber      |          |                   
|                     |          |                   
|/s/ Errol DeSouza    | Director | September 13, 2004
|Errol DeSouza        |          |                   

78

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