**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

| **ý** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                       |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                               |
|       |   | **For  the quarterly period ended March 31, 2003**                                                                                                                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                                                                               |
| **o**      |   | **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:  0-21134**                                                                                                                                                                                                                                                                                                         |

 

**Paligent Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     |   | **04-2893483**                              |
|------------------------------------------------------------------|--------|---------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S.  Employer  Identification No.) |
|                                                             |   |                                        |
| **369  Lexington Avenue, New York, New York**                    |   | **10017**                                   |
| (Address of  principal executive offices)                        |   | (zip code)                                  |

 

**(212)453-3111**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

YES  ý   NO  o

 

The number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

| **Class**                      |   | **Outstanding as of May 9, 2003** |
|--------------------------------|--------|-----------------------------------|
|                           |   |                              |
| Common Stock,  $0.01 par value |   | 32,490,948                        |

 

 

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**PALIGENTINC.**

 

**INDEX**

 
| **PART  I.**                                                                                                                                     | **FINANCIAL  INFORMATION**                                                                               |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                             |                                                                                                     |   |   |
| **Item 1.**                                                                                                                                      | Financial Statements                                                                                     |   |   |
|                                                                                                                                             |                                                                                                     |   |   |
|                                                                                                                                             | Condensed  Consolidated Balance Sheets  March 31, 2003 (unaudited) and December 31, 2002                 |   |
|                                                                                                                                             |                                                                                                     |
|                                                                                                                                             | Condensed  Consolidated Statements of Operations (unaudited)  Three months ended March 31, 2003 and 2002 |   |
|                                                                                                                                             |                                                                                                     |
|                                                                                                                                             | Condensed  Consolidated Statements of Cash Flows (unaudited)  Three months ended March 31, 2003 and 2002 |   |
|                                                                                                                                             |                                                                                                     |   |   |
|                                                                                                                                             | Notes  to Condensed Consolidated Financial Statements (unaudited)                                        |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **Item  2.**                                                                                                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations              |
|                                                                                                                                             |                                                                                                     |
| **Item  3.**                                                                                                                                     | Quantitative  and Qualitative Disclosure About Market Risk                                               |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **Item 4.**                                                                                                                                      | Controls and  Procedures                                                                                 |   |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **PART II.**                                                                                                                                     | **OTHER INFORMATION**                                                                                    |   |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **Item 6.**                                                                                                                                      | Exhibits and  Reports on Form 8-K                                                                        |   |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **SIGNATURES**                                                                                                                                   |                                                                                                     |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **CERTIFICATION**                                                                                                                                |                                                                                                     |   |
|                                                                                                                                             |                                                                                                     |   |   |
| **Exhibit  99.1** – Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

2

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**PALIGENTINC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                           |   | **March 31,  2003** |    | **December  31, 2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
|                                                                                                                                           |   | **(unaudited)**     |    |                   |   |
| ASSETS                                                                                                                                         |   |                |    |                   |   |
| Current  assets:                                                                                                                               |   |                |    |                   |   |
| Cash  and cash equivalents                                                                                                                     |   | $                   | 23,243  |                   | $      | 153,046 |   |
| Prepaid  expenses and other current assets                                                                                                     |   | 26,083              |    | 94                     |   |
| Total  current assets                                                                                                                          |   | 49,326              |    | 153,140                |   |
|                                                                                                                                           |   |                |    |                   |   |
| Property  and equipment, net                                                                                                                   |   | 67,137              |    | 75,789                 |   |
| Security  deposits                                                                                                                             |   | 77,582              |    | 77,582                 |   |
| Other  assets                                                                                                                                  |   | 32,687              |    | 33,669                 |   |
| Total  assets                                                                                                                                  |   | $                   | 226,732 |                   | $      | 340,180 |   |
|                                                                                                                                           |   |                |    |                   |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                           |   |                |    |                   |   |
| Current  liabilities:                                                                                                                          |   |                |    |                   |   |
| Accounts  payable                                                                                                                              |   | $                   | 148,553 |                   | $      | 95,061 |   |
| Due  to related party                                                                                                                          |   | 30,000              |    | —                 |   |
| Accrued  compensation                                                                                                                          |   | 6,410               |    | 10,037                 |   |
| Accrued  professional services                                                                                                                 |   | 60,000              |    | 75,000                 |   |
| Current  portion of capital lease obligations                                                                                                  |   | 19,834              |    | 20,383                 |   |
| Total  current liabilities                                                                                                                     |   | 264,797             |    | 200,481                |   |
|                                                                                                                                           |   |                |    |                   |   |
| Deferred  rent                                                                                                                                 |   | 30,818              |    | 32,342                 |   |
| Security  deposits                                                                                                                             |   | 20,000              |    | 20,000                 |   |
| Capital  lease obligations                                                                                                                     |   | 14,905              |    | 20,545                 |   |
|                                                                                                                                           |   |                |    |                   |   |
| Stockholders’  equity (deficit):                                                                                                          |   |                |    |                   |   |
| Common  stock, $.01 par value; 75,000,000 shares authorized; 32,490,948 shares issued  and outstanding at March 31, 2003 and December 31, 2002 |   | 324,910             |    | 324,910                |   |
| Additional  paid-in capital                                                                                                                    |   | 154,634,974         |    | 154,634,974            |   |
| Accumulated  deficit                                                                                                                           |   | (155,063,672        | )       | (154,893,072           | )      |
| Total  stockholders’ equity (deficit)                                                                                                     |   | (103,788            | )       | 66,812                 |   |
| Total  liabilities and stockholders’ equity (deficit)                                                                                     |   | $                   | 226,732 |                   | $      | 340,180 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financial statements.

 

3

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**PALIGENTINC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

 
|                                                                      |   | **Three  months ended March 31,** |     |
|---------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                      |   | **2003**                          |     | **2002** |   |
| Revenue:                                                                  |   |                              |     |   |   |
| Interest  income                                                          |   | $                                 | 113      |   | $ | 3,811 |   |
|                                                                      |   |                              |     |   |   |
| Costs  and expenses:                                                      |   |                              |     |   |   |
| General  and administrative                                               |   | 170,713                           |     | 272,975 |   |
|                                                                      |   |                              |     |   |   |
| Net  loss                                                                 |   | $                                 | (170,600 | ) | $ | (269,164 | ) |
|                                                                      |   |                              |     |   |   |
| Basic  and diluted net loss per common share                              |   | $                                 | (0.01    | ) | $ | (0.01 | ) |
|                                                                      |   |                              |     |   |   |
| Weighted  average number of common shares outstanding - basic and diluted |   | 32,490,948                        |     | 32,490,948 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financial statements.

 

4

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**PALIGENTINC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                         |   | **Three  months ended March 31,** |     |
|------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                         |   | **2003**                          |     | **2002** |   |
| Cash  flows from operating activities:                                       |   |                              |     |   |   |
| Net  loss                                                                    |   | $                                 | (170,600 | ) | $ | (269,164 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |   |                              |     |   |   |
| Depreciation  and amortization                                               |   | 8,652                             |     | 9,963 |   |
| Deferred  rent                                                               |   | (1,524                            | )        | (70 | ) |
| Changes  in operating assets and liabilities:                                |   |                              |     |   |   |
| Due  from related party                                                      |   | —                            |     | 137,091 |   |
| Prepaid  expenses and other current assets                                   |   | (25,989                           | )        | (22,622 | ) |
| Other  assets                                                                |   | 982                               |     | 1,845 |   |
| Accounts  payable                                                            |   | 53,492                            |     | 44,111 |   |
| Accrued  patent and research costs                                           |   | —                            |     | (285,859 | ) |
| Accrued  expenses and other current liabilities                              |   | (18,627                           | )        | (47,909 | ) |
| Net  cash used in operating activities                                       |   | (153,614                          | )        | (432,614 | ) |
|                                                                         |   |                              |     |   |   |
| Cash  flows from financing activities:                                       |   |                              |     |   |   |
| Proceeds  from related party loan                                            |   | 30,000                            |     | — |   |
| Principal  payments on capital lease obligations                             |   | (6,189                            | )        | (5,301 | ) |
| Net  cash provided by (used in) financing activities                         |   | 23,811                            |     | (5,301 | ) |
|                                                                         |   |                              |     |   |   |
| Net  change in cash and cash equivalents                                     |   | (129,803                          | )        | (437,915 | ) |
|                                                                         |   |                              |     |   |   |
| Cash  and cash equivalents at beginning of period                            |   | 153,046                           |     | 1,298,266 |   |
|                                                                         |   |                              |     |   |   |
| Cash  and cash equivalents at end of period                                  |   | $                                 | 23,243   |   | $ | 860,351 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financial statements.

 

5

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**PALIGENTINC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**NOTE 1 –BASIS OF PRESENTATION**

 

**InterimFinancial Statements**

 

The condensedconsolidated financial statements included herein have been prepared byPaligent Inc. (“Paligent” or the “Company”) pursuant to the rules andregulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  In the opinion of management, the accompanyingunaudited condensed consolidated financial statements reflect all adjustments(consisting only of normal recurring accruals) necessary for a fairpresentation of the financial position of the Company at March 31, 2003 and theresults of its operations and its cash flows for the interim periods endedMarch 31, 2003 and 2002. The condensed consolidated balance sheet as ofDecember 31, 2002 was derived from audited financial statements but does notinclude all disclosures required by generally accepted accountingprinciples.  The accompanying condensedconsolidated financial statements have been prepared in accordance withaccounting standards for interim financial statements and should be read inconjunction with the audited consolidated financial statements and thenotes thereto included in the Company’s Form 10-K for the year ended December31, 2002.  The results of operations for the interim periods are not necessarilyindicative of the results of operations to be expected for the fiscal year orany other interim period.

 

Theaccompanying consolidated financial statements have been prepared on a goingconcern basis which contemplates the realization of assets and the satisfactionof liabilities in the ordinary course of business.  The Company has incurred losses from operations since inception,has working capital and stockholders’ deficits and has limited cash to fundoperations in 2003.  Since disposing ofits Internet assets and related operations in December 2000, the Company hassignificantly reduced its operating costs. During April 2003, the Company received $500,000 in connection with theamendment of its license agreement with Indevus Pharmaceuticals, Inc.  However, at its present rate of spending,the Company expects that its existing funds and interest income will only besufficient to fund the Company’s current operations into the fourth quarter of2003.  While the Company evaluatesstrategic alternatives, including potential business investments and relatedfinancing, the Company’s rate of spending could vary from its currentestimate.  No assurance can be giventhat the Company will be able to complete a business investment or that suchfinancing will be available to the Company. If the Company is unable to generate significant revenue from acquiredoperations, obtain additional revenue from its existing out-licensing of itsbiotechnology assets, secure additional financing for its present operations orsecure sufficient financing for operations resulting from acquisition ormerger, the Company will experience a cash shortage in the fourth quarter of2003, the effect of which could result in the discontinuance ofoperations.  If additional funds areraised by issuing equity securities, further dilution to existing stockholderswill result and future investors may be granted rights superior to those ofexisting stockholders.

 

Thesecircumstances raise substantial doubt about the Company’s ability to continueas a going concern.  The financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty.

 

**Reclassification**

 

Certain prior periodamounts have been reclassified to conform to the current period presentation.

 

6

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**NOTE 2 –BASIC AND DILUTED NET LOSS PER SHARE**

 

Basic earnings per share(“EPS”) excludes dilution and is computed by dividing (loss) income applicableto common stockholders by the weighted average number of common sharesoutstanding for the period.  Diluted EPSis based upon the weighted average number of common shares outstanding duringthe period plus the additional weighted average common equivalent shares duringthe period.  Common equivalent sharesare not included in the per share calculations where the effect of theirinclusion would be anti-dilutive. Common equivalent shares result from the assumed exercises ofoutstanding stock options and warrants, the proceeds of which are then assumedto have been used to repurchase outstanding shares of common stock (the“treasury stock method”).

 

For the three monthsended March 31, 2003 and 2002, the Company had stock options and warrantsoutstanding that were anti-dilutive. These securities could potentially dilute basic EPS in the future andwere not included in the computation of diluted EPS because to do so would havebeen anti-dilutive for the periods presented. Consequently, there were no differences between basic and diluted EPSfor these periods.

 

**NOTE 3 –RELATED PARTIES**

 

On March 3, 2003, RichardJ. Kurtz, a director and shareholder of the Company, loaned $30,000 to theCompany to fund its current operations. In April 2003, the Company’s repaid this loan to Mr. Kurtz from proceedsreceived under the PRO 2000 Amendment (see Note 5).

 

**NOTE 4 –RECENT ACCOUNTING PRONOUNCEMENTS**

 

InDecember 2002, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“FAS”) No. 148, “Accounting forStock-Based Compensation - Transition and Disclosure, an Amendment of FAS 123”(“FAS 148”).  This statement providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, FAS 148 amends the disclosurerequirements of FAS 123 to require more prominent and more frequent disclosuresin financial statements about the effects of stock-based compensation.  The provisions of FAS 148 are effective forfiscal years ending after December 15, 2002 and the interim disclosureprovisions are effective for financial reports containing financial statementsfor interim periods beginning after December 15, 2002.  The Company adopted FAS 148 during thefourth quarter ended December 31, 2002. The adoption of FAS 148 did not have a material impact on the Company’sresults of operations or financial position and the additional requireddisclosures are provided below.The Company applies Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees,” and related interpretations, in accounting for itsstock-based compensation plans. Accordingly, no compensation cost has been recognized for its stockoption plan.  Had compensation cost forthe Company’s stock-based compensation plan been determined based on the fairvalue at the grant dates for awards under those plans consistent with FAS 123,the Company’s net loss and loss per share would have been adjusted to the proforma amounts indicated below:

 

7

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|                                                                  |   | **Three  months ended March 31,** |    |
|-----------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                  |   | **2003**                          |    | **2002** |   |
| Net  loss - as reported                                               |   | $                                 | 170,600 |   | $ | 269,164 |   |
| Adjustment  to net loss for proforma stock-based compensation expense |   | 17,030                            |    | 32,935 |   |
| Net  loss - pro forma                                                 |   | $                                 | 187,630 |   | $ | 302,099 |   |
| Basic  and diluted net loss per common share - as reported            |   | $                                 | 0.01    |   | $ | 0.01 |   |
| Basic  and diluted net loss per common share - pro forma              |   | $                                 | 0.01    |   | $ | 0.01 |   |

 

**NOTE 5 –SUBSEQUENT EVENT**

 

On April 11, 2003, theCompany and Indevus Pharmaceuticals, Inc. (“Indevus”) executed an Amendment(the “PRO 2000 Amendment”) to the license agreement dated June 14, 2000 (the“PRO 2000 License”).  Under the terms ofthe PRO 2000 License, Indevus holds the exclusive, worldwide rights to developand market PRO 2000 Gel.  Upon executionof the PRO 2000 Amendment, the Company received $500,000 from Indevus inexchange for (i) the elimination of the $500,000 milestone payment that was tobe paid under the PRO 2000 License upon the initiation of a Phase II safetytrial (planned to begin later in 2003); and (ii) a second option, upon whichexercise the Company would receive an additional payment of $500,000, toacquire all of the Company’s rights, title and interest to PRO 2000 Gel as setforth in the PRO 2000 License, provided that such second option is exercisedprior to September 30, 2004.

 

8

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**Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

***Note Regarding Forward-Looking Statements***

 

*Statementsin this Form 10-Q that are not statements or descriptions of historical factsare “forward-looking” statements under Section 21E of the Securities ExchangeAct of 1934, as amended, and the Private Securities Litigation Reform Act of1995 and are subject to numerous risks and uncertainties.  These forward-looking statements cangenerally be identified by the use of such terms as “anticipate,” “believe,”“continue,” “expect,” “may,” “should,” or similar variations or the negativethereof.  These forward looking statementsinvolve risks and uncertainties, many of which are out of the Company’s controland which may affect its future business plans.  Factors that may affect the Company’s future business plansinclude: (i) its ability to identify, complete and integrate an acquisition ofan operating business; (ii) the viability of the Company’s business strategy inconnection with an acquisition and its ability to implement such strategy;(iii) its ability to secure financing for its current and potential future operations;and (iv) its ability to generate revenues sufficient to meet its operatingcosts.  Such statements reflect thecurrent view of the Company with respect to future events and are subject tocertain risks, uncertainties and assumptions. In addition, the Company’s business, operations and financial conditionare subject to the risks, uncertainties and assumptions that are described inthe Company’s reports and statements filed from time to time with theSecurities and Exchange Commission. Should one or more of those risks or uncertainties materialize, orshould underlying assumptions prove incorrect, actual results may varymaterially from those discussed herein. The descriptions of the risks, uncertainties and assumptions to whichthe Company’s business, operations and financial condition are subject are asof the date of this report.  The Companyassumes no obligation to update any such forward-looking statements.*

 

**Overview**

 

Paligent Inc., togetherwith its subsidiaries (collectively, “Paligent” or the “Company”), is presentlyseeking business opportunities to maximize value for its shareholders.  Since 2001, the Company has been evaluatingvarious strategic alternatives, including acquisitions of new operatingbusinesses and technologies as well as potential merger opportunities.

 

From its inception in1985 through 1999, Paligent operated as a biotechnology company engaged in thedevelopment and commercialization of novel drugs with a product portfoliofocused on infectious diseases and oncology. During 1999, the Company’s principal efforts were devoted to drugdevelopment, human clinical trials and partnership commercialization focusingon two biotechnology compounds, PRO 2000 Gel and O6-Benzylguanine(“O6-BG”).  Beginning in fiscal 2000,the Company pursued an Internet strategy that focused on promoting andfacilitating transactions between consumers, funeral industry service providersand financing institutions.  Duringfiscal 2000, the Company also closed its research facilities and out-licensedPRO 2000 Gel and O6-BG.  Under the termsof the out-licensing agreements, the Company retains certain future rights,including the receipt of payments based on the achievement of certainmilestones as well as royalties from commercial sales, if any.  After a sustained period of deterioration inthe Internet and technology sectors and related capital markets, the Companydecided, in the fourth quarter of 2000, to discontinue the pursuit of itsInternet strategy.  Shortly thereafter,the Company entered into an agreement to sell all of its Web-based assets andInternet operations and ceased its Internet activities.

 

9

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**Results of Operations**

 

From inception throughMarch 31, 2003, the Company has generated no revenues from product sales orservices and has not been profitable. As the Company evaluates various strategic alternatives in its quest fornew growth areas that will maximize value to existing stockholders, the Companyexpects to incur additional losses.

 

*Three months ended March 31, 2003 as compared to the threemonths ended March 31, 2002*

 

During the three monthsended March 31, 2003, the Company reported a net loss of $171,000, or $0.01 pershare, as compared to a net loss of $269,000, or $0.01 per share, in thecomparable period in 2002.

 

The Company’s totalrevenue, which is derived from interest income, was $113 for the three monthsended March 31, 2003, as compared to $4,000 for the comparable period in2002.  The reduction in interest incomeis attributable to a decrease in average cash balances available for investmentduring the respective periods.

 

The Company’s totaloperating expenses, consisting of general and administrative costs, were$171,000 for the quarter ended March 31, 2003 as compared to $273,000 for thecomparable quarter in 2002, a decrease of $102,000.  The decrease in general and administrative costs in the firstquarter of fiscal 2003 primarily comprises reductions in professional fees,including non-recurring legal fees incurred in fiscal 2002 that wereattributable to the resolution of the patent licensing agreement relating toO6-BG.

 

**Liquidityand Capital Resources**

 

At March 31, 2003, theCompany’s aggregate cash and cash equivalents were $23,000, a net decrease of$130,000 from the end of the prior year. This decrease comprises $154,000 and $6,000, respectively, of cash usedto fund operations and payments on capital leases.  During the current quarter, the Company received $30,000 of loanproceeds from Richard J. Kurtz, a director and shareholder of the Company.  This loan was repaid in April 2003.

 

In April 2003, theCompany and Indevus Pharmaceutivcals, Inc. executed an Amendment (the “PRO 2000Amendment”) to the license agreement dated June 14, 2000.  Upon execution of the PRO 2000 Amendment,the Company received $500,000 from Indevus.

 

The Company has incurredlosses since inception, has working capital and stockholders’ deficits and haslimited cash to fund operations in 2003. Since disposing of its Internet assets and related operations inDecember 2000, the Company has significantly reduced its operating costs.  Although the Company received $500,000 inconnection with the PRO 2000 Amendment, the Company expects, at its presentrate of spending, that its existing funds and interest income will only besufficient to fund the Company’s current operations into the fourth quarter of2003.  While the Company evaluatesstrategic alternatives, including potential business investments and relatedfinancing, the Company’s rate of spending could vary from its currentestimate.  No assurance can be giventhat the Company will be able to complete a business investment or that suchfinancing will be available to the Company. If the Company is unable to generate significant revenue from acquiredoperations, obtain additional revenue from its existing out-licensing of itsbiotechnology assets, secure additional financing for its present operations orsecure sufficient financing for operations resulting from acquisition ormerger, the Company will experience a cash shortage in the fourth quarter of2003, the effect of which could result in the discontinuance ofoperations.  If additional funds areraised by issuing equity securities, further dilution to existing stockholderswill result and future investors may be granted rights superior to those ofexisting stockholders.

 

10

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These circumstances raisesubstantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s expectationsregarding its rate of spending and the sufficiency of its cash resources overfuture periods are forward-looking statements. The rate of spending andsufficiency of such resources will be affected by numerous factors includingthe rate of planned and unplanned expenditures by the Company and the timing ofpayments received, if any, under the sublicenses of the biotechnology assets.

 

**Impactof Recently Issued Accounting Standards**

 

InDecember 2002, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. (“FAS”) 148, “Accounting forStock-Based Compensation – Transition and Disclosure, an Amendment of FAS 123”(“FAS 148”).  This statement providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, FAS 148 amends the disclosurerequirements of FAS 123 to require more prominent and more frequent disclosuresin financial statements about the effects of stock-based compensation.  The provisions of FAS 148 are effective forfiscal years ending after December 15, 2002 and the interim disclosureprovisions are effective for financial reports containing financial statementsfor interim periods beginning after December 15, 2002.  The Company adopted FAS 148 during thefourth quarter ended December 31, 2002. The adoption of FAS 148 did not have a material impact on the Company’sresults of operations or financial position and the additional requireddisclosures have been provided in Note 4 to the Condensed ConsolidatedFinancial Statements.

 

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**Item3.  Quantitative and QualitativeDisclosure About Market Risk.**

 

InJanuary 1997, the Securities and Exchange Commission issued Financial ReportingRelease 48 (“FRR 48”), “Disclosure of Accounting Policies for DerivativeFinancial Instruments and Derivative Commodity Instruments, and Disclosure ofQuantitative and Qualitative Information About Market Risk Inherent in DerivativeFinancial Instruments, Other Financial Instruments and Derivative CommodityInstruments.”  FRR 48 requireddisclosure of qualitative and quantitative information about market riskinherent in derivative financial instruments, other financial instruments, andderivative commodity instruments beyond those already required under generallyaccepted accounting principles.  TheCompany is not a party to any of the instruments discussed in FRR 48 andconsiders its market risk to be minimal.

 

**Item 4.  Controls and Procedures**

 

As of a date within 90 days prior to the filing of thisQuarterly Report on Form 10-Q (the “Evaluation Date”), an evaluation wasperformed under the supervision of the Company’s Chief Executive Officer andprincipal financial officer, of the effectiveness of the design and operationof the Company’s disclosure controls and procedures.  Based on that evaluation, the Company’s Chief Executive Officerand principal financial officer concluded that the Company’s disclosurecontrols and procedures were effective as of the Evaluation Date.  There have been no significant changes inthe Company’s internal controls or in other factors that could significantlyaffect the internal controls subsequent to the Evaluation Date.

 

12

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**PART II.  OTHER INFORMATION**

 

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

 
| (a)    |   | Exhibits.                                                                                                                                                                                                                                                    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                         |
|   |   | 99.1                                                                                                                                                                                                                                                         | Certification  of CEO and principal financial officer Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Filed herewith. |
|   |   |                                                                                                                                                                                                                                                         |
| (b)    |   | Reports on Form 8-K.                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                         |
|   |   | Current  Report on Form 8-K dated April 11, 2003 filed with the Securities and  Exchange Commission on April 18, 2003 relating to the Amendment to the  License Agreement between the Company and Indevus Pharmaceuticals, Inc. dated  as of April 10, 2003. |

 

13

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                     |   | PALIGENT INC. |
|--------------------------|--------|---------------|
|                     |   | (Registrant)  |
|                     |   |          |
| Date:  May 19, 2003 |   | by:           | /s/ Salvatore A. Bucci |   |
|                     |   |          | Salvatore A. Bucci |
|                     |   |          | President and Chief  Executive Officer |
|                     |   |          |
|                     |   |          |

 

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**CERTIFICATION**

I,Salvatore A. Bucci, certify that:

 

1.                                       I have reviewed this Quarterly Report on Form10-Q of PALIGENT INC.;

 

2.                                       Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

a)                                      designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

b)                                     evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

c)                                      presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors:

a)                                      all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b)                                     any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  May 19, 2003 |   | by:    | /s/ Salvatore A. Bucci                 |   |
|--------------------------|--------|--------|----------------------------------------|--------|
|                     |   |   | Salvatore A. Bucci                     |
|                     |   |   | President and Chief  Executive Officer |
|                     |   |   | (Principal Financial  Officer)         |

 

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