#  

**UNITEDSTATESSECURITIES 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 THESECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended September 30, 2002**

 

**o****        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition periodfrom                   to                   **

 

**CommissionFile Number:  0-21134**

 

| **Paligent  Inc.**                                              |
|-----------------------------------------------------------------|
| (Exact name of registrant 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

 

Thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

| **Class**                     |   | **Outstanding as of November 14, 2002** |
|-------------------------------|--------|-----------------------------------------|
|                          |   |                                    |
| Common Stock, $0.01 par value |   | 32,490,948                              |

 

 

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**PALIGENT INC.**

 

**INDEX**

 
| **PART  I.**            | **FINANCIAL  INFORMATION**                                                                                              |
|-------------------------|-------------------------------------------------------------------------------------------------------------------------|
|                    |                                                                                                                    |
| **Item 1.**             | Financial Statements                                                                                                    |
|                    |                                                                                                                    |
|                    | Condensed  Consolidated Balance Sheets  September 30, 2002 (unaudited) and December 31, 2001                            |
|                    |                                                                                                                    |
|                    | Condensed  Consolidated Statements of Operations (unaudited)  Three and nine months ended September 30, 2002 and 2001   |
|                    |                                                                                                                    |
|                    | Condensed  Consolidated Statements of Cash Flows (unaudited)  Nine months ended September 30, 2002 and 2001             |
|                    |                                                                                                                    |
|                    | 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 |

 

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**PALIGENT INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                               |   | **September 30, 2002** |    | **December 31, 2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|-----------------------|--------|
|                                                                                                                                               |   | **(unaudited)**        |    |                  |   |
| ASSETS                                                                                                                                             |   |                   |    |                  |   |
| Current assets:                                                                                                                                    |   |                   |    |                  |   |
| Cash and cash  equivalents                                                                                                                         |   | $                      | 308,310 |                  | $      | 1,298,266 |   |
| Due from related  party                                                                                                                            |   | —                 |    | 137,091               |   |
| Prepaid expenses  and other current assets                                                                                                         |   | 31,129                 |    | 9,147                 |   |
| Total current  assets                                                                                                                              |   | 339,439                |    | 1,444,504             |   |
|                                                                                                                                               |   |                   |    |                  |   |
| Property and  equipment, net                                                                                                                       |   | 85,677                 |    | 110,954               |   |
| Other assets                                                                                                                                       |   | 89,272                 |    | 94,809                |   |
| Total assets                                                                                                                                       |   | $                      | 514,388 |                  | $      | 1,650,267 |   |
|                                                                                                                                               |   |                   |    |                  |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                         |   |                   |    |                  |   |
| Current  liabilities:                                                                                                                              |   |                   |    |                  |   |
| Accounts payable                                                                                                                                   |   | $                      | 73,606  |                  | $      | 33,069 |   |
| Accrued compensation                                                                                                                               |   | 6,731                  |    | 7,549                 |   |
| Accrued  professional services                                                                                                                     |   | 63,000                 |    | 139,000               |   |
| Accrued patent  and research costs                                                                                                                 |   | —                 |    | 285,859               |   |
| Current portion  of capital lease obligations                                                                                                      |   | 22,071                 |    | 22,365                |   |
| Total current  liabilities                                                                                                                         |   | 165,408                |    | 487,842               |   |
|                                                                                                                                               |   |                   |    |                  |   |
| Deferred rent  and other liabilities                                                                                                               |   | 53,864                 |    | 56,496                |   |
| Capital lease  obligations                                                                                                                         |   | 24,833                 |    | 43,511                |   |
|                                                                                                                                               |   |                   |    |                  |   |
| Stockholders’  equity:                                                                                                                        |   |                   |    |                  |   |
| Common stock,  $.01 par value; 75,000,000 shares authorized; 32,490,948 shares issued and  outstanding at September 30, 2002 and December 31, 2001 |   | 324,910                |    | 324,910               |   |
| Additional  paid-in capital                                                                                                                        |   | 154,634,974            |    | 154,634,974           |   |
| Accumulated  deficit                                                                                                                               |   | (154,689,601           | )       | (153,897,466          | )      |
| Total  stockholders’ equity                                                                                                                   |   | 270,283                |    | 1,062,418             |   |
| Total  liabilities and stockholders’ equity                                                                                                   |   | $                      | 514,388 |                  | $      | 1,650,267 |   |

 

The accompanying notesare an integral part of the condensed consolidated financial statements.

 

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**PALIGENT INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(unaudited)**

 
|                                                                           |   | **Three months  ended September 30,** |     | **Nine  months ended September 30,** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------|----------|--------------------------------------|--------|
|                                                                           |   | **2002**                              |     | **2001**                             |   | **2002** |   | **2001** |   |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Revenue:                                                                       |   |                                  |     |                                 |   |   |   |   |   |
| Interest income                                                                |   | $                                     | 1,156    |                                 | $      | 13,055 |   | $ | 7,326 |   | $ | 66,225 |   |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Costs and expenses:                                                            |   |                                  |     |                                 |   |   |   |   |   |
| General and administrative                                                     |   | 247,127                               |     | 340,440                              |   | 799,461 |   | 1,117,972 |   |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Loss from operations                                                           |   | (245,971                              | )        | (327,385                             | )      | (792,135 | ) | (1,051,747 | ) |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Other expense                                                                  |   | —                                |     | 6,686                                |   | — |   | 19,811 |   |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Net loss                                                                       |   | $                                     | (245,971 | )                                    | $      | (334,071 | ) | $ | (792,135 | ) | $ | (1,071,558 | ) |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Basic and diluted net loss per common share                                    |   | $                                     | (0.01    | )                                    | $      | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) |
|                                                                           |   |                                  |     |                                 |   |   |   |   |   |
| Weighted-average number of common shares outstanding  – basic and diluted |   | 32,490,948                            |     | 32,490,948                           |   | 32,490,948 |   | 32,490,948 |   |

 

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

 

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**PALIGENT INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                         |   | **Nine months ended September 30,** |     |
|------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                         |   | **2002**                            |     | **2001** |   |
| Cash flows from operating activities:                                        |   |                                |     |   |   |
| Net loss                                                                     |   | $                                   | (792,135 | ) | $ | (1,071,558 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                                |     |   |   |
| Depreciation and  amortization                                               |   | 30,895                              |     | 54,296 |   |
| Loss on sale of  property and equipment                                      |   | —                              |     | 19,811 |   |
| Deferred rent                                                                |   | (2,632                              | )        | 7,307 |   |
| Changes in  operating assets and liabilities:                                |   |                                |     |   |   |
| Due from related party                                                       |   | 137,091                             |     | (90,000 | ) |
| Prepaid expenses and other current assets                                    |   | (21,982                             | )        | 76,510 |   |
| Other assets                                                                 |   | 5,537                               |     | — |   |
| Accounts payable                                                             |   | 40,537                              |     | (102,464 | ) |
| Accrued patent  and research costs                                           |   | (285,859                            | )        | — |   |
| Accrued expenses  and other current liabilities                              |   | (76,818                             | )        | (353,368 | ) |
| Other  liabilities                                                           |   | —                              |     | 20,000 |   |
| Net cash used in  operating activities                                       |   | (965,366                            | )        | (1,439,466 | ) |
|                                                                         |   |                                |     |   |   |
| Cash flows from  investing activities:                                       |   |                                |     |   |   |
| Capital  expenditures                                                        |   | (5,618                              | )        | — |   |
| Proceeds from  sales of assets                                               |   | —                              |     | 117,100 |   |
| Net cash (used  in) provided by investing activities                         |   | (5,618                              | )        | 117,100 |   |
|                                                                         |   |                                |     |   |   |
| Cash flows from  financing activities:                                       |   |                                |     |   |   |
| Principal  payments on capital lease obligations                             |   | (18,972                             | )        | (55,386 | ) |
| Net cash used in  financing activities                                       |   | (18,972                             | )        | (55,386 | ) |
|                                                                         |   |                                |     |   |   |
| Net change in  cash and cash equivalents                                     |   | (989,956                            | )        | (1,377,752 | ) |
|                                                                         |   |                                |     |   |   |
| Cash and cash  equivalents at beginning of period                            |   | 1,298,266                           |     | 2,971,690 |   |
|                                                                         |   |                                |     |   |   |
| Cash and cash  equivalents at end of period                                  |   | $                                   | 308,310  |   | $ | 1,593,938 |   |

 

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

 

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**PALIGENT INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(unaudited)**

 

**NOTE 1 – BASIS OF PRESENTATION**

 

# **Interim Financial Statements**

 

The condensed consolidated financial statements included herein havebeen prepared by Paligent Inc. (“Paligent” or the “Company”) pursuant to therules and regulations of the United States Securities and ExchangeCommission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  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 September 30, 2002 andthe results of its operations and its cash flows for the interim periods endedSeptember 30, 2002 and 2001. The condensed consolidated balance sheet as ofDecember 31, 2001 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, 2001.  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.

 

The Company has sustained net losses andnegative cash flows from operations since its inception. The Company iscurrently evaluating strategic alternatives, including potential businessinvestments and related financing.  Ifthe Company is unable to generate significant revenue from acquired operations,obtain additional revenue from its existing out-licensing of its biotechnologyassets, secure additional financing for its present operations or securesufficient financing for operations resulting from an acquisition or merger,the Company will experience a cash shortage in the first quarter of 2003, theeffect of which could result in the discontinuance of operations.

 

# **Reclassification**

 

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

 

**NOTE 2 – BASIC AND DILUTED NET LOSSPER 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.  Commonequivalent shares result from the assumed exercises of outstanding stockoptions and warrants, the proceeds of which are then assumed to have been usedto repurchase outstanding shares of common stock (the “treasury stock method”).

 

For the three and ninemonths ended September 30, 2002 and 2001, the Company had stock options andwarrants outstanding 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.

 

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**NOTE 3 – RELATED PARTIES**

 

On February 28,2002, the Company’s subsidiary, Procept, Inc. (“Procept”), and the UnitedStates Public Health Service (“PHS”) executed an exclusive Patent LicenseAgreement (the “New License Agreement”), which superceded the license agreementdated February 6, 1998 between Procept and The Penn State Research Foundation(“PSRF”) (the “Original License Agreement”). The New License Agreement affirms Procept’s worldwide patent rights toO6-Benzylguanine (“O6-BG”) and related compounds, and acknowledges Procept’ssublicense agreement with AOI Pharmaceuticals, Inc. (“AOI”) dated October 13,2000 (the “Sublicense Agreement”), as of the date executed by Procept andAOI.  At the time of executing the NewLicense Agreement, Procept paid to PHS a one-time license issue royalty fee of$86,000 for outstanding patent prosecution costs accrued at December 31,2001.  In connection with the executionof the New License Agreement, Procept, together with the National CancerInstitute (“NCI”) and AOI, also executed an amendment to the CooperativeResearch and Development Agreement (“CRADA”), originally executed with the NCIin August 1998 (the “Amended CRADA”), pursuant to which AOI replaced Procept asCollaborator *(i.e.,* the researchand development partner).  Under termsof the Amended CRADA, AOI assumed direct responsibility for all remainingresearch and payment obligations, effective as of February 28, 2002.  As part of the Amended CRADA, Procept made afinal payment of $200,000 to NCI for production and clinical distribution costsrelating to O6-BG, which costs were accrued at December 31, 2001.  Prior to executing the Amended CRADA, AOIwas obligated to reimburse Procept for costs that Procept paid, pursuant to,and subsequent to the effective date of, the Sublicense Agreement.  Shortly thereafter, Procept and AOI agreedthat AOI would defer its reimbursement to Procept for costs that Procept hadpaid relating to its maintenance of patent rights and CRADA obligations untilthe execution of the New License Agreement and the Amended CRADA.  As of December 31, 2001, such reimbursablecosts amounted to $137,000.  On February28, 2002, AOI paid to the Company the total balance of deferred reimbursablecosts.  Mr. Michael S. Weiss, Chairmanof the Board of the Company from July 1997 to May 7, 2002, is the Chairman ofthe Board of AOI.  In addition, theprincipal stockholder of the Company is a stockholder of an affiliate of AOI.

 

In May 2002, Procept executed an amendment to the New License Agreement(the “Amendment”).  The Amendmentclarified language in the New License Agreement pertaining to futuresublicensing agreements, in the event that such agreements were to beexecuted.  In addition, the Company,together with PHS, PSRF, AOI and the University of Chicago (“UC”), alsoexecuted, in May 2002, a Comprehensive Release Agreement (the “ReleaseAgreement”).  The Release Agreementprovides for the irrevocable and absolute release of the Company by PHS, PSRFand UC from any and all claims or obligations arising out of, or related to theOriginal License Agreement.  The ReleaseAgreement was made part of the New License Agreement.

 

**NOTE 4 – IMPACT OF RECENTLY ISSUEDACCOUNTING STANDARDS**

 

In April 2002, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. (“FAS”) 145, “Rescission of FAS4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April2002.”  This Statement amends FAS 13, “Accounting for Leases*,*” to eliminate an inconsistencybetween the required accounting for sale-leaseback transactions and therequired accounting for certain lease modifications that have economic effectsthat are similar to sale-leaseback transactions as well as other existingauthoritative pronouncements to make various technical corrections, clarifymeanings, or describe their applicability under changed conditions.  FAS 145 is effective for fiscal yearsbeginning after December 31, 2002.   TheCompany does not anticipate that the adoption of FAS 145 will have a materialimpact on the consolidated financial statements.

 

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In June 2002, the FASB issued FAS 146“Accounting for Costs Associated with Exit or Disposal Activities.”  This Statement addresses financialaccounting and reporting for costs associated with exit or disposal activitiesand nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  FAS 146 is effective for fiscal yearsbeginning after December 31, 2002.  TheCompany does not anticipate that the adoption of FAS 146 will have a materialimpact on the consolidated financial statements.

 

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**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

**Note Regarding Forward-LookingStatements**

 

Statements in this Form 10-Q that are not statements or descriptions ofhistorical facts are “forward-looking” statements under Section 21E of theSecurities Exchange Act of 1934, as amended, and the Private SecuritiesLitigation Reform Act of 1995 and are subject to numerous risks anduncertainties.  These forward-lookingstatements can generally be identified by the use of such terms as“anticipate,” “believe,” “continue,” “expect,” “may,” “should,” or similarvariations or the negative thereof. These forward looking statements involve risks and uncertainties, manyof which are out of the Company’s control and which may affect its futurebusiness plans.  Factors that may affectthe Company’s future business plans include: (i) its ability to identify,complete and integrate an acquisition of an operating business; (ii) theviability of the Company’s business strategy in connection with an acquisitionand its ability to implement such strategy; (iii) its ability to securefinancing for its current and potential future operations; and (iv) its abilityto generate revenues sufficient to meet its operating costs.  Such statements reflect the current view ofthe Company with respect to future events and are subject to certain risks,uncertainties and assumptions.  Inaddition, the Company’s business, operations and financial condition are subjectto the risks, uncertainties and assumptions that are described in the Company’sreports and statements filed from time to time with the Securities and ExchangeCommission.  Should one or more of thoserisks or uncertainties materialize, or should underlying assumptions proveincorrect, actual results may vary materially from those discussed herein.  The descriptions of the risks, uncertaintiesand assumptions to which the Company’s business, operations and financialcondition are subject are as of the date of this report.  The Company assumes no obligation to updateany 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.  In 2001, the Company significantly reducedits operating costs following the disposition of its Internet business and theout-licensing of its remaining biotechnology assets in 2000. All employees werereleased, except for the Company’s chief executive officer and an executiveassistant, and the Company subleased a substantial portion of its officefacility and related equipment.  TheCompany is continuing to evaluate various strategic alternatives, includingacquisitions of new operating businesses and technologies as well as potentialmerger 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.

 

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**Resultsof Operations**

 

From inception through September 30, 2002, the Company has generated norevenues from product sales or services and has not been profitable.  As the Company evaluates various strategicalternatives in its quest for new growth areas that will maximize value toexisting stockholders, the Company expects to incur additional losses.

 

## ***Three and nine months ended September 30, 2002 as comparedto the three and nine months ended September 30, 2001***

 

During the three months ended September 30, 2002, the Company reporteda net loss of $246,000, or $0.01 per share, as compared to a net loss of$334,000, or $0.01 per share, in the comparable period in 2001.  For the nine months ended September 30,2002, the Company reported a net loss of $792,000, or $0.02 per share, ascompared to a net loss of $1.1 million, or $0.03 per share, for the similarperiod in 2001.

 

The Company’s total revenue, which is derived from interest income, was$1,000 and $7,000, respectively, for the three and nine months ended September30, 2002, as compared to $13,000 and $66,000, respectively, for the comparablethree and nine month periods in 2001. The reduction in interest income is attributable to decreases ininterest rates and average cash balances available for investment during therespective periods.

 

Total operating expenseswere $247,000 for the quarter ended September 30, 2002 as compared to $340,000for the comparable quarter in 2001, a decrease of $93,000.  The Company’s total operating expensesdecreased by $319,000, to $799,000, for the nine months ended September 30,2002, from $1.1 million for the comparable period of 2001.  The decrease in general and administrativecosts in the three and nine month periods ended September 30, 2002 primarilycomprises reductions in legal fees, attributable to the resolution of thepatent licensing agreement, and reduced facilities costs resulting from theCompany’s subleasing of a substantial portion of its office space on July 1,2001.

 

During the nine monthsended September 30, 2001, the Company recorded a loss of $20,000 from the saleof office equipment.  This loss wasrecorded to other expense.  There wereno comparable items of gain or loss in the current period.

 

### **Liquidityand Capital Resources**

 

At September 30,2002, the Company’s aggregate cash and cash equivalents were $308,000, a netdecrease of $990,000 from the end of the prior year.  This decrease is primarily attributable to the $965,000 of cashused to fund operations, including $149,000 of net patent and research costsoutstanding as of December 31, 2001 (*i.e.,* total expenditures of $286,000 lessthe receipt of $137,000 from the collection of the related party receivable).

 

Since disposing of its Internet assets and related operations inDecember 2000, the Company has significantly reduced its operating costs.  At its present rate of spending, the Companyexpects that its existing funds and interest income will be sufficient to fundthe Company’s current operations into the first quarter of 2003.  While the Company evaluates strategicalternatives, including potential business investments and related financing,the Company’s rate of spending could vary from its current estimate.  No assurance can be given that the Companywill be able to complete a business investment or that such financing will beavailable to the Company.  If theCompany is unable to generate significant revenue from acquired operations,obtain additional revenue from its existing out-licensing of its biotechnologyassets, secure additional financing for its present operations or securesufficient financing for operations

 

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resulting from acquisition or merger, the Company will experience acash shortage in the first quarter of 2003, the effect of which could result inthe discontinuance of operations.  Ifadditional funds are raised by issuing equity securities, further dilution toexisting stockholders will result and future investors may be granted rightssuperior to those of existing stockholders.

 

The Company’sexpectations regarding its rate of spending and the sufficiency of its cashresources over future periods are forward-looking statements. The rate ofspending and sufficiency of such resources will be affected by numerous factorsincluding the rate of planned and unplanned expenditures by the Company and thetiming of payments received, if any, under the sublicenses of the biotechnologyassets.

 

**Impact of Recently Issued AccountingStandards**

 

In April 2002, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. (“FAS”) 145, “Rescission of FAS4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April2002.”  This Statement amends FAS 13, “Accounting for Leases*,*” to eliminate an inconsistencybetween the required accounting for sale-leaseback transactions and therequired accounting for certain lease modifications that have economic effectsthat are similar to sale-leaseback transactions as well as other existingauthoritative pronouncements to make various technical corrections, clarifymeanings, or describe their applicability under changed conditions.  FAS 145 is effective for fiscal yearsbeginning after December 31, 2002.   TheCompany does not anticipate that the adoption of FAS 145 will have a materialimpact on the consolidated financial statements.

 

In June 2002, the FASB issued FAS 146“Accounting for Costs Associated with Exit or Disposal Activities.”  This Statement addresses financialaccounting and reporting for costs associated with exit or disposal activitiesand nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  FAS 146 is effective for fiscal yearsbeginning after December 31, 2002.  TheCompany does not anticipate that the adoption of FAS 146 will have a materialimpact on the consolidated financial statements.

 

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**Item 3. Quantitative and Qualitative Disclosure 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 inDerivative Financial Instruments, Other Financial Instruments and DerivativeCommodity Instruments.”  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 andProcedures**

 

As of September 30,2002, an evaluation was performed under the supervision of the Company’s ChiefExecutive Officer and principal financial officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, the Company’sChief Executive Officer and principal financial officer concluded that theCompany’s disclosure controls and procedures were effective as of September 30,2002.  There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect the internal controls subsequent to September 30, 2002.

 

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**PARTII.  OTHER INFORMATION**

 

**Item6.    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.

 

None.

 

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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:   November 14, 2002 | 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.             Ihave reviewed this quarterly report on Form 10-Q of PALIGENT INC.;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.             Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a)             designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b)            evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c)             presentedin this quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors:

a)             allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)            anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’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:   November 14, 2002 | by:                                                                   | /s/ Salvatore A. Bucci |
|--------------------------------|-----------------------------------------------------------------------|------------------------|
|                           | Salvatore A.  Bucci                                                   |
|                           | President and Chief  Executive Officer  (Principal Financial Officer) |

 

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