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**SECURITIESAND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM10-Q**

 
| **x**  | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |
|   | **For  the quarterly period ended June 30, 2001**                                             |
|   |                                                                                          |
| **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 of registrant as specified in its charter)*     |
|                                                         |   |
| **Delaware**                                                 | **04-2893483** |
|                                                              |  |
| *(State or other jurisdiction of*                            | *(I.R.S. Employer* |
| *incorporation or organization)*                             | *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 mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

YES  ý             NO o

The number of shares outstanding of eachof the issuer’s classes of common stock, as of the latest practicable date.

| Class                          | Outstanding as of  August 10, 2001 |
|--------------------------------|------------------------------------|
|                                |                                    |
| 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 June 30, 2001 (unaudited) and December 31, 2000                          |
|           |                                                                                                            |
|           | Condensed  Consolidated Statements of Operations (unaudited) Three and six months ended  June 30, 2001 and 2000 |
|           |                                                                                                            |
|           | Condensed  Consolidated Statements of Cash Flows (unaudited) Six months ended June 30,  2001 and 2000           |
|           |                                                                                                            |
|           | Notes  to Condensed Consolidated Financial Statements                                                           |
|           |                                                                                                            |
| **Item  2.**   | Management's  Discussion and Analysis of Financial Condition and Results of Operations                          |
|           |                                                                                                            |
| **Item  3.**   | Quantitative  and Qualitative Disclosure About Market Risk                                                      |
|           |                                                                                                            |
|           |                                                                                                            |
| **PART II.**   | **OTHER INFORMATION**                                                                                           |
|           |                                                                                                            |
| **Item  6.**   | Exhibits  and Reports on Form 8-K                                                                               |
|           |                                                                                                            |
| **SIGNATURES** |                                                                                                            |

**PALIGENT INC.CONDENSED CONSOLIDATED BALANCESHEETS**

|                                       | **June  30, 2001**                                                                                                                            |         |                   |         |
|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------|--------------|
|                                       | **(unaudited)**                                                                                                                               |         | **December  31, 2000** |         |
|                                       |                                                                                                                                               |         |                        |         |
| ASSETS                                     |                                                                                                                                          |         |                   |         |
| Current assets:                            |                                                                                                                                          |         |                   |         |
|                                       | Cash and cash  equivalents                                                                                                                    | $            | 1,895,443              |         | $ | 2,971,690 |   |
|                                       | Prepaid expenses and  other current assets                                                                                                    | 152,666      |                   | 239,305      |   |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       | Total current assets                                                                                                                          | 2,048,109    |                   | 3,210,995    |   |
|                                       |                                                                                                                                          |         |                   |         |   |
| Property and  equipment, net               | 159,684                                                                                                                                       |         | 223,183                |         |
| Other assets                               | 77,582                                                                                                                                        |         | 77,582                 |         |
|                                       |                                                                                                                                               |         |                        |         |
|                                       | Total assets                                                                                                                                  | $            | 2,285,375              |         | $ | 3,511,760 |   |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       |                                                                                                                                          |         |                   |         |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY |                                                                                                                                          |         |                   |         |
| Current liabilities:                       |                                                                                                                                          |         |                   |         |
|                                       | Accounts payable                                                                                                                              | $            | 97,852                 |         | $ | 188,587 |   |
|                                       | Accrued compensation                                                                                                                          | 4,220        |                   | 178,613      |   |
|                                       | Accrued professional  services                                                                                                                | 58,355       |                   | 220,680      |   |
|                                       | Other current  liabilities                                                                                                                    | -            |                   | 36,814       |   |
|                                       | Current portion of  capital lease obligations                                                                                                 | 19,449       |                   | 60,505       |   |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       | Total current  liabilities                                                                                                                    | 179,876      |                   | 685,199      |   |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       |                                                                                                                                          |         |                   |         |   |
| Capital lease  obligations                 | 56,491                                                                                                                                        |         | 65,877                 |         |
|                                       |                                                                                                                                               |         |                        |         |
| Deferred rent and  other liabilities       | 31,622                                                                                                                                        |         | 5,811                  |         |
|                                       |                                                                                                                                               |         |                        |         |
|                                       |                                                                                                                                          |         |                   |         |
| Commitments and  contingencies             |                                                                                                                                          |         |                   |         |
|                                       |                                                                                                                                          |         |                   |         |
| Stockholders’ equity:                 |                                                                                                                                          |         |                   |         |
|                                       | Common stock, $.01 par  value; 75,000,000 shares authorized; 32,490,948 shares issued and outstanding  at June 30, 2001 and December 31, 2000 | 324,910      |                   | 324,910      |   |
|                                       | Additional paid-in  capital                                                                                                                   | 154,634,974  |                   | 154,634,974  |   |
|                                       | Accumulated deficit                                                                                                                           | (152,942,498 | )                      | (152,205,011 | ) |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       | Total stockholders’  equity                                                                                                              | 2,017,386    |                   | 2,754,873    |   |
|                                       |                                                                                                                                          |              |                   |              |   |
|                                       | Total liabilities and  stockholders’ equity                                                                                              | $            | 2,285,375              |         | $ | 3,511,760 |   |
|                                       |                                                                                                                                               |         |                        |         |
|                                            |                                                                                                                                               |              |                        |              |  |  |  |  |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements.

**PALIGENTINC.CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS(unaudited)**

|                                                                           | **Three  Months Ended June 30,**                                                             |     | **Six  Months Ended June 30,** |      |
|--------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|----------|--------------------------------|-----------|
|                                                                           | ****                                                                                         |     | ****                           |      |
|                                                                           | **2001**                                                                                     |     | **2000**                       |      | **2001** |   | **2000** |   |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
| Revenue:                                                                       |                                                                                         |     |                           |      |   |   |   |   |
|                                                                           | Interest income                                                                              | $        | 20,091                         |      | $ | 83,231 |   | $ | 53,170 |   | $ | 132,401 |   |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
|                                                                           | Total revenue                                                                                | 20,091   |                           | 83,231    |   | 53,170 |   | 132,401 |   |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Costs and operating  expenses:                                                 |                                                                                         |     |                           |      |   |   |   |   |
|                                                                           | Research and  development (includes $3,746,836 of non-cash compensation charges in 2000)     | -        |                           | 409,976   |   | - |   | 4,503,039 |   |
|                                                                           | Sales and marketing                                                                          | -        |                           | 222,806   |   | - |   | 378,056 |   |
|                                                                           | General and  administrative (includes $15,435,688 of non-cash compensation charges in  2000) | 412,229  |                           | 2,668,044 |   | 777,532 |   | 19,465,137 |   |
|                                                                           |                                                                                         |          |                           |           |   |  |   |  |   |
|                                                                           | Total costs and  operating expenses                                                          | 412,229  |                           | 3,300,826 |   | 777,532 |   | 24,346,232 |   |
|                                                                           |                                                                                         |          |                           |           |   |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Loss from operations                                                           | (392,138                                                                                     | )        | (3,217,595                     | )         | (724,362 | ) | (24,213,831 | ) |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Other (expense) income                                                         | (124                                                                                         | )        | 637,975                        |      | (13,125 | ) | 875,375 |   |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Net loss                                                                       | $                                                                                            | (392,262 | )                              | $         | (2,579,620 | ) | $ | (737,487 | ) | $ | (23,338,456 | ) |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Basic and diluted net  loss per common share                                   | $                                                                                            | (0.01    | )                              | $         | (0.08 | ) | $ | (0.02 | ) | $ | (0.80 | ) |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                           |                                                                                         |     |                           |      |   |   |   |   |
| Weighted-average number  of common shares outstanding – basic and diluted | 32,490,948                                                                                   |     | 32,490,948                     |      | 32,490,948 |   | 29,325,592 |   |
|                                                                           |                                                                                              |     |                                |      |  |   |  |   |
|                                                                                |                                                                                              |          |                                |           |  |  |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements.

**PALIGENTINC.CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS(unaudited)**

|                                                                     | **Six  months ended June 30,**                                                     |       |
|--------------------------------------------------------------------------|------------------------------------------------------------------------------------|------------|
|                                                                     | ****                                                                               |       |
|                                                                     | **2001**                                                                           |       | **2000** |   |
|                                                                     | ****                                                                               |       | **** |   |
| Cash flows from  operating activities:                                   |                                                                               |       |   |   |
|                                                                     | Net loss                                                                           | $          | (737,487 | ) | $ | (23,338,456 | ) |
|                                                                     | Adjustments to  reconcile net loss to net cash used in operating activities:       |       |   |   |   |
|                                                                     | Depreciation and  amortization                                                     | 43,274     |   | 2,102,549 |   |
|                                                                     | Loss (gain) on sale of  property and equipment                                     | 13,125     |   | (98,581 | ) |
|                                                                     | Gain on sale of  investment                                                        | —     |   | (234,100 | ) |
|                                                                     | Compensation charge  associated with variable stock options                        | —     |   | 14,729,024 |   |
|                                                                     | Compensatory stock and  stock option expense                                       | —     |   | 4,466,483 |   |
|                                                                     | Deferred rent                                                                      | 5,811      |   | (67,317 | ) |
|                                                                     | Changes in operating  assets and liabilities, net of acquisition:                  |       |   |   |   |
|                                                                     | Prepaid expenses and  other current assets                                         | (3,361     | ) | (258,587 | ) |
|                                                                     | Other assets                                                                       | —     |   | (70,432 | ) |
|                                                                     | Accounts payable                                                                   | (90,735    | ) | 128,843 |   |
|                                                                     | Accrued expenses and  other current liabilities                                    | (373,532   | ) | (272,051 | ) |
|                                                                     | Other liabilities                                                                  | 20,000     |   | — |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     | Net cash used in  operating activities                                             | (1,122,905 | ) | (2,912,625 | ) |
|                                                                     |                                                                                    |       |  |   |
|                                                                     |                                                                               |       |   |   |
| Cash flows from  investing activities:                                   |                                                                               |       |   |   |
|                                                                     | Capital expenditures                                                               | —     |   | (133,025 | ) |
|                                                                     | Proceeds from sales of  assets                                                     | 97,100     |   | 141,275 |   |
|                                                                     | Proceeds from sale of  investment                                                  | —     |   | 405,753 |   |
|                                                                     | Cash acquired in  acquisition                                                      | —     |   | 17,831 |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     | Net cash provided by  investing activities                                         | 97,100     |   | 431,834 |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     |                                                                               |       |   |   |
| Cash flows from  financing activities:                                   |                                                                               |       |   |   |
|                                                                     | Proceeds from exercise  of common stock options                                    | —     |   | 153,888 |   |
|                                                                     | Proceeds from exercise  of common stock warrants                                   | —     |   | 3,292,790 |   |
|                                                                     | Principal payments on  notes payable                                               | —     |   | (235,019 | ) |
|                                                                     | Principal payments on  capital lease obligations                                   | (50,442    | ) | (4,268 | ) |
|                                                                     |                                                                                    |       |  |   |
|                                                                     | Net cash (used in)  provided by financing activities                               | (50,442    | ) | 3,207,391 |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     |                                                                               |       |   |   |
| Net change in cash and  cash equivalents                                 | (1,076,247                                                                         | )          | 726,600 |   |
| Cash and cash  equivalents at beginning of period                        | 2,971,690                                                                          |       | 4,074,525 |   |
|                                                                     |                                                                                    |       |  |   |
| Cash and cash  equivalents at end of period                              | $                                                                                  | 1,895,443  |   | $ | 4,801,125 |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     |                                                                               |       |   |   |
| Supplemental  disclosure of cash flow information:                       |                                                                               |       |   |   |
|                                                                     | Interest paid                                                                      | $          | 10,063 |   | $ | 12,003 |   |
|                                                                     |                                                                                    |       |  |   |
|                                                                     |                                                                               |       |   |   |
| Supplemental  disclosure of non-cash investing and financing activities: |                                                                               |       |   |   |
|                                                                     | Fair value of common  stock issued to acquire Heaven’s Door Corporation       |       |   | $ | 23,935,275 |   |
|                                                                     |                                                                               |       |   |  |   |
|                                                                     | Debt assumed from the  acquisition of Heaven’s Door Corporation               |       |   | $ | 290,019 |   |
|                                                                     |                                                                               |       |   |  |   |
|                                                                     | Fair value of common  stock issued in exchange for certain contractual obligations |       |   | $ | 23,020,955 |   |
|                                                                     |                                                                               |       |   |  |   |
|                                                                     | Fair value of common  stock issued to consultants                                  |       |   | $ | 4,453,500 |   |
|                                                                     |                                                                               |       |  |   |
|                                                                          |                                                                                    |            |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements.

**PALIGENT INC.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 – BASIS OF PRESENTATION**

**Interim Financial Statements**

The condensed consolidated financialstatements included herein have been prepared by Paligent Inc. (“Paligent” orthe “Company”) without audit pursuant to the rules and regulations of theUnited States Securities and Exchange Commission.  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules 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 June 30, 2001 and theresults of its operations and its cash flows for the interim periods ended June30, 2001 and 2000. The condensed consolidated balance sheet as of December 31,2000 was derived from audited financial statements but does not include alldisclosures required by generally accepted accounting principles.  The accompanying condensed consolidated financialstatements have been prepared in accordance with accounting standards forinterim financial statements and should be read in conjunction with the auditedconsolidated financial statements andthe notes thereto included in the Company’s Form 10-K for the year endedDecember 31, 2000.  The results of operations for the interimperiods are not necessarily indicative of the results of operations to beexpected for the fiscal year or any other interim period.

**Reclassifications**

Certain prior period amounts have beenreclassified to conform with the current period presentation.

**NOTE 2 – BASIC AND DILUTED NETLOSS PER SHARE**

Basicearnings per share (“EPS”) excludes dilution and is computed by dividing (loss)income applicable to common stockholders by the weighted average number ofcommon shares outstanding for the period. Diluted EPS is based upon the weighted average number of common sharesoutstanding during the period plus the additional weighted average commonequivalent shares during the period. Common equivalent shares are not included in the per share calculationswhere the effect of their inclusion would be anti-dilutive.  Common equivalent shares result from theassumed exercises of outstanding stock options and warrants, the proceeds ofwhich are then assumed to have been used to repurchase outstanding shares ofcommon stock (the “treasury stock method”).

Forthe three and six months ended June 30, 2001 and 2000, the Company had stockoptions and warrants outstanding that were anti-dilutive.  These securities could potentially dilutebasic EPS in the future and were not included in the computation of diluted EPSbecause to do so would have been anti-dilutive for the periods presented.  Consequently, there were no differencesbetween basic and diluted EPS for these periods.

**NOTE 3 – COMPREHENSIVE (LOSS) INCOME**

Comprehensive (loss) income includes thenet loss and accumulated other comprehensive (loss) income, which consists ofthe change in unrealized gain on investments. Comprehensive (loss) income is calculated as follows:

|                                      | **Three  Months Ended June 30,** |          | **Six  Months Ended March 31,** |          |
|-------------------------------------------|----------------------------------|---------------|---------------------------------|---------------|
|                                      | ****                             |          | ****                            |          |
|                                      | **2001**                         |          | **2000**                        |          | **2001** |   | **2000** |   |
|                                      | ****                             |          | ****                            |          | **** |   | **** |   |
| Net loss                                  | $                                | (392,262      | )                               | $             | (2,579,620 | ) | $ | (737,487 | ) | $ | (23,338,456 | ) |
|                                      |                             |          |                            |          |   |   |   |   |
| Change in unrealized  gain on investments | -                                |     | -                               |     | - |     | (98,323 | ) |
|                                      |                                  |          |                                 |          |  |   |  |   |
|                                      | Comprehensive loss               | $             | (392,262                        | )             | $ | (2,579,620 | ) | $ | (737,487 | ) | $ | (23,436,779 | ) |
|                                      |                                  |          |                                 |          |  |   |  |   |
| Unrealized gain on investments:           |                             |          |                            |          |   |   |   |   |
|                                      |                             |          |                            |          |   |   |   |   |
|                                      | Balance, beginning of  period    |          |                            |          |   |   |   | $ | 98,323 |   |
|                                      |                             |          |                            |          |   |   |   |   |   |
|                                      | Change during the  period        |          |                            |          |   |   |   | (98,323 | ) |
|                                      |                             |          |                            |          |   |   |   |  |   |
|                                      | Balance, end of period           |          |                            |          |   |   |   | $ | - |   |
|                                      |                             |          |                            |          |   |   |   |  |   |

**NOTE 4– RELATED PARTIES**

On October 13, 2000, the Company’ssubsidiary, Procept, Inc., formerly Pacific Pharmaceuticals, Inc., (“Procept”)entered into an agreement with AOI Pharmaceuticals, Inc. (“AOI”) to sublicenseits exclusive worldwide patent rights and know-how relating to O6-Benzylguanine(“O6-BG”), a chemosensitizer that had been under development by the Company forseveral years.  Michael S. Weiss, theChairman of the Board of the Company is the Chairman and Chief ExecutiveOfficer of AOI.  In addition, theprincipal stockholder of the Company is a stockholder of an affiliate ofAOI.  Pursuant to this agreement,Procept sublicensed all development and licensing rights to AOI in exchange forfuture royalties on net sales of O6-BG. The agreement also provides for cash payments to Procept based upon theachievement of certain developmental milestones.  In addition, AOI assumed all financial obligations of Procept relatingto its licensing of worldwide patent rights as of the effective date of theagreement.  On November 22, 2000, theCompany was notified by The Penn State Research Foundation (“PSRF”) that theCompany was in default of its material obligations under the License Agreementbetween Procept and PSRF and that such default invalidates the Company’ssublicensing agreement with AOI.  TheCompany believes that PSRF’s claims are without merit; however, in the interim,the Company and AOI have agreed to defer the reimbursement of costs that theCompany has paid on behalf of AOI until the matter is resolved.  As of June 30, 2001, such reimbursable costsamounted to $126,000 and are included in prepaid expenses and other currentassets.  The Company and PSRF are engagedin on-going discussions toward a satisfactory resolution of the issuesinvolved.

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results 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 can generallybe identified by the use of such terms as “anticipate,” “believe,” “continue,”“expect,” "may," "should," or similar variations or thenegative thereof.  These forward lookingstatements involve risks and uncertainties, many of which are out of theCompany's control and which may affect its future business plans.  Factors that may affect the Company's futurebusiness plans include: (i) its ability to identify, complete and integrate anacquisition of an operating business; (ii) the viability of the Company’sbusiness strategy in connection with an acquisition and its ability toimplement such strategy; (iii) its ability to secure financing for itsoperations; and (iv) its ability to generate revenues sufficient to meet itsoperating costs.  Such statementsreflect the current view of the Company with respect to future events and aresubject to certain risks, uncertainties and assumptions.  In addition, the Company’s business,operations and financial condition are subject to the risks, uncertainties andassumptions that are described in the Company’s reports and statements filedfrom time to time with the Securities and Exchange Commission.  Should one or more of those risks oruncertainties materialize, or should underlying assumptions prove incorrect,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**

From its inception in 1985 through 1999,Paligent Inc., together with its subsidiaries (collectively, “Paligent” or the“Company”), operated as a biopharmaceutical company engaged in the developmentand commercialization of novel drugs with a product portfolio focused oninfectious diseases and oncology.  InMarch 1999, the Company completed its merger with Pacific Pharmaceuticals, Inc.(“Pacific”), a company engaged in the development of cancer therapies.  In January 2000, the Company consummated amajor strategic change in its business by acquiring Heaven’s Door Corporation(“HDC”), a company that provided business-to-business and business-to-consumerproducts and services for the funeral service industry over the Internet.  Effective with the acquisition of HDC, theCompany’s name was changed from Procept, Inc. to HeavenlyDoor.com, Inc. and thename of the Company’s subsidiary, Pacific, was changed to Procept, Inc.

Beginning in 2000, effective with themerger with HDC, the Company pursued an Internet strategy that focused onpromoting and facilitating transactions between consumers, funeral industryproviders and financing institutions. In this regard, the Company developed a Web-based presence that providedconsumers access to information pertaining to the arrangement and handling ofpre-arranged funeral contracts.  TheCompany’s services to funeral industry providers included the development ofcustomized Web sites that were linked to the Company’s Web site, call centercapabilities and marketing support.

During the fourth quarter of 2000, theCompany decided to discontinue the pursuit of its Internet strategy after asustained period of deterioration in the technology sector and related capitalmarkets.  Shortly thereafter, theCompany entered into an agreement to sell all of its Web-based assets andInternet funeral service operations, including the name “HeavenlyDoor.com.”  On December 31, 2000, the Company changedits name from HeavenlyDoor.com, Inc. to Paligent Inc.  The Company is currently engaged in evaluating strategicalternatives to maximize value to existing stockholders.

**Resultsof Operations**

From inception through June 30, 2001, theCompany has generated no revenues from product sales or services and has notbeen profitable.  As the Companyevaluates various strategic alternatives in its quest for new growth areas thatwill maximize value to existing stockholders, the Company expects to incuradditional losses.

*Three and six months ended June 30, 2001 as compared to thethree and six months ended June 30, 2000*

During the three months ended June 30,2001, the Company reported a net loss of $400,000, or $0.01 per share, ascompared to a net loss of $2.6 million, or $0.08 per share, in the comparableperiod in 2000.  For the six monthsended June 30, 2001, Paligent reported a net loss of $700,000, or $0.02 pershare, as compared to a net loss of $23.3 million, or $0.80 per share, for thesimilar period in 2000.  The fiscal 2000net loss includes non-cash charges of $21.2 million; which, if excluded,results in a net loss of $2.1 million, or $0.07 per share, for the six-month periodended June 30, 2000.

The Company's total revenue, which isderived from interest income, was $20,000 and $53,000, respectively, for thethree and six months ended June 30, 2001, as compared to $83,000 and $132,000,respectively, for the comparable three and six month periods in 2000.  The reduction in interest income isattributable to a decrease in average cash balances available for investmentduring the respective periods.

Total operating expenses were $400,000for the quarter ended June 30, 2001 as compared to $3.3 million for the comparablequarter in 2000, a decrease of $2.9 million. The Company's total operating expenses decreased by $23.5 million, to$800,000, for the six months ended June 30, 2001, from $24.3 million for thecomparable period of 2000.  Totaloperating expenses for the six month period ended June 30, 2000 includenon-cash charges of $21.2 million, of which $19.2 million relates to non-cashstock-based compensation charges and $2.0 million reflects amortization ofgoodwill.  These non-cash chargesexcluded, total operating expenses decreased by $2.3 million in the six monthperiod ended June 30, 2001 from $3.1 million in the comparative period infiscal 2000.

During fiscal 2000, the Company sold itsbiopharmaceutical equipment and closed its Cambridge, Massachusetts researchand development facility.  The Companyalso discontinued the pursuit of its Internet strategy and sold its Web-basedassets and Internet operations in December 2000.  Accordingly, there were no research and development costs orsales and marketing expenses in the six months ended June 30, 2001.

General and administrative expenses were$400,000 during the quarter ended June 30, 2001, a decrease of $2.3 millionfrom $2.7 million in the same quarter in fiscal 2000.  For the six months ended June 30, 2001, general andadministrative expenses decreased by $18.7 million, to $800,000, from $19.5 million during the comparableperiod in 2000.  The prior yearsix-month period includes $17.5 million of non-cash charges, of which $15.5million pertains to stock-based compensation charges and $2.0 million relatesto amortization of goodwill.  Excludingthe prior year non-cash charges, general and administrative expenses decreasedby $1.2 million in the six-month period ended June 30, 2001.  The decrease is attributable to staffingreductions and the elimination of other expenses that were incurred by theCompany in connection with its previous biopharmaceutical and Internetoperations.

During the second quarter of fiscal 2000,the Company received proceeds of $500,000 and $100,000 in connection with itsout-licensing of PRO 2000 Gel and the sale of equipment, respectively.  During the six months ended June 30, 2000,the Company recorded a non-recurring gain of $200,000 from the disposition ofits investment in Aquila Biopharmaceuticals, Inc.  These gains were recorded to other income.  There were no comparable items of gain inthe current year.  Other expense for thesix months ended June 30, 2001 reflects losses recognized on the sale ofequipment.

**Liquidity and Capital Resources**

Sincedisposing of its Internet assets and related operations in December 2000, theCompany has significantly reduced its operating costs.  At its current rate of spending, the Companyexpects that its current funds and interest income will be sufficient to fundthe Company's current operations beyond the next twelve months while theCompany evaluates strategic alternatives, including potential businessinvestments and related financing.  Noassurance can be given that such financing will be available to theCompany.  If the Company is unable togenerate significant revenue from future operations, or obtain additionalrevenue in connection with the existing licenses of the Company’s biotechnologyassets, or secure additional financing, the Company's financial condition willbe adversely affected. Further, any potential strategic alignment and/orpotential acquisition could affect the Company’s liquidity and financingrequirements.  If additional funds are raisedby issuing equity securities, further dilution to existing stockholders willresult and future investors may be granted rights superior to those of existingstockholders.

The Company's expectations regarding itsrate of spending and the sufficiency of its cash resources over future periodsare forward-looking statements. The rate of spending and sufficiency of suchresources will be affected by numerous factors including the rate of plannedand unplanned expenditures by the Company and the timing of payments received,if any, under the sublicenses of the biotechnology assets.

For the six months ended June 30, 2001,the Company incurred a net loss of $800,000. The Company used $1.2 million to fund operating activities during thesix month period in 2001, as compared to $2.9 million of cash used during thesimilar period in fiscal 2000.

At June 30, 2001, the Company’s aggregatecash and cash equivalents were $1.9 million, a net decrease of $1.1 millionfrom the end of the prior year.  Thisdecrease is attributable to the $1.2 million of cash used to fund operations,$500,000 of which was used to satisfy current liabilities outstanding as ofDecember 31, 2000.  During the currentyear, the Company also received proceeds of $100,000 relating to the sale ofassets.

**Item 3.  Quantitative and Qualitative DisclosureAbout Market Risk.**

In January 1997, the Securities andExchange Commission issued Financial Reporting Release 48 (“FRR 48”),“Disclosure of Accounting Policies for Derivative Financial Instruments andDerivative Commodity Instruments, and Disclosure of Quantitative andQualitative Information About Market Risk Inherent in Derivative FinancialInstruments, 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.  The Companyis not a party to any of the instruments discussed in FRR 48 and considers itsmarket risk to be minimal.

**PART II.  OTHER INFORMATION**

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

|   | (a)    | Exhibits.             |
|--------|--------|-----------------------|
|   |   |                  |
|   |   | None.                 |
|   |   |                  |
|   | (b)    | Reports  on Form 8-K. |
|   |   |                  |
|   |   | None.                 |
|   |   |                  |

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

|   |             | PALIGENT  INC. |
|--------|------------------|----------------|
|   |             | (Registrant)   |
|   |             |           |
| Date:  | August  10, 2001 | by:            | /s/  Salvatore A. Bucci |
|   |             |           |  |
|   |             |           | Salvatore  A. Bucci |
|   |             |           | President  and Chief Executive Officer |