** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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## **FORM10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the quarterly period ended June 30, 2006**

**o**                                 TRANSITIONREPORT 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.**

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*(Exact name of registrant as specified in itscharter)*

| **Delaware**                                          |   | **04-2893483**         |
|-------------------------------------------------------|--------|------------------------|
| *(State  or other jurisdiction of*                    |   | *(I.R.S.  Employer*    |
| *incorporation  or organization)*                     |   | *Identification  No.)* |
| * *                                              |   | * *               |
| **10 East  53****rd Street, New York, New York** |   | **10022**              |
| *(Address  of principal executive offices)*           |   | *(zip  code)*          |

 

**(212)755-5461**

*(Registrant’s telephone number,including area code)*

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

YES  x       NO  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.

Large accelerated filer  o           Acceleratedfiler  o           Non-acceleratedfiler  x

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

YES  x       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 August 4, 2006** |
|--------------------------------|------------|---------------------------------------|
| Common Stock,  $0.01 par value |       | 32,490,948                            |

 

 

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**PALIGENT INC.**

**INDEX**
|                   | ** ** | ** **                                                                                                      | ** ** | ** ** |
|-------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|------------|
| **PART I.**       | ** ** | **FINANCIAL INFORMATION**                                                                                       |       |       |
| ** **        | ** ** | ** **                                                                                                      |       |       |
| **Item 1.**       |       | Interim Financial Statements                                                                                    |       |       |
|              |       |                                                                                                            |       |       |
|              |       | Condensed  Consolidated Balance Sheets  June 30, 2006 (unaudited) and December 31, 2005                         |       |       |
|              |       |                                                                                                            |       |       |
|              |       | Condensed  Consolidated Statements of Operations (unaudited)  Three and six months ended June 30, 2006 and 2005 |       |       |
|              |       |                                                                                                            |       |       |
|              |       | Condensed  Consolidated Statements of Cash Flows (unaudited)  Six months ended June 30, 2006 and 2005           |       |       |
|              |       |                                                                                                            |       |       |
|              |       | 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 1A.**      | ** ** | Risk Factors                                                                                                    |       |       |
| ** **        | ** ** | ** **                                                                                                      |       |       |
| **Item  6.**      |       | Exhibits                                                                                                        |       |       |
| ** **        |       |                                                                                                            |       |       |
| **SIGNATURES**    |       |                                                                                                            |
| ** **        |       |                                                                                                            |       |       |
| **EXHIBIT INDEX** |       |                                                                                                            |

 

2

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**PALIGENTINC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                                  | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
| ASSETS                                                                                                                                                      |       |                        |       |                            |       |
| Current assets:                                                                                                                                             |       |                        |       |                            |       |
| Cash and cash  equivalents                                                                                                                                  |       | $                           | 9,439      |                            | $          | 51,681 |   |
| Prepaid expenses  and other current assets                                                                                                                  |       | 10,097                      |       | —                          |       |
| Total current  assets                                                                                                                                       |       | $                           | 19,536     |                            | $          | 51,681 |   |
|                                                                                                                                                        |       |                        |       |                            |       |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                                                                 |       |                        |       |                            |       |
| Current liabilities:                                                                                                                                        |       |                        |       |                            |       |
| Accounts payable  and accrued expenses                                                                                                                      |       | $                           | 69,350     |                            | $          | 9,703 |   |
| Accrued  professional services                                                                                                                              |       | 18,100                      |       | 27,000                          |       |
| Due to related  party                                                                                                                                       |       | 724,688                     |       | 546,362                         |       |
| Total current  liabilities                                                                                                                                  |       | 812,138                     |       | 583,065                         |       |
|                                                                                                                                                        |       |                        |       |                            |       |
| Stockholders’ deficit:                                                                                                                                 |       |                        |       |                            |       |
| Common stock,  $.01 par value; 75,000,000 shares authorized; 32,490,948 shares issued and  outstanding at June 30, 2006 and December 31, 2005, respectively |       | 324,910                     |       | 324,910                         |       |
| Additional  paid-in capital                                                                                                                                 |       | 154,634,974                 |       | 154,634,974                     |       |
| Accumulated  deficit                                                                                                                                        |       | (155,752,486                | )          | (155,491,268                    | )          |
| Total  stockholders’ deficit                                                                                                                           |       | (792,602                    | )          | (531,384                        | )          |
| Total liabilities and  stockholders’ deficit                                                                                                           |       | $                           | 19,536     |                            | $          | 51,681 |   |

 

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

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** **

**PALIGENTINC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**
| ** **                                                               | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| General and  administrative expenses                                     |       | $                                               | 147,245    |                                          | $          | 116,372 |   | $ | 261,218 |   | $ | 217,466 |   |
|                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Loss from  operations                                                    |       | (147,245                                        | )          | (116,372                                      | )          | (261,218 | ) | (217,466 | ) |
|                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Other income                                                             |       | —                                          |       | —                                        |       | — |   | 141,250 |   |
|                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Net loss                                                                 |       | $                                               | (147,245   | )                                             | $          | (116,372 | ) | $ | (261,218 | ) | $ | (76,216 | ) |
|                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Basic and  diluted net loss per common share                             |       | $                                               | (0.00      | )                                             | $          | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) |
|                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average number  of common shares outstanding  Basic and diluted |       | 32,490,948                                      |       | 32,490,948                                    |       | 32,490,948 |   | 32,490,948 |   |

 

The accompanying notes are an integral part of the condensedconsolidated financial statements.

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** **

**PALIGENTINC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**
| ** **                                                                   | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                       |       |                                              |       |   |   |
| Net loss                                                                     |       | $                                                 | (261,218   | ) | $ | (76,216 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                |       | —                                            |       | 941 |   |
| Changes in operating assets and liabilities:                                 |       |                                              |       |   |   |
| Note receivable                                                              |       | —                                            |       | (75,000 | ) |
| Prepaid expenses and other current assets                                    |       | (10,097                                           | )          | (11,509 | ) |
| Subtenant receivable                                                         |       | —                                            |       | 30,000 |   |
| Accounts payable and accrued expenses                                        |       | 50,747                                            |       | 3,300 |   |
| Interest payable to related party                                            |       | 23,326                                            |       | 10,821 |   |
| Net cash used in operating activities                                        |       | (197,242                                          | )          | (117,663 | ) |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  financing activities:                                       |       |                                              |       |   |   |
| Proceeds from related party loan                                             |       | 155,000                                           |       | 115,000 |   |
| Net cash provided by financing activities                                    |       | 155,000                                           |       | 115,000 |   |
|                                                                         |       |                                              |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (42,242                                           | )          | (2,663 | ) |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 51,681                                            |       | 21,388 |   |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                                                 | 9,439      |   | $ | 18,725 |   |

 

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

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** **

**PALIGENT INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**NOTE 1 — BASIS OF PRESENTATION**

# **InterimFinancial Statements**

The unauditedcondensed consolidated interim financial statements included herein have beenprepared by Paligent Inc. (“Paligent” or the “Company”) pursuant to accountingprinciples generally accepted in the United States of America and the rules andregulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  In the opinion of management, the accompanyingunaudited condensed consolidated financial statements reflect all adjustments(consisting only of normal recurring accruals) necessary for a fairpresentation of the financial position of the Company at June 30, 2006 and theresults of its operations and its cash flows for the interim periods ended June30, 2006 and 2005. The condensed consolidated balance sheet as of December 31,2005 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 and the notes thereto included in theCompany’s Form 10-K for the year ended December 31, 2005.  Theresults of operations for the interim periods are not necessarilyindicative of the results of operations to be expected for the fiscal year orany other interim period.

Theaccompanying unaudited condensed consolidated financial statements have beenprepared on a going concern basis which contemplates the realization of assetsand the satisfaction of liabilities in the ordinary course of business.  The Company has incurred losses fromoperations since inception, has working capital and stockholders’ deficits andhas limited cash to fund operations in 2006. The Company is presently relying on borrowings from its principalstockholder to fund continuing operations. The principal stockholder has made no commitment to continue to makeloans to the Company.

Whilethe Company evaluates strategic alternatives, including potential businessinvestments and related financing, the Company’s rate of spending could varyfrom its current estimate.  No assurancecan be given that the Company will be able to complete a business investment orthat such financing will be available to the Company.  If the Company is unable to generatesignificant revenue from acquired operations, obtain financing from itsprincipal stockholder or secure sufficient financing for operations resultingfrom acquisition or merger, the Company will experience a cash shortage in2006, the effect of which could result in the discontinuance ofoperations.  If additional funds areraised by issuing equity securities, further dilution to existing stockholderswill result and future investors may be granted rights superior to those ofexisting stockholders.

These circumstances raise substantial doubt aboutthe Company’s ability to continue as a going concern.  The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

# **Reclassification**

Certain prior period amounts have been reclassified toconform to the current period presentation.

**NOTE 2 — EARNINGS (LOSS) PER SHARE**

The Company complies with the accounting and reportingrequirements of Statement of Financial Accounting Standard No. (“FAS”) 128, “EarningsPer Share.”  Basic earnings per share (“EPS”)

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excludes dilution and is computed by dividing income(loss) 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 common equivalentshares during the period.  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”).  Common equivalent shares are not included inthe per share calculations where the effect of their inclusion would beanti-dilutive.  Inherently, stock optionsand warrants are deemed to be anti-dilutive when the average market price of thecommon stock during the period exceeds the exercise price of the stock optionsor warrants.

For the three and six months ended June 30, 2006 and2005, the Company had stock options and warrants outstanding that wereanti-dilutive.  These securities couldpotentially dilute basic EPS in the future but were not included in thecomputation of diluted EPS for the periods presented because to do so wouldhave been anti-dilutive.  Consequently,there were no differences between basic and diluted EPS for these periods.

**NOTE 3 — RELATED PARTY TRANSACTIONS**

On October 8, 2003, in anticipation of completing abusiness combination with Digital Products of Delaware, Inc. (“Digital”) oranother entity, the Company executed a promissory note (the “Promissory Note”)with Richard J. Kurtz, the principal stockholder of the Company and then theprincipal stockholder of Digital.  Underthe Promissory Note, the Company received, and expects to continue to receive,loans that will enable it to meet its anticipated cash operating needs.  The Promissory Note bears interest at 8% perannum and was repayable upon the first anniversary of the making of the firstloan.  As the first anniversary of thePromissory Note has occurred, the amount due under the Promissory Note ispayable on demand.  As of June 30, 2006,the principal balance and accrued interest due under the Promissory Note are$670,000 and $54,688, respectively (see Note 5 for additional information).

**NOTE 4 —STOCK-BASED COMPENSATION**

In December 2004, the Financial Accounting Standards Board issued FAS123R, “Share-Based Payment.”  FAS 123R isa revision of FAS 123, “Accounting for Stock-Based Compensation,” andsupersedes Accounting Principles Board Opinion No. (“APB”) 25, “Accounting forStock Issued to Employees.”  Among otheritems, FAS 123R eliminates the use of APB 25 and the intrinsic value method ofaccounting, and requires companies to recognize the cost of employee servicesreceived in exchange for awards of equity instruments in the financialstatements, based on the grant date fair value of those awards.  The effective date of FAS 123R for theCompany was January 1, 2006.  FAS 123Rpermits companies to adopt its requirements using either a “modifiedprospective” method, or a “modified retrospective” method.  Under the “modified prospective” method, compensationcost is recognized in the financial statements beginning with the effectivedate, based on the requirements of FAS 123R for all share-based paymentsgranted after that date, and based on the requirements of FAS 123 for allunvested awards granted prior to the effective date of FAS 123R. Under the “modifiedretrospective” method, the requirements are the same as under the “modifiedprospective” method, but also permits entities to restate financial statementsof previous periods, either for all prior periods presented or to the beginningof the fiscal year in which the statement is adopted, based on previous proforma disclosures made in accordance with FAS 123. The Company has adopted themodified prospective method of recognition, and has recognized the cost, ifany, in its financial statements for the interim periods ended June 30, 2006.

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Prior tothe adoption of FAS 123R, the Company had applied APB 25 and relatedinterpretations in accounting for its stock-based compensation plans.  Accordingly, no compensation cost had beenrecognized for its stock option plan. Rather, the Company complied with FAS 148, “Accounting for Stock-BasedCompensation - Transition and Disclosure, an Amendment of FAS 123,” whichprovided alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  FAS 148 also amended the disclosurerequirements of FAS 123 to require more prominent and more frequent disclosuresin financial statements about the effects of stock-based compensation.  Since there were no unvested awards duringthe three and six months ended June 30, 2006 and 2005, the Company’s net (loss)income would not have been adjusted for these periods for awards granted underthe Company’s stock-based compensation plans in accordance with FAS 123.

The Companyhad utilized the Black-Scholes option pricing model to measure the fair valueof stock options granted to employees. While FAS 123R permits entities tocontinue to use such a model, it also permits the use of a “lattice”model.  The Company expects to continueusing the Black-Scholes option pricing model with its adoption of FAS 123R tomeasure the fair value of stock options.

**NOTE 5 — PROPOSED MERGER**

On April 25, 2006, the Company enteredinto a Letter Agreement (the “Agreement”) with International Fight League, Inc.(“IFL”) and Richard J. Kurtz, the Company’s principal stockholder.  The Agreement sets forth the proposed termsof a transaction in which the Company would acquire 100% of the issued andoutstanding common and preferred stock of IFL in exchange for shares of commonstock of the Company which, upon their issuance, would be equal to 95% of theissued and outstanding shares of common stock of the Company.  The Agreement further provides that Mr. Kurtzshall immediately purchase certain equity interests in IFL which would beconverted into interests in the Company if the acquisition of IFL wereconsummated.  If the proposed transactionis not consummated, Mr. Kurtz would receive additional equity interests inIFL.  The Agreement also provides that,upon consummation of the transaction, Mr. Kurtz will convert the promissorynote issued by the Company to him, under which principal and interest of$651,000 was outstanding at the time of the Agreement, into shares of commonstock of the Company (see Note 3 — “Related Party Transactions”).  IFL has agreed not to solicit, initiate,discuss or negotiate any other acquisition proposal or offer during the periodin which the Agreement is in effect.  TheCompany may terminate the Agreement at any time in its sole discretion.

The transaction is characterized as a “reversemerger” for accounting purposes. Application of reverse merger accounting would result in IFL beingdeemed to be the acquirer and the continuing entity for accounting purposes.

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

***NoteRegarding Forward-Looking Statements***

*Statementsin this Form 10-Q that are not statements or descriptions of historical factsare “forward-looking” statements under Section 21E of the Securities ExchangeAct of 1934, as amended, and the Private Securities Litigation Reform Act of1995 and are subject to numerous risks and uncertainties.  These forward-looking statements cangenerally be identified by the use of such terms as “anticipate,” “believe,” “continue,”“expect,” “may,” “should,” or similar variations or the negative thereof.  These forward looking statements involverisks and uncertainties, many of which are out of the Company’s control andwhich may affect its future business plans. Factors that may affect the Company’s future business plans include: (i)its ability to identify, complete and integrate an acquisition of an operatingbusiness, including the IFL acquisition; (ii) the viability of the Company’sbusiness strategy in connection with an acquisition and its ability toimplement such strategy; and (iii) its ability to secure financing for itscurrent costs and potential future operations. Such statements reflect the current view of the Company with respect tofuture events and are subject to certain risks, uncertainties andassumptions.  In addition, the Company’sbusiness, operations and financial condition are subject to the risks,uncertainties and assumptions that are described in the Company’s reports andstatements 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**

Since2001, Paligent Inc., together with its subsidiaries (collectively, the “Company”),has been engaged in seeking business opportunities to maximize value for itsstockholders.  The Company has evaluatedvarious strategic alternatives, including acquisitions of new operatingbusinesses and technologies as well as potential merger opportunities.

Fromits inception in 1985 through 1999, the Company operated as a biotechnologycompany engaged in the development and commercialization of novel drugs with aproduct portfolio focused on infectious diseases and oncology.  During 1999, the Company’s principal effortswere devoted to drug development and human clinical trials focusing on twobiotechnology compounds, PRO 2000 Gel and O6-Benzylguanine (“O6-BG”).  During fiscal 2000, the Company closed itsresearch facilities and out-licensed PRO 2000 Gel and O6-BG.  In September 2004, the Company transferredall of its rights, title and interest in PRO 2000 Gel pursuant to an option dulyexercised by its sublicense and in March 2005, the Company assigned all of itsrights, interests and obligations in O6-BG to an affiliate of its sublicensee.

On April 25, 2006, the Company entered into aLetter Agreement (the “Agreement”) with International Fight League, Inc. (“IFL”)and Richard J. Kurtz, the Company’s principal stockholder.  The Agreement sets forth the proposed termsof a transaction in which the Company would acquire 100% of the issued andoutstanding common and preferred stock of IFL in exchange for shares of commonstock of the Company which, upon their issuance, would be equal to 95% of theissued and outstanding shares of common stock of the Company.  The Agreement further provides that Mr. Kurtzshall immediately purchase certain equity interests in IFL which would beconverted into interests in the Company if the acquisition of IFL wereconsummated.  If the proposed transactionis not consummated, Mr. Kurtz would receive additional equity interests inIFL.  The Agreement also provides that,upon consummation of the transaction, Mr. Kurtz will convert the promissorynote issued by the Company to him, under which 

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principal and interest of $651,000 wasoutstanding at the time of the Agreement, into shares of common stock of the Company.  IFL has agreed not to solicit, initiate,discuss or negotiate any other acquisition proposal or offer during the periodin which the Agreement is in effect.  TheCompany may terminate the Agreement at any time in its sole discretion.  The Company and IFL are currently negotiatinga definitive agreement with respect to the proposed transaction.  The Company expects that the definitiveagreement will be executed during the third quarter.

**Results of Operations**

From inceptionthrough June 30, 2006, the Company has generated no revenues from product salesor services and has not been profitable. As the Company evaluates various strategic alternatives in its quest fornew growth areas that will maximize value to existing stockholders, the Companyexpects to incur additional losses.

## *Three and sixmonths ended June 30, 2006 as compared to the three and six months ended June30, 2005*

The Company’s totaloperating costs, consisting of general and administrative expenses, were$147,000 and $261,000, respectively, for the three and six month periods endedJune 30, 2006 as compared to $116,000 and $217,000 for the comparable periodsin 2005, reflecting increases of $31,000 and $44,000, respectively, for thethree and six month periods.  Theseincreases are primarily attributable to supplemental costs incurred forprofessional fees in connection with the Company’s contemplated businesscombination with IFL.

During the six monthsended June 30, 2005, the Company assigned all of its rights, interest andobligations in O6-BG to its sublicensee for the contract amount of$158,750.  In connection with theassignment, the Company paid a royalty in the amount of $17,500 to the UnitedStates Public Health Service.  The netamount of these transactions is reflected as other income in the first quarterof 2005.  There were no comparabletransactions in 2006.

### **Liquidity and Capital Resources**

At June 30, 2006,the Company’s aggregate cash and cash equivalents were $9,000, a decrease of$42,000 from the end of the prior year. The combination of cash available at the beginning of the year and loanproceeds of $155,000 received from the Company’s principal stockholder duringthe six month period ended June 30, 2006, was used for cash paymentsaggregating $197,000 for operating activities.

The Company hasincurred losses since inception, has working capital and stockholders’ deficitsand has limited cash to fund its operations. The Company is presently relying on borrowings from its principalstockholder to fund continuing operations. While the Company pursues strategic alternatives, including potentialbusiness combinations and related financing, the Company expects to finance itscontinuing operations through further borrowings from its principalstockholder.  The stockholder has made nocommitment to continue to make loans to the Company.  No assurance can be given that the Companywill be able to complete a business combination, including the IFL acquisition,or that such financing from its principal stockholder will continue to beavailable to the Company.  If the Companyis unable to generate significant revenue from acquired operations, obtainfinancing from its principal stockholder or secure sufficient financing foroperations resulting from acquisition or merger, the Company will experience acash shortage, the effect of which could result in the discontinuance ofoperations.  If additional funds areraised by issuing equity securities, further dilution to existing stockholderswill result and futureinvestors may be granted rights superior to those of existing stockholders.

These circumstances raise substantial doubt about the Company’s abilityto continue as a going concern.

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** **

**Item 3.  Quantitative andQualitative Disclosure About Market Risk.**

In January 1997, the Securities and ExchangeCommission issued Financial Reporting Release 48 (“FRR 48”), “Disclosure ofAccounting Policies for Derivative Financial Instruments and DerivativeCommodity Instruments, and Disclosure of Quantitative and QualitativeInformation About Market Risk Inherent in Derivative Financial Instruments,Other Financial Instruments and Derivative Commodity Instruments.”  FRR 48 required disclosure of qualitative andquantitative information about market risk inherent in derivative financialinstruments, other financial instruments, and derivative commodity instrumentsbeyond those already required under generally accepted accountingprinciples.  The Company is not a partyto any of the instruments discussed in FRR 48 and considers its market risk tobe minimal.

**Item4.  Controls and Procedures**

As of the end of the period covered by thisQuarterly Report on Form 10-Q, an evaluation was performed under thesupervision of the Company’s Chief Executive Officer and Principal FinancialOfficer, of the effectiveness of the Company’s disclosure controls andprocedures.  Based on that evaluation,the Company’s Chief Executive Officer and Principal Financial Officer concludedthat the Company’s disclosure controls and procedures were effective as of theend of the period covered by this report. In addition, there were no changes in the Company’s internal controlover financial reporting during the quarter ended June 30, 2006 that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

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**PART II. OTHER INFORMATION**

###### **Item 1A. Risk Factors**

As reported in the Company’s Annual Report in Form 10-K, the Companyhas been seeking a merger or sale to acquire other operating businesses whichperceive value in becoming a publicly traded corporation. Certain factors mayaffect the Company’s opportunities to merge or sell itself to other operatingbusinesses. In addition to the other information in this Quarterly Report onForm 10-Q, the Risk Factors includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2005 have not materially changed except as set forth below.

*Future Mergers or Sales Will Cause Dilution or Adversely Affect Result*s

On April 25, 2006, the Company entered into a Letter Agreement (the “Agreement”)with International Fight League, Inc. and Richard J. Kurtz, the Company’sprincipal stockholder.  The Agreementsets forth the proposed terms of a transaction in which the Company wouldacquire 100% of the issued and outstanding common and preferred stock of IFL inexchange for shares of common stock of the Company which, upon their issuance,would be equal to 95% of the issued and outstanding shares of common stock ofthe Company. Upon the consummation of the proposed transaction, the Companywill (i) issue equity securities that will substantially dilute currentstockholders’ percentage ownership in the Company; (ii) possibly incursubstantial debt; or (iii) possibly assume contingent liabilities.  Such actions could cause the Company’soperating results or the price of the Company’s common stock to decline.

**Item 6.     Exhibits.**

31.1         Certificationof Chief Executive Officer and Principal Financial Officer Required by Rule13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as AdoptedPursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  Filed herewith.

32.1         Certification of Chief ExecutiveOfficer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, asAdopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Filed herewith.

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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: August 11,  2006 | by:           |   | /s/ Salvatore A. Bucci |
|                   |          |   | Salvatore A. Bucci |
|                   |          |   | President and Chief Executive Officer |

 

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**EXHIBIT INDEX**
| 31.1   | Certification of Chief Executive Officer and Principal  Financial Officer Required by Rule 13a-14(a) or Rule 15d-14(a) of the  Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                   |
| 32.1   | Certification of Chief Executive Officer 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.                                                   |

 

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