** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.20549**

 

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## **FORM10-Q**

## ** **

| **ý** |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                       |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                               |
|       |   | **For the quarterly period ended March 31, 2004**                                                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                               |
| **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 itscharter)

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

 

**(212) 755-5461**

(Registrant’s telephone number, includingarea code)

 

Indicate by check mark whetherthe registrant (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

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

YES   o    NO   ý

 

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

 
| **Class**                     |   | **Outstanding  as of May 7, 2004** |
|-------------------------------|--------|------------------------------------|
|                          |   |                               |
| 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  March 31, 2004 (unaudited) and December 31, 2003                  |   |
|              |                                                                                                     |   |
|              | Condensed Consolidated Statements of  Operations (unaudited)  Three months ended March 31, 2004 and 2003 |   |
|              |                                                                                                     |   |
|              | Condensed Consolidated Statements of Cash  Flows (unaudited)  Three months ended March 31, 2004 and 2003 |   |
|              |                                                                                                     |   |
|              | 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 Disclosures  About Market Risk                                              |   |
|              |                                                                                                     |   |
| **Item 4.**       | Controls and Procedures                                                                                  |   |
|              |                                                                                                     |   |
| **PART II.**      | **OTHER INFORMATION**                                                                                    |   |
|              |                                                                                                     |   |
| **Item 6.**       | Exhibits and Reports on Form 8-K                                                                         |   |
|              |                                                                                                     |   |
| **SIGNATURES**    |                                                                                                     |   |
|              |                                                                                                     |   |
| **EXHIBIT INDEX** |                                                                                                     |

 

2

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**PALIGENT INC.**

**CONDENSED CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                                                                           |   | **March 31,  2004** |    | **December  31, 2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
|                                                                                                                                           |   | **(unaudited)**     |    |                   |   |
| ASSETS                                                                                                                                         |   |                |    |                   |   |
| Current assets:                                                                                                                                |   |                |    |                   |   |
| Cash and cash equivalents                                                                                                                      |   | $                   | 33,756  |                   | $      | 41,321 |   |
| Current portion of subtenant receivable                                                                                                        |   | 50,000              |    | 100,000                |   |
| Property held for sale                                                                                                                         |   | —              |    | 10,000                 |   |
| Prepaid expenses and other current assets                                                                                                      |   | 30,409              |    | —                 |   |
| Total current assets                                                                                                                           |   | 114,165             |    | 151,321                |   |
|                                                                                                                                           |   |                |    |                   |   |
| Property and equipment, net                                                                                                                    |   | 2,345               |    | 2,813                  |   |
| Subtenant receivable                                                                                                                           |   | 25,000              |    | 25,000                 |   |
| Security deposits                                                                                                                              |   | —              |    | 9,543                  |   |
| Total assets                                                                                                                                   |   | $                   | 141,510 |                   | $      | 188,677 |   |
|                                                                                                                                           |   |                |    |                   |   |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                     |   |                |    |                   |   |
| Current liabilities:                                                                                                                           |   |                |    |                   |   |
| Accounts payable and accrued expenses                                                                                                          |   | $                   | 129,984 |                   | $      | 134,124 |   |
| Accrued professional services                                                                                                                  |   | 14,300              |    | 34,100                 |   |
| Accrued rent                                                                                                                                   |   | 144,600             |    | —                 |   |
| Due to related party                                                                                                                           |   | 235,000             |    | 110,000                |   |
| Capital lease obligation                                                                                                                       |   | —              |    | 10,000                 |   |
| Total current liabilities                                                                                                                      |   | 523,884             |    | 288,224                |   |
|                                                                                                                                           |   |                |    |                   |   |
| Deferred rent                                                                                                                                  |   | —              |    | 22,262                 |   |
|                                                                                                                                           |   |                |    |                   |   |
| Stockholders’ deficit:                                                                                                                    |   |                |    |                   |   |
| Common stock, $.01 par value; 75,000,000  shares authorized; 32,490,948 shares issued and outstanding at March 31, 2004  and December 31, 2003 |   | 324,910             |    | 324,910                |   |
| Additional paid-in capital                                                                                                                     |   | 154,634,974         |    | 154,634,974            |   |
| Accumulated deficit                                                                                                                            |   | (155,342,258        | )       | (155,081,693           | )      |
| Total stockholders’ deficit                                                                                                               |   | (382,374            | )       | (121,809               | )      |
| Total liabilities and stockholders’ deficit                                                                                               |   | $                   | 141,510 |                   | $      | 188,677 |   |

 

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

 

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**PALIGENT INC.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(unaudited)**

 
|                                                                      |   | **Three  months ended March 31,** |     |
|---------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                      |   | **2004**                          |     | **2003** | ** ** |
|                                                                      |   |                              |     |   |   |
| Revenue:                                                                  |   |                              |     |   |   |
| Interest income                                                           |   | $                                 | 1,125    |   | $ | 113 |   |
|                                                                      |   |                              |     |   |   |
| Costs and expenses:                                                       |   |                              |     |   |   |
| General and administrative                                                |   | 261,690                           |     | 170,713 |   |
|                                                                      |   |                              |     |   |   |
| Net loss                                                                  |   | $                                 | (260,565 | ) | $ | (170,600 | ) |
|                                                                      |   |                              |     |   |   |
| Basic and diluted net loss per common share                               |   | $                                 | (0.01    | ) | $ | (0.01 | ) |
|                                                                      |   |                              |     |   |   |
| Weighted average number of common shares  outstanding - basic and diluted |   | 32,490,948                        |     | 32,490,948 |   |

 

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

 

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**PALIGENT INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**
|                                                                         |   | **Three  months ended March 31,** |     |
|------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                         |   | **2004**                          |     | **2003** | ** ** |
| Cash flows from operating activities:                                        |   |                              |     |   |   |
| Net loss                                                                     |   | $                                 | (260,565 | ) | $ | (170,600 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                              |     |   |   |
| Depreciation and amortization                                                |   | 468                               |     | 10,497 |   |
| Write-off of security deposits                                               |   | 9,543                             |     | — |   |
| Deferred charges                                                             |   | —                            |     | (863 | ) |
| Deferred rent                                                                |   | (22,262                           | )        | (1,524 | ) |
| Changes in operating assets and  liabilities:                                |   |                              |     |   |   |
| Prepaid expenses and other current assets                                    |   | (30,409                           | )        | (25,989 | ) |
| Subtenant receivable                                                         |   | 50,000                            |     | — |   |
| Accounts payable and accrued expenses                                        |   | (23,940                           | )        | 34,865 |   |
| Accrued rent                                                                 |   | 144,600                           |     | — |   |
| Net cash used in operating activities                                        |   | (132,565                          | )        | (153,614 | ) |
|                                                                         |   |                              |     |   |   |
| Cash flows from investing activities:                                        |   |                              |     |   |   |
| Proceeds from sale of assets                                                 |   | 10,000                            |     | — |   |
| Net cash provided by investing activities                                    |   | 10,000                            |     | — |   |
|                                                                         |   |                              |     |   |   |
| Cash flows from financing activities:                                        |   |                              |     |   |   |
| Proceeds from related party loan                                             |   | 125,000                           |     | 30,000 |   |
| Principal payments on capital lease  obligations                             |   | (10,000                           | )        | (6,189 | ) |
| Net cash provided by financing activities                                    |   | 115,000                           |     | 23,811 |   |
|                                                                         |   |                              |     |   |   |
| Net decrease in cash and cash equivalents                                    |   | (7,565                            | )        | (129,803 | ) |
|                                                                         |   |                              |     |   |   |
| Cash and cash equivalents at beginning of  period                            |   | 41,321                            |     | 153,046 |   |
|                                                                         |   |                              |     |   |   |
| Cash and cash equivalents at end of period                                   |   | $                                 | 33,756   |   | $ | 23,243 |   |

 

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

 

5

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**PALIGENT INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMEN****TS**

**(unaudited)**

 

**NOTE 1 – BASIS OF PRESENTATION**

 

**InterimFinancial Statements**

 

The condensed consolidatedfinancial statements included herein have been prepared by Paligent Inc.(“Paligent” or the “Company”) 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 accompanying unaudited condensed consolidatedfinancial statements reflect all adjustments (consisting only of normalrecurring accruals) necessary for a fair presentation of the financial positionof the Company at March 31, 2004 and the results of its operations and its cashflows for the interim periods ended March 31, 2004 and 2003. The condensedconsolidated balance sheet as of December 31, 2003 was derived from auditedfinancial statements but does not include all disclosures required by generallyaccepted accounting principles.  Theaccompanying condensed consolidated financial statements have been prepared inaccordance with accounting standards for interim financial statements andshould be read in conjunction with the audited consolidated financialstatements and the notes thereto included in the Company’s Form 10-K for theyear ended December 31, 2003.  The results of operations for the interimperiods are not necessarily indicative of the results of operations to be expected forthe fiscal year or any other interim period.

 

The accompanying consolidated financialstatements have been prepared on a going concern basis which contemplates therealization of assets and the satisfaction of liabilities in the ordinarycourse of business.  The Company hasincurred losses from operations since inception, has working capital andstockholders’ deficits and has limited cash to fund operations in 2004.  The Company is presently relying onborrowings from its principal stockholder to fund continuing operations.  The stockholder has made no commitment tocontinue to make loans to the Company.

 

On July 1, 2003, the Company executed a non-binding letter of intent toacquire privately held Digital Products of Delaware, Inc. (“Digital”).  The Company proposed to acquire all of theissued and outstanding stock of Digital in consideration of the issuance ofshares of common stock of the Company such that the stockholders of Digitalwould own 80% of the outstanding stock of the post-acquisition company.  Richard J. Kurtz, a director and theprincipal stockholder of the Company, is the principal stockholder ofDigital.  On January 16, 2004, theCompany announced that the contemplated Digital acquisition was beingindefinitely postponed due to Digital’s need to focus on meeting certainbusiness demands which would hinder its ability to conclude the businesscombination with the Company.  Althoughthe Company remains interested in a potential acquisition of Digital, it hasresumed its efforts to identify an alternative business combination.

 

While the Company evaluates strategicalternatives, including potential business investments and related financing,the Company’s rate of spending could vary from its current estimate.  No assurance can be given that the Companywill be able to complete a business investment or that such financing will beavailable to the Company.  If theCompany is unable to generate significant revenue from acquired operations,obtain additional revenue from its existing out-licensing of its biotechnologyassets, secure additional financing for its present operations, obtainfinancing from its principal stockholder or secure sufficient financing foroperations resulting from acquisition or merger, the Company will experience acash shortage in 2004, the effect of which could result in the discontinuanceof operations.  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.

 

6

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

 

**Reclassification**

 

Certain prior period amountshave been reclassified to conform to the current period presentation.

 

**NOTE 2 – BASIC AND DILUTED NET INCOME (LOSS)PER SHARE**

 

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

 

For the three months endedMarch 31, 2004 and 2003, the Company had stock options and warrants outstandingthat were anti-dilutive.  Thesesecurities could potentially dilute basic EPS in the future but were notincluded in the computation of diluted EPS for the periods presented because todo so would have been anti-dilutive. Consequently, there were no differences between basic and diluted EPSfor these periods.

** **

**NOTE 3 – RELATED PARTIES**

 

On October 8, 2003, in anticipation ofcompleting a business combination with Digital or another entity, the Companyexecuted a promissory note (the “Promissory Note”) with Mr. Kurtz under whichthe Company expects to receive loans that will enable it to meet itsanticipated cash operating needs.  ThePromissory Note bears interest at 8% per annum and contemplates repayment uponthe occurrence of (i) the first anniversary of the making of the first loan;and (ii) the first funding of debt and/or equity capital subsequent to thecompletion of the proposed business combination between the Company and Digitalthat results in aggregate net proceeds to the Company of not less than $1million.  As of March 31, 2004, Mr.Kurtz has loaned the Company an aggregate of $235,000 to fund its continuingoperations.

 

**NOTE 4 – ACCRUED RENT**

 

On January 16, 2004, theCompany voluntarily vacated its office at 369 Lexington Avenue, New York, NewYork (the “Lexington Office”).  Thecommitment under the lease for the Lexington Office (the “Lexington Lease”)requires the Company to pay monthly base rent and an allocable percentage ofoperating costs and property taxes throughout the remaining term of theLexington Lease, which expires on April 30, 2005.  In February 2004, the Lexington Office landlord demanded paymentof the amount due under the Lexington Lease for the period of October 2003through February 2004 that exceeds the balance of the Company’s securitydeposit.  The Company has not satisfiedthe Lexington Office landlord’s demand for payment and remains committed toreaching a negotiated settlement.

 

Pursuant to Statement ofFinancial Accounting Standards No. (“FAS”) 146s, “Accounting for CostsAssociated with Exit or Disposal Activities,” the Company recognizes January16, 2004, the date that it vacated the Lexington Office, as the cease-usedate.  Accordingly, a liability forcosts that continue to be

 

7

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incurred under the Lexington Lease for theremaining term was recognized and measured at their fair value at that time.The fair value was determined based on remaining lease rentals reduced byestimated sublease rentals that could be reasonably obtained for the property.

 

As of March 31, 2004, the fairvalue of costs to be incurred under the Lexington lease was $154,100, which,after reduction for the remaining balance of the lease security deposit of$9,500, resulted in a liability for accrued rent of $144,600.  For the quarter ended March 31, 2004, theCompany recorded to rent expense a charge of $131,900, after offset for thebalance of deferred rent of $22,200.

 

**NOTE 5 – STOCK-BASED COMPENSATION**

 

The Company complies with FAS 148, “Accountingfor Stock-Based Compensation - Transition and Disclosure, an Amendment of FAS123.”  This statement providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, FAS 148 amends the disclosurerequirements of FAS 123 to require more prominent and more frequent disclosuresin financial statements about the effects of stock-based compensation.

 

The Company applies Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations, in accounting for its stock-based compensation plans.  Accordingly, no compensation cost has beenrecognized for its stock option plan. Had compensation cost for the Company’s stock-based compensation planbeen determined based on the fair value at the grant dates for awards underthose plans consistent with FAS 123, the Company’s net income (loss) and netincome (loss) per share would have been adjusted to the pro forma amounts indicatedbelow:

 
|                                                                  |   | **Three  months ended March 31,** |    |
|-----------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                  |   | **2004**                          |    | **2003** |   |
| Net loss - as reported                                                |   | $                                 | 260,565 |   | $ | 170,600 |   |
| Adjustment to net loss for proforma  stock-based compensation expense |   | 17,030                            |    | 17,030 |   |
| Net loss - pro forma                                                  |   | $                                 | 277,595 |   | $ | 187,630 |   |
| Basic and diluted net loss per common share  - as reported            |   | $                                 | 0.01    |   | $ | 0.01 |   |
| Basic and diluted net loss per common share  - pro forma              |   | $                                 | 0.01    |   | $ | 0.01 |   |

 

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**Item 2****.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

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

 

*Statements in this Form 10-Q that are notstatements or descriptions of historical facts are “forward-looking” statementsunder Section 21E of the Securities Exchange Act of 1934, as amended, and thePrivate Securities Litigation Reform Act of 1995 and are subject to numerousrisks and uncertainties.  Theseforward-looking statements can generally be identified by the use of such termsas “anticipate,” “believe,” “continue,” “expect,” “may,” “should,” or similarvariations or the negative thereof. These forward looking statements involve risks and uncertainties, manyof which are out of the Company’s control and which may affect its futurebusiness plans.  Factors that may affectthe Company’s future business plans include: (i) its ability to identify,complete and integrate an acquisition of an operating business; (ii) theviability of the Company’s business strategy in connection with an acquisitionand its ability to implement such strategy; (iii) its ability to securefinancing for its current and potential future operations; and (iv) its abilityto generate revenues sufficient to meet its operating costs.  Such statements reflect the current view ofthe Company with respect to future events and are subject to certain risks,uncertainties and assumptions.  Inaddition, the Company’s business, operations and financial condition aresubject to the risks, uncertainties and assumptions that are described in theCompany’s reports and statements filed from time to time with the Securitiesand Exchange Commission.  Should one ormore of those risks or uncertainties materialize, or should underlyingassumptions prove incorrect, actual results may vary materially from thosediscussed herein.  The descriptions ofthe risks, uncertainties and assumptions to which the Company’s business,operations and financial condition are subject are as of the date of thisreport.  The Company assumes noobligation to update any such forward-looking statements.*

 

**Overview**

 

Since 2001, PaligentInc., together with its subsidiaries (collectively, the “Company”), has beenengaged 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.

 

On July 1, 2003, the Company executed a non-binding letter of intent toacquire privately held Digital Products of Delaware, Inc. (“Digital”).  The Company proposed to acquire all of theissued and outstanding stock of Digital in consideration of the issuance ofshares of common stock of the Company such that the stockholders of Digitalwould own 80% of the outstanding stock of the post-acquisition company.  Richard J. Kurtz, a director and theprincipal stockholder of the Company, is the principal stockholder ofDigital.  On January 16, 2004, theCompany announced that the contemplated Digital acquisition was beingindefinitely postponed due to Digital’s need to focus on meeting certainbusiness demands which would hinder its ability to conclude the businesscombination with the Company.  Althoughthe Company remains interested in a potential acquisition of Digital, it hasresumed its efforts to identify an alternative business combination.

 

From its inception in1985 through 1999, the Company operated as a biotechnology company engaged inthe development and commercialization of novel drugs with a product portfoliofocused on infectious diseases and oncology. During 1999, the Company’s principal efforts were devoted to drugdevelopment and human clinical trials focusing on two biotechnology compounds,PRO 2000 Gel and O6-Benzylguanine (“O6-BG”). During fiscal 2000, the Company closed its research facilities andout-licensed PRO 2000 Gel and O6-BG. Under the terms of the respective out-licensing agreements, the Companyretains certain future rights, including the right to receive certainagreed-upon payments upon the achievement of certain milestones as well asroyalties from commercial sales, if any.

 

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**Resultsof Operations**

 

From inception through March31, 2004, the Company has generated no revenues from product sales or servicesand has not been profitable.  As theCompany evaluates various strategic alternatives in its quest for new growthareas that will maximize value to existing stockholders, the Company expects toincur additional losses.

 

## ***Three months ended March 31, 2004as compared to the three months ended March 31, 2003***

## ** **

During the three months endedMarch 31, 2004, the Company reported a net loss of $261,000, or $0.01 pershare, as compared to a net loss of $171,000, or $0.01 per share, in thecomparable period in 2003.

 

The Company’s total revenue,which is derived from interest income, was $1,125 for the three months endedMarch 31, 2004, as compared to $113 for the comparable period in 2003.  The increase in interest income isattributable to the accrual of interest earnings on the subtenant notereceivable.

 

The Company’s total operating expenses, consisting of general andadministrative costs, were $262,000 for the quarter ended March 31, 2004 ascompared to $171,000 for the comparable quarter in 2003, an increase of$91,000.  The increase in general andadministrative costs in the first quarter of fiscal 2004 reflects a charge of$132,000 relating to the fair value of costs to be incurred under the LexingtonLease offset by expense reductions of $41,000, which are primarily attributableto a decrease in professional fees.

 

### **Liquidity and Capital Resources**

### ** **

At March 31, 2004, theCompany’s aggregate cash and cash equivalents were $34,000, a net decrease of$8,000 from the end of the prior year. The net decrease in cash is attributable to cash payments of $133,000and $10,000, respectively, for operating activities and payments on capitalleases during the three month period ended March 31, 2004, which were offset byproceeds from related party loans of $125,000 and the Company’s receipt of$10,000 in connection with the sale of assets.

 

The Company has incurred lossessince inception, has working capital and stockholders’ deficits and has limitedcash to fund its operations.  TheCompany is presently relying on borrowings from its principal stockholder tofund continuing operations.  While theCompany pursues strategic alternatives, including potential businesscombination and related financing, the Company expects to finance itscontinuing operations through further borrowings from its principalstockholder.  The stockholder has madeno commitment to continue to make loans to the Company.  No assurance can be given that the Companywill be able to complete a business combination or that such financing from itsprincipal stockholder will continue to be available to the Company.  If the Company is unable to generatesignificant revenue from acquired operations, obtain additional revenue fromits existing out-licensing of its biotechnology assets, secure additionalfinancing for its present operations, obtain financing from its principalstockholder or secure sufficient financing for operations resulting fromacquisition or merger, the Company will experience a cash shortage, the effectof which could result in the discontinuance of operations.  If additional funds are raised by issuingequity securities, further dilution to existing stockholders will result andfuture investors may be granted rights superior to those of existingstockholders.

 

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

 

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

 

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

 

**Item 4****.  Controls and Procedures**

 

As of the endof the period covered by this Quarterly Report on Form 10-Q, an evaluation wasperformed under the supervision of the Company’s Chief Executive Officer andprincipal financial officer, of the effectiveness of the Company’s disclosurecontrols and procedures.  Based on thatevaluation, the Company’s Chief Executive Officer and principal financialofficer concluded that the Company’s disclosure controls and procedures wereeffective as of the end of the period covered by this report.  In addition, therewere no changes in the Company’s internal control over financial reportingduring the quarter ended March 31, 2004 that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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**PARTII****.  OTHERINFORMATION**

 

**Item6****.     Exhibitsand Reports on Form 8-K.**

 
|   | (a)    | Exhibits.                                                                                                                                                                                           |                                                                                                                                                                                                                                                         |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                |                                                                                                                                                                                                                                                         |
|   |   | 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.  Filed herewith. |
|   |   |                                                                                                                                                                                                |                                                                                                                                                                                                                                                         |
|   |   | 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.  Filed herewith.                                                  |
|   |   |                                                                                                                                                                                                |                                                                                                                                                                                                                                                         |
|   | (b)    | Reports on  Form 8-K.                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                |                                                                                                                                                                                                                                                         |
|   |   | Current Report on Form 8-K  dated January 15, 2004 filed with the Securities and Exchange Commission on  January 20, 2004 relating to a change in the Company’s certifying public  accountant. |

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|                     | PALIGENT  INC. |
|--------------------------|----------------|
|                     | (Registrant)   |
|                     |           |
|                     |           |   |
| Date:  May 12, 2004 | by:            | /s/  Salvatore A. Bucci |   |
|                     |           | Salvatore A.  Bucci |
|                     |           | President  and Chief Executive Officer |

 

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**EXHIBIT INDE****X**

 
| 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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