<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                    FORM 10-Q


  X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
-----

        For the quarterly period ended September 30, 2003

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----   EXCHANGE ACT OF 1934

         For the transition period from ____________ to ____________

         Commission File Number:  0-21134


                                  PALIGENT INC.
                                 --------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


               DELAWARE                                        04-2893483
               --------                                        ----------
    (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NO.)


10 EAST 53RD STREET, NEW YORK, NEW YORK                           10022
---------------------------------------                           -----
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)


                                 (212) 755-5461
                                 --------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


                 369 LEXINGTON AVENUE, NEW YORK, NEW YORK 10017
                 ----------------------------------------------
         (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
                               SINCE LAST REPORT)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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  X   NO
                                     ---     ---

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

         CLASS                              OUTSTANDING AS OF JANUARY 30, 2004
         -----                              ----------------------------------
Common Stock, $0.01 par value                            32,490,948


<PAGE>


                                  PALIGENT INC.

                                      INDEX

<TABLE>
<CAPTION>

                                                                                   PAGE(S)
                                                                                   -------
<S>      <C>                                                                       <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

         Condensed Consolidated Balance Sheets                                     3
             September 30, 2003 (unaudited) and December 31, 2002

         Condensed Consolidated Statements of Operations (unaudited)               4
             Three and nine months ended September 30, 2003 and 2002

         Condensed Consolidated Statements of Cash Flows (unaudited)               5
             Nine months ended September 30, 2003 and 2002

         Notes to Condensed Consolidated Financial Statements (unaudited)       6-10

ITEM 2.  Management's Discussion and Analysis of Financial                     11-14
             Condition and Results of Operations

ITEM 3.  Quantitative and Qualitative Disclosure About Market Risk                15

ITEM 4.  Controls and Procedures                                                  15

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                        16

ITEM 6.  Exhibits and Reports on Form 8-K                                         16

SIGNATURES                                                                        17

EXHIBIT INDEX                                                                     18
</TABLE>


                                       2
<PAGE>


                                  PALIGENT INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                     SEPTEMBER 30, 2003       DECEMBER 31, 2002
                                                     ------------------       -----------------
                                                        (UNAUDITED)
                                                        -----------
<S>                                                     <C>                     <C>
ASSETS
Current assets:
    Cash and cash equivalents                                 $18,690                $153,046
    Subtenant receivable                                       65,302                      --
    Prepaid expenses                                           32,238                      --
    Other current assets                                           16                      94
                                                        -------------           -------------
       Total current assets                                   116,246                 153,140

Property and equipment, net                                    49,833                  75,789
Security deposits                                              75,672                  77,582
Deferred charges                                                   --                  16,442
Other assets                                                   11,690                  17,227
                                                        -------------           -------------
       Total assets                                          $253,441                $340,180
                                                        =============           =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                         $116,107                 $95,061
    Accrued compensation                                        6,891                  10,037
    Accrued professional services                              32,300                  75,000
    Current portion of capital lease obligations               16,941                  20,383
                                                        -------------           -------------
       Total current liabilities                              172,239                 200,481
                                                        -------------           -------------

Deferred rent                                                  25,280                  32,342
                                                        -------------           -------------
Security deposits                                              20,000                  20,000
                                                        -------------           -------------
Capital lease obligations                                       7,892                  20,545
                                                        -------------           -------------

Commitments and contingencies

Stockholders' equity:
    Common stock, $.01 par value; 75,000,000 shares
       authorized; 32,490,948 shares issued and
       outstanding at September 30, 2003 and
       December 31, 2002                                      324,910                 324,910
    Additional paid-in capital                            154,634,974             154,634,974
    Accumulated deficit                                  (154,931,854)           (154,893,072)
                                                        -------------           -------------
       Total stockholders' equity                              28,030                  66,812
                                                        -------------           -------------
       Total liabilities and stockholders' equity            $253,441                $340,180
                                                        =============           =============
</TABLE>


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


                                       3
<PAGE>


                                  PALIGENT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED SEPTEMBER 30,    NINE MONTHS ENDED SEPTEMBER 30,
                                                       --------------------------------   --------------------------------
                                                            2003              2002             2003              2002
                                                       --------------    -------------    --------------    -------------
<S>                                                      <C>               <C>               <C>              <C>
Revenue:
   Interest income                                             $118            $1,156              $643           $7,326

Costs and expenses:
   General and administrative                               213,073           247,127           539,425          799,461
                                                         ----------        ----------        ----------       ----------

Loss from operations                                       (212,955)         (245,971)         (538,782)        (792,135)

Other income                                                     --                --           500,000               --
                                                         ----------        ----------        ----------       ----------

Net loss                                                  $(212,955)        $(245,971)         $(38,782)       $(792,135)
                                                         ==========        ==========        ==========       ==========

Basic and diluted net loss per common share                  $(0.01)           $(0.01)            $0.00           $(0.02)
                                                         ==========        ==========        ==========       ==========

Weighted average number of common shares outstanding
   Basic and diluted                                     32,490,948        32,490,948        32,490,948       32,490,948
                                                         ==========        ==========        ==========       ==========
</TABLE>


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


                                       4
<PAGE>


                                  PALIGENT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                                                      -------------------------------
                                                                        2003                    2002
                                                                    -----------            -----------
<S>                                                                  <C>                    <C>
Cash flows from operating activities:
   Net loss                                                           $(38,782)              $(792,135)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
     Depreciation and amortization                                      31,493                  30,895
     Write-off of security deposit                                       1,910                      --
     Deferred charges                                                   16,442                      --
     Deferred rent                                                      (7,062)                 (2,632)
     Changes in operating assets and liabilities:
       Due from subtenant                                              (65,302)                     --
       Due from related party                                               --                 137,091
       Prepaid expenses and other current assets                       (32,160)                (21,982)
       Accounts payable                                                 21,046                  40,537
       Accrued patent and research costs                                    --                (285,859)
       Accrued expenses and other current liabilities                  (45,846)                (76,818)
                                                                      --------               ---------
         Net cash used in operating activities                        (118,261)               (965,366)
                                                                      --------               ---------

Cash flows from investing activities:
   Capital expenditures                                                     --                  (5,618)
                                                                      --------               ---------
         Net cash used in investing activities                              --                  (5,618)
                                                                      --------               ---------

Cash flows from financing activities:
   Proceeds from related party loan                                     30,000                      --
   Repayment of related party loan                                     (30,000)                     --
   Principal payments on capital lease obligations                     (16,095)                (18,972)
                                                                      --------               ---------
         Net cash used in financing activities                         (16,095)                (18,972)
                                                                      --------               ---------

Net decrease in cash and cash equivalents                             (134,356)               (989,956)

Cash and cash equivalents at beginning of period                       153,046               1,298,266
                                                                      --------               ---------

Cash and cash equivalents at end of period                             $18,690                $308,310
                                                                      ========               =========
</TABLE>


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


                                       5

<PAGE>


                                  PALIGENT INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein have been
prepared by Paligent Inc. ("Paligent" or the "Company") pursuant to the rules
and regulations of the United States Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position of the
Company at September 30, 2003 and the results of its operations and its cash
flows for the interim periods ended September 30, 2003 and 2002. The condensed
consolidated balance sheet as of December 31, 2002 was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting standards
for interim financial statements and should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 2002. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the fiscal year or any other interim period.

The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the ordinary course of business. The Company has incurred
losses from operations since inception and has limited cash to fund operations
in 2003. Since disposing of its Internet assets and related operations in
December 2000, the Company has significantly reduced its operating costs. During
April 2003, the Company received $500,000 in connection with the amendment of
its license agreement with Indevus Pharmaceuticals, Inc. The Company had
expected that its available cash reserves and interest income would have been
sufficient to fund the Company's operations into the fourth quarter; however,
during the third quarter ending September 30, 2003, the Company's subtenant
defaulted in its sublease and other obligations to the Company. While the
Company reached a settlement agreement with its subtenant on December 31, 2003,
this default resulted in an accelerated depletion of the Company's cash
reserves.

On July 1, 2003, the Company executed a non-binding letter of intent to acquire
privately held Digital Products of Delaware, Inc. ("Digital"). The Company
proposed to acquire all of the issued and outstanding stock of Digital in
consideration of the issuance of shares of common stock of the Company such that
the shareholders of Digital would own 80% of the outstanding stock of the
post-acquisition company. Richard J. Kurtz, a director and the principal
shareholder of the Company, is the principal shareholder of Digital. On January
16, 2004, the Company announced that it was postponing its acquisition of
Digital. The Company's decision to postpone the proposed business combination
with Digital follows Digital's advisement that it was presently focused on
meeting certain business demands which hinder its ability to conclude the
business combination with the Company at this time. Since the letter of intent
expired on October 31, 2003 and current efforts to conclude a definitive
agreement have been postponed indefinitely, the Company recorded to expense in
the quarter ended September 30, 2003, $26,000 of acquisition-related costs that
had been deferred as of June 30, 2003. Although the Company remains interested
in later completing the acquisition of Digital, it has resumed its efforts to
identify an alternative business combination.

In anticipation of completing a business combination with Digital or another
entity, Mr. Kurtz has indicated his willingness to loan to the Company funds
sufficient to finance its continuing operations.


                                       6
<PAGE>


Accordingly, on October 8, 2003, the Company executed a promissory note with Mr.
Kurtz under which the Company expects to receive loans that will enable it to
meet its anticipated cash operating needs.

While the Company pursues the completion of a business combination with Digital
or another entity and while it expects to finance its continuing operations
through borrowings from Mr. Kurtz, no assurance can be given that the Company
will be able to complete a business combination with Digital or that such
financing from Mr. Kurtz will continue to be available to the Company. Further,
if the Company is unable to generate significant revenue from acquired
operations, obtain additional revenue from its existing out-licensing of its
biotechnology assets, secure additional financing for its present operations or
secure sufficient financing for operations resulting from acquisition or merger,
the Company will experience a cash shortage, the effect of which could result in
the discontinuance of operations. If additional funds are raised by issuing
equity securities, further dilution to existing stockholders will result and
future investors may be granted rights superior to those of existing
stockholders.

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

RECLASSIFICATION

Certain prior period amounts have 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) applicable to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the
weighted average number of common shares outstanding during the period plus the
additional weighted average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive. Common equivalent shares
result from the assumed exercises of outstanding stock options and warrants, the
proceeds of which are then assumed to have been used to repurchase outstanding
shares of common stock (the "treasury stock method").

For the three and nine months ended September 30, 2003 and 2002, the Company had
stock options and warrants outstanding that were anti-dilutive. These securities
could potentially dilute basic EPS in the future but were not included in the
computation of diluted EPS for the periods presented because to do so would have
been anti-dilutive. Consequently, there were no differences between basic and
diluted EPS for these periods.

NOTE 3 - SUBTENANT RECEIVABLE

Effective July 1, 2001, the Company entered into a sublease for the majority of
its New York City office space. Under terms of the sublease, the Company is
entitled to subrental payments equal to 85% of its base rent, operating costs
and property taxes throughout the remaining term of its lease. In addition,
under a separate agreement with its subtenant, the Company is entitled to
receive a monthly fee for the subtenant's right to utilize furniture and
equipment located in the subleased space.

Beginning in July 2003, the Company's subtenant ceased making payments under the
sublease and the separate agreement governing the use of furniture and
equipment. Accordingly, the Company commenced a civil action against the
subtenant for collection of outstanding amounts due. As of


                                       7
<PAGE>


September 30, 2003, $65,000 was due to the Company's from its subtenant. On
December 31, 2003, the Company executed a Surrender Agreement and Promissory
Note with its subtenant pursuant to which the Company received cash and a
promissory note approximately equivalent to the aggregate amount due as of
December 31, 2003 in exchange for the termination of the sublease and the
furniture and equipment rental agreement.

NOTE 4 - RELATED PARTIES

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

Pursuant to the Promissory Note executed on October 8, 2003, Mr. Kurtz has
loaned the Company an aggregate of $135,000 to fund its current operations as of
the date of this report. The Promissory Note bears interest at 8% per annum and
contemplates repayment upon the 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 the completion of the proposed business combination
between the Company and Digital that results in aggregate net proceeds to the
Company of not less than $1 million.

NOTE 5 - SIGNIFICANT EVENT

On April 11, 2003, the Company and Indevus Pharmaceuticals, Inc. ("Indevus")
executed an Amendment (the "PRO 2000 Amendment") to the license agreement dated
June 14, 2000 (the "PRO 2000 License"). Under the terms of the PRO 2000 License,
Indevus holds the exclusive, worldwide rights to develop and market PRO 2000
Gel. Upon execution of the PRO 2000 Amendment, the Company received $500,000
from Indevus in exchange for (i) the elimination of the $500,000 milestone
payment that was to be paid under the PRO 2000 License upon the initiation of a
Phase II safety trial (planned to begin later in 2003); and (ii) a second
option, upon which exercise the Company would receive an additional payment of
$500,000, to acquire all of the Company's rights, title and interest to PRO 2000
Gel as set forth in the PRO 2000 License, provided that such second option is
exercised prior to September 30, 2004.

NOTE 6 - STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("FAS") 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment of FAS 123."
This statement provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123
to require more prominent and more frequent disclosures in financial statements
about the effects of stock-based compensation. The provisions of FAS 148 are
effective for fiscal years ending after December 15, 2002 and the interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
adopted FAS 148 during the fourth quarter ended December 31, 2002. The adoption
of FAS 148 did not have a material impact on the Company's results of operations
or financial position and the additional required disclosures are provided
below.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant


                                       8
<PAGE>


dates for awards under those plans consistent with FAS 123, the Company's net
income (loss) and net income (loss) per share would have been adjusted to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                --------------------------------   -------------------------------
                                                     2003            2002                2003            2002
                                                  -----------    ------------        ------------    ----------
<S>                                               <C>            <C>                  <C>           <C>
   Net loss--as reported                          $(212,955)     $(245,971)           $(38,782)     $(792,135)
   Adjustment to net loss for pro forma
     stock-based compensation expense               (17,030)       (17,030)            (51,090)       (66,995)
                                                  ---------      ---------            --------      ---------
   Net loss--pro forma                            $(229,985)     $(263,001)           $(89,872)     $(859,130)
                                                  =========      =========            ========      =========

   Basic and diluted net loss per
     common share--as reported                       $(0.01)        $(0.01)             $(0.00)        $(0.02)
   Basis and diluted net loss per
     common share-- pro forma                        $(0.01)        $(0.01)             $(0.00)        $(0.03)
</TABLE>


NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." FIN
45 expands on the existing accounting guidance and disclosure requirements for
most guarantees, including indemnifications. It requires that, at the time a
company issues a guarantee, the company must recognize an initial liability for
the fair value of the obligations it assumes under that guarantee if that amount
is reasonably estimable, and must disclose that information in its interim and
annual financial statements. The provisions for initial recognition and
measurement of the liability are to be applied on a prospective basis to
guarantees issued or modified on or after January 1, 2003. The Company's initial
adoption of this statement on January 1, 2003 did not have a material impact on
its results of operations, financial position, or cash flows. Guarantees issued
or modified after January 1, 2003, will be recognized at their fair value in the
Company's financial statements.

In April 2003, the FASB issued FAS 149, "Amendment of FAS 133 on Derivative
Instruments and Hedging Activities." FAS 149 amends and clarifies financial
accounting and reporting for deritive instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under FAS
133. FAS 149 is effective for contracts entered into or modified after June 30,
2003, with certain exceptions, and for hedging relationships designated after
June 30, 2003. The adoption of FAS 149 did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

In May 2003, the FASB issued FAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." FAS 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatory redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its
shares in exchange for cash or other assets and certain obligations that can be
settled with shares of stock. FAS 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of FAS 150 did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.


                                       9
<PAGE>


NOTE 8 - COMMITMENTS AND CONTINGENCIES

On January 16, 2004, the Company relocated its principal executive offices to 10
East 53rd Street, 33rd Floor, New York, New York 10022 under a month-to-month
arrangement for approximately 300 square feet. The Company had been maintaining
its principal executive offices at 369 Lexington Avenue, 10th Floor, New York,
New York 10017 pursuant to a five-year lease that continues until April 30,
2005. The commitment under the operating lease requires the Company to pay
monthly base rent and an allocable percentage of operating costs and property
taxes throughout the term of the lease.

The Company vacated the Lexington Avenue offices in order to facilitate a
reletting of the entire premises, of which the Company had been occupying an
insignificant portion pursuant to its subletting of a majority of the 5,150
square feet on July 1, 2001, which sublease was terminated on December 31, 2003
(see Note 3). At December 31, 2003, the gross future minimum rental payment
obligation for the Lexington Avenue lease for the balance of the lease term is
$281,000.


                                       10
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

STATEMENTS IN THIS FORM 10-Q THAT ARE NOT STATEMENTS OR DESCRIPTIONS OF
HISTORICAL FACTS ARE "FORWARD-LOOKING" STATEMENTS UNDER SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND ARE SUBJECT TO NUMEROUS RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN GENERALLY 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 INVOLVE RISKS AND UNCERTAINTIES, MANY OF WHICH ARE OUT OF THE
COMPANY'S CONTROL AND WHICH 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 OPERATING BUSINESS; (II)
THE VIABILITY OF THE COMPANY'S BUSINESS STRATEGY IN CONNECTION WITH AN
ACQUISITION AND ITS ABILITY TO IMPLEMENT SUCH STRATEGY; (III) ITS ABILITY TO
SECURE FINANCING FOR ITS CURRENT AND POTENTIAL FUTURE OPERATIONS; AND (IV) ITS
ABILITY TO GENERATE REVENUES SUFFICIENT TO MEET ITS OPERATING COSTS. SUCH
STATEMENTS REFLECT THE CURRENT VIEW OF THE COMPANY WITH RESPECT TO FUTURE EVENTS
AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS. IN ADDITION,
THE COMPANY'S BUSINESS, OPERATIONS AND FINANCIAL CONDITION ARE SUBJECT TO THE
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DESCRIBED IN THE COMPANY'S REPORTS
AND STATEMENTS FILED FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION. SHOULD ONE OR MORE OF THOSE RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE DISCUSSED HEREIN. THE DESCRIPTIONS OF THE RISKS,
UNCERTAINTIES AND ASSUMPTIONS TO WHICH THE COMPANY'S BUSINESS, OPERATIONS AND
FINANCIAL CONDITION ARE SUBJECT ARE AS OF THE DATE OF THIS REPORT. THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.

OVERVIEW

Since 2001, Paligent Inc., together with its subsidiaries (collectively, the
"Company"), has been engaged in seeking business opportunities to maximize value
for its shareholders. The Company has evaluated various strategic alternatives,
including acquisitions of new operating businesses and technologies as well as
potential merger opportunities. On July 1, 2003, the Company executed a
non-binding letter of intent to acquire privately held Digital Products of
Delaware, Inc. ("Digital"). The Company proposed to acquire all of the issued
and outstanding stock of Digital in consideration of the issuance of shares of
common stock of the Company such that the shareholders of Digital would own 80%
of the outstanding stock of the post-acquisition company. Richard J. Kurtz, a
director and the principal shareholder of the Company, is the principal
shareholder of Digital. On January 16, 2004, the Company announced that it was
postponing its acquisition of Digital. The Company's decision to postpone the
proposed business combination with Digital follows Digital's advisement that it
was presently focused on meeting certain business demands which hinder its
ability to conclude the business combination with the Company at this time.
Although the Company remains interested in later completing the acquisition of
Digital, it has resumed its efforts to identify an alternative business
combination.

From its inception in 1985 through 1999, the Company operated as a biotechnology
company engaged in the development and commercialization of novel drugs with a
product portfolio focused on infectious diseases and oncology. During 1999, the
Company's principal efforts were devoted to drug development, human clinical
trials and partnership commercialization focusing on two biotechnology
compounds, PRO 2000 Gel and O6-Benzylguanine ("O6-BG"). Beginning in fiscal
2000, the Company pursued an Internet strategy that focused on promoting and
facilitating transactions between consumers, funeral industry service providers
and financing institutions. During fiscal 2000, the Company also closed its
research facilities and out-licensed PRO 2000 Gel and O6-BG. Under the terms of
the out-licensing agreements, the Company retains certain future rights,
including the receipt of payments based


                                       11
<PAGE>


on the achievement of certain milestones as well as royalties from commercial
sales, if any. After a sustained period of deterioration in the Internet and
technology sectors and related capital markets, the Company decided, in the
fourth quarter of 2000, to discontinue the pursuit of its Internet strategy.
Shortly thereafter, the Company entered into an agreement to sell all of its
Web-based assets and Internet operations and ceased its Internet activities.

RESULTS OF OPERATIONS

From inception through September 30, 2003, the Company has generated no revenues
from product sales or services and, except for the net income reported for the
three and six month periods ended June 30, 2003, has not been profitable. As the
Company continues its due diligence and other activities in connection with a
potential business combination with Digital or another entity, the Company
expects to incur additional losses.

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2002

During the three months ended September 30, 2003, the Company reported a net
loss of $213,000, or $0.01 per share, as compared to a net loss of $246,000, or
$0.01 per share, in the comparable period in 2002. For the nine months ended
September 30, 2003, the Company reported a net loss of $39,000, or $0.00 per
share, as compared to a net loss of $792,000, or $0.02 per share, for the
similar period in 2002.

The Company's total revenue, which is derived from interest income, was $100 and
$600, respectively, for the three and nine month periods ended September 30,
2003, as compared to $1,200 and $7,300, respectively, for the comparable three
and nine month periods in 2002. The reduction in interest income is attributable
to a decrease in average cash balances available for investment during the
respective periods.

The Company's total operating expenses, consisting of general and administrative
costs, were $213,000 and $539,000, respectively, for the three and nine month
periods ended September 30, 2003 as compared to $247,000 and $799,000,
respectively, for the comparable periods in 2002. The decreases in general and
administrative costs of $34,000 and $260,000, respectively, for the comparable
three and nine month periods are principally due to reductions in professional
fees. General and administrative costs for the three and nine month periods
ended September 30, 2003 includes $26,000 of acquisition costs related to the
Company's pursuit of a business combination with Digital that had been deferred
as of June 30, 2003 and which were charged to expense in the third quarter of
2003 since the letter of intent expired on October 31, 2003 and current efforts
to conclude a definitive agreement have been postponed indefinitely.

During the second quarter ended June 30, 2003, the Company received proceeds of
$500,000 in connection with its execution of an Amendment (the "PRO 2000
Amendment") to its license agreement with Indevus Pharmaceuticals, Inc.
("Indevus") dated June 14, 2000 (the "PRO 2000 License"). This amount was
recorded as other income. Under the terms of the PRO 2000 License, Indevus holds
the exclusive, worldwide rights to develop and market PRO 2000 Gel. The payment
to the Company under the PRO 2000 Amendment was received in exchange for (i) the
elimination of the $500,000 milestone payment that was to be paid under the PRO
2000 License upon the initiation of a Phase II safety trial (which was planned
to begin later in 2003 and has since begun); and (ii) a second option, upon
which exercise the Company would receive an additional payment of $500,000, to
acquire all of the Company's rights, title and interest to PRO 2000 Gel as set
forth in the PRO 2000 License, provided that such second option is exercised
prior to September 30, 2004.


                                       12
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003, the Company's aggregate cash and cash equivalents were
$19,000, a net decrease of $134,000 from the end of the prior year. The decrease
in cash is attributable to cash payments for operating activities and payments
on capital leases during the nine month period ended September 30, 2003, which
were offset by the Company's receipt of $500,000 in April 2003 in connection
with the PRO 2000 Amendment.

Except for the net income reported for the three and six month periods ended
June 30, 2003, the Company has incurred losses since inception and has limited
cash to fund operations in 2003. Although the Company received $500,000 in
connection with the PRO 2000 Amendment, the Company had expected that its
available cash reserves and interest income would have be sufficient to fund the
Company's current operations into the fourth quarter of 2003; however, during
the third quarter ended September 30, 2003, the Company's subtenant defaulted in
its sublease and other obligations to the Company. While the Company reached a
settlement agreement with its subtenant on December 31, 2003, this default
resulted in an accelerated depletion of the Company's cash reserves.

In anticipation of completing a business combination with Digital or another
entity, Mr. Kurtz has indicated his willingness to loan to the Company funds
sufficient to finance its continuing operations. Accordingly, on October 8,
2003, the Company executed a promissory note with Mr. Kurtz under which the
Company expects to receive loans that will enable it to meet its anticipated
cash operating needs.

While the Company pursues the completion of a business combination with Digital
or another entity, and expects to finance its continuing operations through
borrowings from Mr. Kurtz, no assurance can be given that the Company will be
able to complete the proposed business combination with Digital or that such
financing from Mr. Kurtz will continue to be available to the Company. Further,
if the Company is unable to generate significant revenue from acquired
operations, obtain additional revenue from its existing out-licensing of its
biotechnology assets, secure additional financing for its present operations or
secure sufficient financing for operations resulting from acquisition or merger,
the Company will experience a cash shortage, the effect of which could result in
the discontinuance of operations. If additional funds are raised by issuing
equity securities, further dilution to existing stockholders will result and
future investors may be granted rights superior to those of existing
stockholders.

These circumstances raise substantial doubt about the Company's ability to
continue as a going concern.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission
of FASB Interpretation No. 34." FIN 45 expands on the existing accounting
guidance and disclosure requirements for most guarantees, including
indemnifications. It requires that, at the time a company issues a guarantee,
the company must recognize an initial liability for the fair value of the
obligations it assumes under that guarantee if that amount is reasonably
estimable, and must disclose that information in its interim and annual
financial statements. The provisions for initial recognition and measurement of
the liability are to be applied on a prospective basis to guarantees issued or
modified on or after January 1, 2003. The Company's initial adoption of this
statement on January 1, 2003 did not have a material impact on its results of
operations, financial position, or cash flows. Guarantees issued or modified
after January 1, 2003, will be recognized at their fair value in the Company's
financial statements.


                                       13
<PAGE>


In April 2003, the FASB issued FAS 149, "Amendment of FAS 133 on Derivative
Instruments and Hedging Activities." FAS 149 amends and clarifies financial
accounting and reporting for deritive instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under FAS
133. FAS 149 is effective for contracts entered into or modified after June 30,
2003, with certain exceptions, and for hedging relationships designated after
June 30, 2003. The adoption of FAS 149 did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standards No.
("FAS") 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." FAS 150 requires that certain financial
instruments, which under previous guidance were accounted for as equity, must
now be accounted for as liabilities. The financial instruments affected include
mandatory redeemable stock, certain financial instruments that require or may
require the issuer to buy back some of its shares in exchange for cash or other
assets and certain obligations that can be settled with shares of stock. FAS 150
is effective for all financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of FAS 150 did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.


                                       14
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release 48 ("FRR 48"), "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments, and
Disclosure of Quantitative and Qualitative Information About Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments and
Derivative Commodity Instruments." FRR 48 required disclosure of qualitative and
quantitative information about market risk inherent in derivative financial
instruments, other financial instruments, and derivative commodity instruments
beyond those already required under generally accepted accounting principles.
The Company is not a party to any of the instruments discussed in FRR 48 and
considers its market risk to be minimal.

ITEM 4.  CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q (the
"Evaluation Date"), an evaluation was performed under the supervision of the
Company's Chief Executive Officer and principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's Chief Executive Officer
and principal financial officer concluded that the Company's disclosure controls
and procedures were effective as of the Evaluation Date. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to the Evaluation
Date.


                                       15
<PAGE>


PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In August 2003, the Company brought an action in New York State Supreme Court,
New York County, against its subtenant. The complaint alleged that the subtenant
had failed to pay its rent beginning in July 2003 and was in default under its
sublease. The Company sought payment of rent under the sublease in the aggregate
amount of $60,000, as of September 30, 2003. While the Company believed it had
meritorious claims against its subtenant, the Company weighed the costs of
litigation and the impact of those costs on its limited liquidity as well as the
likelihood of being able to collect a judgment against the subtenant. On
December 31, 2003, the Company and its subtenant entered into a Surrender
Agreement pursuant to which the Company and its subtenant agreed to release one
another with respect to any and all claims under the sublease and the Company
received cash and a promissory note approximately equivalent to the aggregate
amount due as of December 31, 2003 in exchange for the termination of the
sublease and a furniture and equipment rental agreement.

ITEM 6.  EXHIBITS AND 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 September 15, 2003 filed with
                  the Securities and Exchange Commission on September 22, 2003
                  relating to a change in the Company's certifying accountant.


                                       16
<PAGE>


                                   SIGNATURES


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

                                     PALIGENT INC.
                                     (Registrant)


Date:  February 6, 2004              by:  /s/ Salvatore A. Bucci
                                          -------------------------------------
                                          Salvatore A. Bucci
                                          President and Chief Executive Officer



                                       17
<PAGE>



                                  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.



                                       18