UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 2001

[ ]  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 0-28008
                                                -------
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                              PROGINET CORPORATION
                              --------------------
        (Exact name of small business issuer as specified in its charter)

<S>                                                       <C>
          Delaware                                        11-3264929
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. employer identification no.)
incorporation or organization)


200 Garden City Plaza, Garden City, New York                  11530
--------------------------------------------        ----------------------------
(Address of principal executive offices)                   (Zip Code)

Issuer's telephone number, including area code (516) 248-2000
                                               --------------

Securities registered pursuant to Section 12(b) of the Exchange Act:   None
                                                                       ----

Securities registered pursuant to Section 12(g) of the Exchange Act:  Common Stock
                                                                      ------------
                               Title of each class
                               -------------------
Indicate by check mark whether the issuer: (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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes  X     No ___
   ------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.___

Issuer's revenues for its most recent fiscal year $5,638,897.

The aggregate market value of the voting stock (based on the closing price of
such stock on the OTC Bulletin Board held by non-affiliates of the issuer as of
September 20, 2001 was approximately $2,015,000. All officers and directors of
the issuer have been deemed, solely for the purpose of the foregoing
calculation, to be "affiliates" of the issuer.

There were 13,478,054 shares of Common Stock outstanding at September 20, 2001.


<PAGE>
                                                  TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----

                                                       PART I

Item 1.      Description of Business..............................................................................2

Item 2.      Description of Property..............................................................................7

Item 3.      Legal Proceedings....................................................................................8

Item 4.      Submission of Matters to a Vote of Security Holders..................................................8

                                                       PART II

Item 5.      Market for Common Equity and Related Stockholder Matters.............................................9

Item 6.      Management's Discussion and Analysis or Plan of Operation............................................9

Item 7.      Financial Statements................................................................................11

Item 8.      Changes In And Disagreements With Accountants on Accounting and Financial Disclosure................28

                                                      PART III

Item 9.      Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16 (a) of the
             Exchange Act........................................................................................29

Item 10.     Executive Compensation..............................................................................29

Item 11.     Security Ownership of Certain Beneficial Owners and Management......................................29

Item 12.     Certain Relationships and Related Transactions......................................................29

Item 13.     Exhibits and Reports on Form 8-K....................................................................29
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                                                         i
<PAGE>


                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS

Proginet Corporation (Proginet or the Company) is a Long Island, New York based
software company that develops and markets two software product lines. One is a
batch file transfer software product used to link mainframe computer systems to
local area networks (LANs) and the Internet, primarily for Microsoft Windows,
Novell Netware, OS400 and UNIX platforms. The other is a security password
management software product that enables multiple and disparate security
systems, on multiple computers, to function as one. The Company sells its
products in the U.S. through its telemarketing and sales force and
internationally directly and indirectly through distributors, and through
Original Equipment Manufacturer (OEM) partners in the United States, Europe,
South America, Asia and Australia. The Company also provides software
maintenance services. The Company's stock is traded on the OTC- Bulletin Board
under the symbol PRGF. The Company's stock also trades on the PRGF Canadian
Venture Exchange, (CDNX), (formerly, the Vancouver Stock Exchange), listed as
PRF.U.

GENERAL DEVELOPMENT OF THE BUSINESS

Proginet was incorporated in New York in 1985 as The Teleprocessing Connection,
Inc (TCI) and changed its name in 1990 to Proginet Corp. In 1995, Proginet Corp.
merged with a Delaware corporation and became Proginet Corporation.

PRODUCTS

The following is a brief description of the principal products currently
marketed by Proginet. Proginet has designed its products with an emphasis on
ease of use, security and management both to enhance and protect its customers'
investments in different networking hardware and software, and to provide its
customers with flexibility for future investments.

Proginet's information movement technology allows users to send their
information over internal networks and the Internet, confident that no one other
than the intended recipient can read or receive the information. Proginet's
information movement software is currently being used by some of the largest
corporations in the world, no one of which represents 10% or more of Proginet's
revenues. Proginet offers six software solutions for moving information between
computers. CyberFusion is designed for Internet file transfer and the other five
are designed for internal network file transfers. The TCS product was added in
2001 as the result of an acquisition of such technology from SureFire Commerce
Inc.

Proginet currently offers the following products in the information movement
space:

o    CyberFusion provides secure reliable information movement across the
     Internet. This product includes some of the strongest encryption available
     including DES, Triple DES, Blowfish and Blowfish Long, along with extensive
     features to allow for the automation of information movement needs.
o    Fusion FTMS manages high-speed file transfers between OS/390 hosts, LAN
     servers, and desktops, throughout an enterprise environment.
o    TransAccess is a data access and middleware solution for cross-platform
     data retrieval, update, and transaction processing. TransAccess enables
     enterprise-wide distributed applications across an extensive range of
     computing platforms.
o    Network Navigator is a batch file transfer capability between client/server
     and MVS environments.
o    Proginet also provides a version of IND$FILE, called IND$FILE Plus. While
     the Time Sharing Option (TSO) version of IND$FILE, sold by IBM, is already
     the industry standard for exchanging files between personal computers and
     IBM mainframes, Proginet's VTAM - based IND$FILE PLUS provides added value
     and security to all IBM mainframe users.

o    TCS(TM) is a peer-to-peer file transfer solution for the enterprise. TCS
     allows end users and Information Technology staff to easily transfer,
     access, and manage data across an enterprise network, regardless of
     location, file type or protocol. TCS file transfer is flexible, secure,
     centrally managed and scalable, and offers complete platform protocol and
     Application Program Interface (API) support for MVS, OS/2, Netware, UNIX
     and all versions of Windows.


                                      -2-
<PAGE>

     For those customers who do not require the fully automated file transfer
     capabilities of CyberFusion, TCS is an excellent alternative, at a lower
     price point.

Proginet's password management technology addresses the problem of "too many
passwords" that affects individual users from small to large corporate
enterprises. The individual user may have many passwords to access the different
systems in a typical environment. Often they resort to writing passwords on a
"Post-It". Such practices cause enterprises to have an exposure when users write
the password down or choose simple passwords that are easier to remember.
Another consequence develops when users create complex passwords for improved
security and then forget their passwords, creating a significant burden for help
desk personnel.

SecurPass, with its password synchronization technology, password management
features, and extendable application program interfaces (APIs), allows
enterprises to gain control over users' passwords. By utilizing the password
management and password synchronization technology in SecurPass, a company can
specify the rules for creating a password, and have those rules enforced among
all of the security systems throughout the company. The capabilities in
SecurPass allow a user to specify one password, and have that password allow the
user to gain access to all of the systems needed. When a password is reset,
SecurPass propagates the password change throughout the environment to ensure
that all passwords are secure and in-sync.

Enterprises need to address this exposure to ensure that they maintain necessary
security and trust with their customers. Proginet believes enterprises must
simplify and consolidate their security administration functions, as a first
step to regaining and keeping control over their security password environments.

STRATEGY

Proginet's strategy has been and continues to be to develop state-of-the-art
technology applications for information movement and password management.
Proginet implements its strategy by investing in a highly qualified and
motivated research and development team, that produces and brings to market
unique and creative products geared to the Internet. Such technology includes
encryption and management features to assure secure and reliable transfers.

The Company's product strategy is to expand with new products specifically
designed for the Internet and wireless technology. Proginet's current product
lines are mature, functional products with large installed bases. The additional
development of existing products is focused on increasing the ease of product
deployment and usability.

The criteria used in evaluating, and determining research and development
priorities are as follows:

1.       Products must enable powerful use of the Internet.
2.       Products must focus on Proginet's core strengths (multi-platform,
         manageability, secure information movement).
3.       Viral marketing functionality, whereby customers and their partners can
         add incrementally to sales by propagating product marketing once the
         products are installed.
4.       Business and technologies must be synergistic.
5.       Products must have wide appeal.
6.       Each product must stand on its own in terms of revenue generation
         potential.

Proginet continually evaluates new technology that has great impact on the
Internet and determines how this new technology may fit into Proginet's
strategy. Two recent examples of this approach are Unix command line and audit
log capabilities, now available in the CyberFusion family of products, and
AS/400 - bi-directional password management, recently implemented in the
SecurPass line.

                                      -3-
<PAGE>

SALES AND MARKETING

Proginet's sales strategy is comprised of four sales models: direct sales in the
U.S.; indirect sales in the U.S. through distributors; indirect international
sales through distribution partners in over 25 countries around the world; and
alliances with partners who integrate Proginet's technology with their
technology and sell the combined product(s). This last model is commonly
referred to as OEM.

The direct sales model includes a direct telemarketing and sales force comprised
of Proginet employees. The direct sales model covers the entire sales cycle from
lead generation through trial evaluation process, typically 60 to 150 days, to
the signing of a software license agreement. Proginet estimates that the
"typical" sales cycle averages about 120 days and Proginet closes approximately
two-thirds of trials started. The indirect U.S. sales model is built on the
premise that business connections and knowledge in various vertical markets can
be beneficial in establishing business relationships and closing sales faster in
instances where Proginet did not have a presence. Therefore, Proginet is now
extending the indirect channels program used internationally to the U.S.
domestic sales process.

The indirect international sales model is built on the premise that presence and
knowledge in local markets is paramount to establishing necessary business
relationships and closing sales. Therefore, distributor partnerships are
established in local markets (countries) and Proginet commits significant
resources to train and support distributors to sell Proginet software in their
countries. The distributors' role is to act as agents, make the marketplace
aware of Proginet's technology and explain how the technology can be used in
their business environments. Proginet backs-up the distributors with authorized
assistance and support, customer installations and training whenever necessary.
The distributor agreement specifies that they cannot sell competitors' products.
Distributors are typically compensated at a commission rate of 25% to 50% based
upon their level of effort, resources assigned, and commitment to closing sales.

The OEM sales model is based on the ability of an outside software company with
complementary technology to sell, install and support Proginet's technology.
These OEMs incorporate Proginet's technology to provide services to other
customers. The OEM arrangements include a commission structure similar to
distributors and also include specific fixed pricing for the number of "users"
the product is licensed for.

All of Proginet's sales are dependent on visibility in the marketplace and the
market's acceptance of Proginet's products. As such, the relationships with
technology partners such as IBM, Microsoft, HP and others, which give Proginet
visibility on their websites, continue to benefit both the direct and indirect
sales model. In both models, while there is no contractual obligation for
website coverage, this visibility provides leads and references to prospective
customers who could benefit from Proginet's products and their integration into
our partner's technology. The Company, however, does not maintain statistics on
the amount of revenues attributable to such leads.

Proginet's marketing strategy is centered on communicating the Company's message
for corporate visibility to investors and the Company's product solutions to the
marketplace. The corporate visibility program is centered upon an investor
relations program, which provides communications on corporate activities to
investors, and a corporate awareness program, which includes pursuing trade
press coverage and participation in many industry trade shows and related
programs.

Proginet's product marketing strategy includes a comprehensive program that
identifies market needs, positions Proginet's product messages to address these
needs, and pursues several methods to deliver Proginet's message to the
identified target audiences. The methods include trade shows and industry
conference participation, and targeted direct mail campaigns. Additionally,
Proginet pursues specific vertical markets, including healthcare and financial
services, with programs designed specifically for these vertical markets.

                                      -4-
<PAGE>
CUSTOMERS

Proginet has established a worldwide user base of more than 600 companies in
over 29 countries engaged in the financial, telecommunications, healthcare,
government, and other industry sectors. No one customer represents 10% or more
of Proginet's revenues.

SUPPLIERS

Proginet is not reliant on any particular supplier for any of its operating
needs. Any products required can be purchased from a number of sources.

EMPLOYEES

As of July 31, 2001, Proginet had 41 full-time salaried employees and four
consultants on retainer. The Company believes its relations with its employees
are satisfactory.

COMPETITION

Analysts at International Data Corporation ("IDC") estimated that over
sixty-five percent of the record $230 billion in worldwide corporate IT spending
by 2002 will be shared among just four industries: manufacturing ($24 billion),
financial services ($16.6 billion), media and communications ($10.7 billion),
and retailers ($6.2 billion). Additionally, with the passage of the Health
Insurance Portability and Accountability Act of 1996 ("HIPPA"), the healthcare
opportunities are estimated at over $2 billion of required IT spending to
satisfy the legislation. Proginet enjoys a solid reputation with customers
representative of these industries. Going forward, Proginet is aggressively
setting its sights on increasing market share in these industries. Several
companies in the marketplace provide technologies that are similar, or are
perceived by the marketplace to be similar, to Proginet's technology.
Competitive information is difficult to obtain and statistics on the number of
customers and products sold are not disclosed by either private or public
companies. For example, Computer Associates and IBM bundle product offerings and
they themselves do not fully know what products are specifically used by
customers. The information in this section was compiled from public sources as
well as from discussions with Proginet's partners, vendors, and customers.
Proginet believes the information to be reasonably accurate.

The information movement market is vast, with large and small players targeting
many market segments, typically in the client server space. Some large players
in this space including Computer Associates and Sterling Commerce, provide file
transfer products for both the client server and mainframe spaces, in which
Proginet competes. Currently, the markets for large systems data movement and
systems management are estimated at $1.5 billion and $6 billion, respectively
according to IDC.

We believe that the principal competitive factors in our market include: brand
recognition, brand selection, price, accessibility, customer service,
reliability, scalability, speed and emerging Internet technology. Proginet also
believes that with the introduction of CyberFusion for advanced managed file
transfer over the Internet, the Company is well positioned to compete in this
emerging market for business to business (B2B) file transfer.

Many of our competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources. Certain of our competitors may devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing policies and
devote substantially more resources to web site and systems development. If our
competitors are able to offer products and services on more favorable terms, we
may experience reduced operating margins, loss of market share and a diminished
brand franchise. We cannot assure you that we will compete successfully against
our current and future competitors. Competitive pressures created by any one of
our competitors, or by our competitors collectively, could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

The Company's information movement technology products compete with major
computer and communication systems vendors including IBM, Computer Associates
and Sterling Commerce, as well as smaller companies such as, Firesign, Vericert
and Hilgraeve Systems. No competitor has more than 10 percent market share and
Proginet has an insignificant market share at this time.

                                      -5-
<PAGE>

Most of the smaller players have developed "bottom-up" file transfer
applications from a PC or UNIX platform as the foundation. These platforms have
been inherently unstable, or unreliable, when compared with the IBM mainframe.
Proginet's experience and expertise in this space enables the Company to develop
software with higher levels of compliance to standards for up time, reliability,
security, and scalability.

The design requirement for 100 percent reliability originated in the mainframe
world and is the reason that, at this time, almost 70% of the world's data
resides on IBM mainframes. Proginet's expertise in this area provides Proginet
an advantage over the competition, when reliability, scalability and security
are of paramount importance.

In the password management market, we believe Proginet has two key advantages:
(1) its expertise in mainframe development and (2) its level of technical and
customer support provided.

During 1998, the worldwide market for Internet security increased 43% to $3.2
billion. In particular, encryption software rose 31% while security software
specialized in authentication / authorization / administration grew 46% within
that period, according to IDC. Again there is no dominant competitor in this
market and Proginet has an insignificant share at this time.

The mainframe is the platform where data security measures are most mature.
Consequently, customers are reliant upon the mainframe and mainframe security
packages for protecting their most critical data. Proginet's knowledge of the
mainframe positions the Company to leverage this reliance and to develop
strategic relationships with other mainframe - specific vendors.

The Company's password management technology product line competes with major
software vendors, including IBM and Computer Associates, as well as smaller
companies such as Axent, Blockade, P-Sync and Passgo. Proginet builds upon
Microsoft security, while the other vendors merely replace it. Proginet's
compliance with native Windows security ensures that the security components of
all applications, which are BackOffice compliant, will also be fully compliant
with Proginet's offering.

GOVERNMENT REGULATION

Proginet has received authorization from the United States Commerce Department
to export strong encryption that will ensure the security of critical business
information transferred worldwide via the Internet. Other than this
authorization, the Company is not subject to direct regulation by any government
agency, other than regulations applicable to businesses in general.

INTELLECTUAL PROPERTY

Proginet does not possess any patents. Proginet relies on a combination of
trademark, copyright and trade secret laws to protect its proprietary rights.
Proginet has registered the trademarks IND$File and TransAccess in the United
States. Neither trademark is considered significant in the protection of the
Company's technology. The Company believes the protection of the Company's
source code and its product designs are best protected by the Company's Employee
Confidential Information and Non-Competition Agreement. In addition, Proginet
owns most of the Internet domain names for its products.

                                      -6-
<PAGE>
ITEM 2.       DESCRIPTION OF PROPERTY

Proginet maintains its headquarters at 200 Garden City Plaza, Garden City, New
York, 11530 where a majority of its employees are located. At present, a second
facility located in Chicago, Illinois, which had served as a development lab, is
subleased to another party for monthly rent payments ranging from $7,365 to
$7,600, until the lease expiration.
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----------------------------------- ------------------ --------------- ---------------------- --------------
                                                                                                 Current
Description                             Location         Square Ft.      Lease Expiration      Annual Cost
----------------------------------- ------------------ --------------- ---------------------- --------------
<S>                                                             <C>             <C> <C>            <C>
Headquarters                        Garden City, NY             9,804  February 28, 2006           $214,019
----------------------------------- ------------------ --------------- ---------------------- --------------
Subleased to another Tenant         Chicago, IL                 6,068  December 31, 2002           $12,006*
----------------------------------- ------------------ --------------- ---------------------- --------------
* Amount is net of related sublease revenue.
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                                      -7-
<PAGE>

ITEM 3.       LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions in the ordinary
course of business. It is the opinion of Management that the outcome of such
litigation will not have a material adverse effect on the Company's financial
condition and results of operations.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                      -8-
<PAGE>
                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since May of 1995, Proginet common stock has traded on the Vancouver Stock
Exchange, under the symbol PRF.U. The ".U" extension indicates that the shares
are traded in U.S. dollars. In December 1999, the Vancouver Stock Exchange
merged with the Calgary Stock Exchange and is now called the Canadian Venture
Exchange, CDNX. On March 28, 2001 the Toronto Stock Exchange (TSE) announced its
plan to acquire CDNX. The TSE and CDNX have executed an acquisition agreement
for CDNX to become a wholly-owned subsidiary of the TSE. The closing of the
transaction is subject to a CDNX member-shareholders vote and receipt of
regulatory approvals. The two exchanges will remain distinct with the senior
market being operated by the TSE and the public venture market continuing to be
operated by CDNX. In September 2000, the Company's Registration Statement on
Form 10-SB cleared comments with the SEC and Proginet common stock also began
trading on the OTC-Bulletin Board ("OTC-BB") under the symbol PRGF.

Proginet's stock is held by over three hundred holders of record.

The following table sets forth, for the fiscal quarters indicated, the reported
high and low bid information for Proginet's common stock. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.

---------- -------------- ----------- ------------------ -------------------
Year       Quarter        Exchange         High ($U.S.)          Low($U.S.)
---------- -------------- ----------- ------------------ -------------------
2001       QTR 4          OTC-BB                   0.52                0.17
           QTR 3          OTC-BB                   0.65                0.28
           QTR 2          OTC-BB                   0.75                0.28
           QTR 1          CDNX                     0.90                0.43
---------- -------------- ----------- ------------------ -------------------
2000       QTR 4          CDNX                     1.15                0.65
           QTR 3          CDNX                     2.45                0.97
           QTR 2          CDNX                     2.20                0.52
           QTR 1          CDNX                     0.84                0.54
---------- -------------- ----------- ------------------ -------------------

DIVIDENDS

Proginet has not paid dividends and does not anticipate paying dividends in the
foreseeable future. The Board of Directors intends to retain earnings, if any,
to finance growth. Accordingly, any payment of dividends by Proginet in the
future will depend upon the need for working capital and the financial condition
of the Company at the time.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     GENERAL

You should read the following discussion in conjunction with our financial
statements and the notes thereto included elsewhere herein. All statements in
this Form 10-KSB related to Proginet's ongoing financial operations and expected
future results constitute forward-looking statements. The actual results may
differ materially from those anticipated or expressed in such statements.

Fiscal Periods Ended July 31, 2001 and July 31, 2000

Total revenues for the year ended July 31, 2001 amounted to $5,638,897,
representing an increase of $1,489,198, or 35.9% compared to revenues of
$4,149,699 for the year ended July 31, 2000. Software license revenues increased
by $758,140, or 45%, to $2,444,289. The increase in software sales and license
revenues compared to the prior year was primarily due to an OEM sales agreement
with a former distributor amounting to approximately $384,000 in January 2001
and by a one-time software sale to an existing customer amounting to $540,000 in
October 2000. No future revenue is anticipated from either of those customers.

                                      -9-
<PAGE>

Software maintenance fees increased by $842,560, or 37.2% to $3,109,315 compared
to fiscal 2000 software maintenance fees of $2,266,755. The increase in software
maintenance fees is principally attributable to an increase in licenses for the
Company's products and the acquisition in November 2000 of certain software
products from SureFire Commerce Inc. ("Surefire").

Other revenues amounted to $85,293 compared to $196,795 for fiscal 2000. These
revenues are related to ad-hoc consulting services that are typically provided
in response to requests for support of existing customers. Consequently, this
revenue can vary considerably from year to year.

Cost of revenues increased from $1,760,469 to $2,584,524 or 46.8%, resulting in
part from an increase in amortization expense of approximately $410,000 related
to purchased and developed software available for sale and an increase of
$452,000 in costs related to distributor support of indirect sales.

Operating expenses decreased to $3,313,305 from $3,523,450, a decrease of
$210,145, or 6%, in fiscal 2001 compared to fiscal 2000. This decrease is a
combined result of a 24.7% increase or $95,223 in research and development
costs, a 2.2% decrease or $20,689 in selling and marketing expenses and a 13%
decrease or $284,679 in general and administrative costs. The increase in
research and developments costs is principally due to an increase in software
developers needed to support our product development, documentation and testing
activities related to the development and release of the latest version of the
Company's products. The decrease in general and administrative costs is
primarily due to a decrease in bad debt expense due to the recovery of a
previously written off customer account, decreases in investor relations fees
due to the expiration of a contract, decreases in compensatory stock option
expenses, and decreases in legal fees due to the completion of the Company's
U.S. registration process offset slightly by increases in personnel-related
expenses such as salaries and benefits needed to support the Company's growth.

Interest income amounted to $34,772 and $66,781 in fiscal 2001 and 2000,
respectively. This decrease is primarily due to lower interest income generated
from a decrease in cash and cash equivalents.

The Company reported a net loss of $226,126 for 2001 compared to net loss of
$1,066,282 for 2000.

     LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2001, the Company had a cash and cash equivalent balance of $805,083
and a working capital deficit of $431,208 compared to $1,465,468 of cash and
cash equivalents and working capital of $580,204 at July 31, 2000. The working
capital deficit is attributable to the acquisition of certain software products
from SureFire Commerce Inc., which required cash payments of $1,333,946 and an
outstanding liability of $100,000 payable in November 2001.

Operating activities provided cash of $1,750,066 and $1,042,444 at July 31, 2001
and 2000, respectively. The increase of $707,622 in net cash provided by
operating activities is primarily due to improved operations of the Company and
the related effects of the acquisition of SureFire in November 2000. Investing
activities used cash of $2,384,574 and $1,039,661 for the years ended July 31,
2001 and 2000, respectively. The increase in net cash used was due to the
acquisition of certain software products from SureFire amounting to $1,333,946.
Financing activities used net cash of $25,877 as compared to using net cash of
$228,478 in fiscal 2000 representing a decrease of $202,601 primarily due to the
purchase of treasury stock in fiscal 2000.

On January 12, 2000, Proginet established a line of credit in the amount of
$100,000 with a bank. The interest rate is variable, based on prime plus 1%. As
of July 31, 2001, the Company has not borrowed against this line of credit.
Subsequent to year-end, the Company extended its line of credit agreement to
September 30, 2002.

In May 2001, the Company established an additional line of credit in the amount
of $350,000 with another bank. The interest rate is variable based on the bank's
prime rate plus 1/2%. The line of credit is collateralized by accounts
receivable of the Company and expires May 2002. As of July 31, 2001, the Company
has not borrowed against this line of credit.

                                      -10-
<PAGE>

The Company believes that its present cash and cash equivalents, the cash
generated from operations and amounts available under its present line of credit
agreements will be sufficient to meet its cash needs for at least the next
twelve months.

ITEM 7.       FINANCIAL STATEMENTS
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                                                                                         Page
Report of Independent Certified Public Accountants                                        12
------------------------------------------------------------------------- -----------------------------------
Balance Sheets as of July 31, 2001 and 2000                                               13
------------------------------------------------------------------------- -----------------------------------
Statements of Operations for the years ended July 31, 2001 and 2000                       14
------------------------------------------------------------------------- -----------------------------------
Statements  of  Stockholders'  Equity for the years  ended July 31, 2001                  15
and 2000.
------------------------------------------------------------------------- -----------------------------------
Statements of Cash Flows for the years ended July 31, 2001 and 2000                       16
------------------------------------------------------------------------- -----------------------------------
Notes to Financial Statements                                                             17
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                                      -11-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
    PROGINET CORPORATION

We have audited the accompanying balance sheet of Proginet Corporation as of
July 31, 2001 and 2000, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Proginet Corporation as of July
31, 2001 and 2000, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.

GRANT THORNTON LLP


Melville, New York
September 6, 2001


                                      -12-
<PAGE>
<TABLE>
<CAPTION>

                                                 PROGINET CORPORATION
                                                    Balance Sheets

                                                                                        Year ended July 31,
                  ASSETS                                                              2001                 2000
                                                                                 ---------------        ------------
<S>                                                                                     <C>                 <C>
Current assets
          Cash and cash equivalents                                       $             805,083  $        1,465,468
          Accounts receivable, net                                                      590,053             630,956
          Prepaid expenses                                                               34,622              27,090
                                                                                 ---------------    ----------------
                               Total current assets                                   1,429,758           2,123,514
                                                                                 ---------------    ----------------

Property and equipment, net                                                             265,020             373,639
Capitalized software development costs, net                                           3,734,286           3,733,712
Purchased software, net                                                               1,584,212             686,176
Other assets                                                                             47,953              45,701
                                                                                 ---------------    ----------------
                                                                          $           7,061,229  $        6,962,742
                                                                                 ===============    ================
          LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
          Current portion of notes payable                                $              37,251  $           55,877
          Accounts payable and accrued expenses                                         344,271             370,840
            Purchased software payable                                                  100,000
          Deferred revenue                                                            1,379,444           1,116,593
                                                                                 ---------------    ----------------

                               Total current liabilities                              1,860,966           1,543,310
                                                                                 ---------------    ----------------

Notes payable, net of current portion                                                         -              37,251
Deferred rent                                                                           133,792             129,167
                                                                                 ---------------    ----------------
                                                                                      1,994,758           1,709,728
                                                                                 ---------------    ----------------

Stockholder equity
          Preferred stock, $.01 par value, 10,000,000 shares authorized,
              none issued                                                                     -                   -

          Common stock, $.001 par value, 40,000,000 shares authorized,
               14,251,058 and 14,211,058 shares issued in 2001 and
              2000, respectively                                                         14,251              14,211

          Additional paid-in capital                                                 11,809,799          11,770,256
          Treasury stock, 773,004 shares, at cost                                     (415,856)           (415,856)
          Accumulated deficit                                                       (6,341,723)         (6,115,597)
                                                                                 ---------------    ----------------
                                   Total stockholders' equity                         5,066,471           5,253,014
                                                                                 ---------------    ----------------

                                                                          $           7,061,229  $        6,962,742
                                                                                 ===============    ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                                        -13-
<PAGE>

                                                  PROGINET CORPORATION
                                                Statements of Operations

                                                                                       Year ended July 31,
                                                                                   2001                    2000
                                                                            --------------------    -------------------
Revenues
        Software sales and license                                   $          2,444,289         $          1,686,149
        Software maintenance fees                                               3,109,315                    2,266,755
        Other                                                                      85,293                      196,795
                                                                            --------------               --------------
                                                                                5,638,897                    4,149,699

Cost of revenues                                                                2,584,524                    1,760,469
                                                                            --------------               --------------

              Gross profit                                                      3,054,373                    2,389,230
                                                                            --------------               --------------
Operating expense
        Research and development                                                  481,188                      385,965
        Selling and marketing                                                     924,197                      944,886
        General and administrative                                              1,907,920                    2,192,599
                                                                            --------------               --------------
                                                                                3,313,305                    3,523,450
                                                                            --------------               --------------

               Loss from operations                                             (258,932)                  (1,134,220)
Other income (expense)
        Interest income                                                            34,772                       66,781
        Other, net                                                                (1,966)                        1,157
                                                                            --------------               --------------

Net loss                                                             $          (226,126)         $        (1,066,282)
                                                                            ==============               ==============

Basic and diluted loss per common share                              $             (0.02)         $             (0.08)
                                                                            ==============               ==============

Weighted average common shares outstanding, basic and diluted                  13,477,721                   13,562,995
                                                                            ==============               ==============


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                                         -14-
<PAGE>

                                                          PROGINET CORPORATION
                                                   Statements of Stockholders' Equity
                                                   Years ended July 31, 2001 and 2000

                                                                          Additional                      Accum-
                                                                           paid- in      Treasury         ulated
                                              Common stock                 capital         stock          deficit         TOTAL
                                     --------------------------------    -------------  ------------   --------------  ------------
                                         Shares             Amount
                                     -------------     --------------


Balance - August 1, 1999               14,140,000            $14,140      $11,632,391    $(243,255)     $(5,049,315)    $6,353,961

Exercise of stock options                  71,058                 71           23,930             -                -        24,001

Purchase of treasury stock                      -                  -                -     (172,601)                -     (172,601)

Stock purchase warrants issued for
services                                        -                  -           47,918             -                -        47,918

Compensatory stock option expense               -                  -           66,017             -                -        66,017

Net loss                                        -                  -                -             -      (1,066,282)   (1,066,282)
                                     -------------     --------------    -------------  ------------   --------------  ------------

Balance - July 31, 2000                14,211,058             14,211       11,770,256     (415,856)      (6,115,597)     5,253,014

Exercise of stock options                  40,000                 40           29,960             -                -        30,000

Stock purchase warrants issued                  -                  -            9,583             -                -         9,583

Net loss                                                                                                   (226,126)     (226,126)
                                     -------------     --------------    -------------  ------------   --------------  ------------
Balance - July 31, 2001                14,251,058            $14,251      $11,809,799    $(415,856)     $(6,341,723)    $5,066,471
                                     =============     ==============    =============  ============   ==============  ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                                                -15-
<PAGE>

                                             PROGINET CORPORATION
                                           Statements of Cash Flows

                                                                                  Year ended July 31,
                                                                                2001                2000
                                                                            --------------       ------------

Cash flows from operating activities                                    $       (226,126)  $     (1,066,282)
      Net loss
      Adjustments to reconcile net loss to cash provided by
      operating activities
          Depreciation and amortization                                         1,908,583          1,510,549
          (Recovery of)  provision  for bad debt  allowance,                     (30,889)            225,629
          net
          Deferred revenue                                                         48,851            384,872
          Deferred rent                                                             4,625              5,606
          Warrants issued for services                                              9,583             47,918
          Exercise of stock options                                                                   24,001
          Compensatory stock option expense                                                           66,017
          Changes in operating assets and liabilities
               Accounts receivable                                                 71,792          (336,242)
               Prepaid expenses and other current assets                          (7,532)             72,660
               Other assets                                                       (2,252)
               Accounts payable and accrued expenses                             (26,569)            107,716
                                                                            --------------    ---------------

               Net cash provided by operating activities                       1,750,066           1,042,444

Cash flows from investing activities
          Purchased software                                                  (1,333,946)
          Capitalized software development costs                                (974,082)           (973,346)
          Purchase of property and equipment                                     (76,546)            (66,315)
                                                                            --------------    ---------------

               Net cash used in investing activities                          (2,384,574)         (1,039,661)

Cash flows from financing activities
          Repayment of notes payable                                             (55,877)            (55,877)
          Purchase of treasury stock                                                                (172,601)
          Proceeds from exercise of stock options                                 30,000
                                                                            --------------    ---------------

               Net cash used in financing activities                             (25,877)           (228,478)

Net decrease in cash and cash equivalents                                       (660,385)           (225,695)

Cash and cash equivalents at beginning of the year                             1,465,468           1,691,163
                                                                            -------------     ---------------

Cash and cash equivalents at end of the year                            $        805,083  $        1,465,468
                                                                            =============     ===============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
                                                    -16-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2001 AND 2000


(1)           NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         NATURE OF BUSINESS

Proginet Corporation (Proginet or the Company) is a Long Island, New York based
software company that develops and markets two software product lines. One is a
batch file transfer software product used to link mainframe computer systems to
local area networks (LANs) and the Internet, primarily for Microsoft Windows,
Novell Netware, OS400 and UNIX platforms. The other is a security password
management software product that enables multiple and disparate security
systems, on multiple computers, to function as one. The Company sells its
products in the U.S. through its telemarketing and sales force and
internationally directly and indirectly through distributors, and through
Original Equipment Manufacturer (OEM) partners in the United States, Europe,
South America, Asia and Australia. The Company also provides software
maintenance services. The Company's stock is traded on the OTC- Bulletin Board
under the symbol PRGF. The Company's stock also trades on the PRGF Canadian
Venture Exchange, (CDNX), (formerly, the Vancouver Stock Exchange), listed as
PRF.U.

         GENERAL ACCEPTED ACCOUNTING PRINCIPLES

The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
Differences between reporting these financial statements under US GAAP versus
accounting principles generally accepted in Canada are not material.

         REVENUE RECOGNITION

Revenue from the sale or license of software products is recognized when
persuasive evidence of an arrangement exists, the software has been delivered,
product customization is complete, the software's selling price is fixed or
determinable and collection of the resulting receivable is probable.

Software maintenance fees are deferred and recognized as revenue ratably over
the term of the contract, which is typically one year.

Cost of revenues primarily consists of product costs, amortization of
capitalized software development costs and salaries and consulting fees relating
to providing customer software support under maintenance contracts.

         ACCOUNTS RECEIVABLE

The Company continually reviews accounts for collectibility and establishes an
allowance for doubtful accounts. As of July 31, 2001 and 2000, there was an
allowance for doubtful accounts of $77,000 and $107,889, respectively.

         PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using a straight-line method over the
assets' useful lives, which is generally five years. Leasehold improvements are
amortized over the lesser of the economic life of the asset or the lease term.
Accelerated methods of depreciation are used for tax purposes.

         INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized.

                                      -17-
<PAGE>

         FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of the Company's financial instruments, consisting of cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses,
notes payable and deferred revenues approximate their carrying values in the
financial statements because of the short-term maturity of these instruments.

         LONG-LIVED ASSETS

The Company reviews long-lived assets such as plant and equipment and certain
identifiable intangibles to be held and used or disposed of for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying
amount of the asset exceeds its fair value.

       RESEARCH AND DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Research and development costs consist of salaries and other costs related to
the development and enhancement of computer software programs. Software
development costs are capitalized upon the establishment of product
technological feasibility until the product is available for general release to
the public. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain factors including,
but not limited to, the timing of technological feasibility, anticipated future
gross revenues, estimated economic life and changes in software and hardware
technologies. Software development costs not capitalized are expensed as
research and development.

Amortization of capitalized software development costs, included in cost of
revenues, and amounting to $973,508 and $811,061 for fiscal 2001 and 2000,
respectively, is provided on a product-by-product basis at the greater of the
amount computed using the ratio of current gross revenues for a product to the
total of current and anticipated future gross revenues or the straight-line
method over the remaining estimated economic life of the product. Amortization
commences once a product becomes available for sale to customers. Generally, an
original estimated economic life of five years is assigned to capitalized
software development costs. Capitalized software development costs are net of
accumulated amortization of $3,154,734 and $2,181,227 at July 31, 2001 and 2000,
respectively.

         ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company measures stock-based awards using the intrinsic value method. As
described in Note 9, pro-forma disclosure of the effect of net loss and net loss
per common share has been computed as if the fair value- based method had been
applied in measuring compensation expenses.

         EARNINGS (LOSS) PER SHARE

Basic loss per common share ("EPS") is computed by dividing net loss by the
weighted average number of common shares outstanding and diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock. Potential common shares of 2,143,800 and 2,137,300
at July 31, 2001 and 2000, respectively from stock options and warrants are
excluded in computing basic and diluted net loss per share for fiscal 2001 and
2000, respectively as their effects would be antidilutive.

         USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

         STATEMENT OF CASH FLOWS

The Company considers all highly liquid debt instruments with a maturity of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents, amounting to $308,262 and $1,109,489 at July 31, 2001 and 2000,
respectively, consisted of a liquid reserve mutual fund. No interest payments
were made during the years ended July 31, 2001 and 2000. There were no income
taxes paid during the years ended July 31, 2001 and 2000.

                                      -18-
<PAGE>

         RECENT ACCOUNTING PRONOUNCEMENTS

On July 20, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS 142, "Goodwill and Other Intangible Assets". The new standards require that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method. In addition, all intangible assets acquired that are
obtained through contractual or legal right, or are capable of being separately
sold, transferred, licensed, rented or exchanged shall be recognized as an asset
apart from goodwill. Goodwill and intangibles with indefinite lives will no
longer be subject to amortization, but will be subject to at least an annual
assessment for impairment by applying a fair value based test. Although it is
still reviewing the provisions of these Statements, management preliminary
assessment is that these Statements will not have a material impact on the
Company's financial position or results of operations.

         RECLASSIFICATIONS

Certain prior year's balances have been reclassified to conform with the current
year's presentation.


                                      -19-
<PAGE>
                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

(2)           ACQUISITIONS

On December 17, 1996, the Company acquired its TransAccess software product line
from Microsoft, which enables transaction processing across a diverse range of
platforms within the enterprise network. The Company received an existing
software product and assumed maintenance contracts with deferred revenue of
$324,246 on the date of acquisition. The purchase price consisted of 100,000
shares of common stock issued at closing, which were not tradable until June
1998, and $2.1 million of common stock to be issued in October 1998 (the number
of shares issued was to be based on the average price of the common stock during
the twenty days prior to the payment date), which become tradable from two to
three years after the closing date. The fair value of the 100,000 shares of
common stock and shares subsequently issuable, based on an independent
appraisal, was $246,000 and $1,170,000, respectively. The total cost of the
acquired product and technology was $1,800,246, including $60,000 of transaction
costs, which was recorded as purchased software and is being amortized over five
years. In October 1998, the Company and Microsoft settled certain issues
relating to this matter and amended the agreement which allowed Proginet to
satisfy all obligations to Microsoft by issuing and delivering to Microsoft
1,260,000 shares of Proginet common stock from treasury. In connection with the
settlement, the acquisition obligation and purchased software carrying amounts
were reduced by $540,000. Accumulated amortization at July 31, 2001 and 2000 was
$1,180,968 and $990,744, respectively.

On November 26, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of KnowledgeNet, Inc. for $1,080,000 plus 100,000
shares of common stock, with a fair value of $328,000 based on an independent
appraisal. KnowledgeNet develops and markets software which facilitates
multi-platform connectivity in corporate data processing systems. The
acquisition was accounted for as a purchase. The total cost of the acquisition,
including assumed liabilities and related expenses was $1,657,000, which was
allocated as follows:

                      Purchased software          $      1,379,000
                      Fixed assets                         223,000
                      Accounts receivable                   50,000
                      Cash                                   5,000
                                                     -------------

                                                  $      1,657,000
                                                  ================

Accumulated amortization at July 31, 2001 and 2000 was $1,552,818 and
$1,240,326, respectively. This asset is being amortized over 5 years from the
date of acquisition.

On November 1, 2000, Proginet Corporation entered into a definitive agreement
whereby Proginet acquired certain software products (assets) from, and entered
into an e-commerce consulting agreement with, SureFire Commerce Inc.
("SureFire"). The Company received an existing software product and assumed
maintenance contracts with deferred revenue of $214,000 on the date of
acquisition. The initial purchase price, aggregating $1,500,000, consisted of a
$100,000 initial payment with future payments of $700,000 payable in sixty and
one hundred and fifty days subsequent to the effective date of the agreement.
Each future payment is reduced by an equal portion of the deferred revenue
amount upon payment. SureFire maintains a security interest and continuing lien
on all existing customer agreements acquired until final payment of the purchase
price. An additional payment of between $100,000 and $250,000 is payable
dependent upon maintenance revenue earned by Proginet within twelve months
subsequent to the agreement date, of which $100,000 has been accrued for at July
31, 2001 as purchased software payable. The total cost of the acquired product
line and technology is a minimum of $1.6 million plus acquisition costs of
$47,946 which are recorded as purchased software and are being amortized over a
five year period. Accumulated amortization at July 31, 2001 amounted to
$247,194.


                                      -20-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

(3)           PROPERTY AND EQUIPMENT

Property and equipment consist of the following at July 31:

                                                         2001           2000
                                                 -------------    -----------
        Computer and other equipment            $     954,066  $     954,631
        Furniture and fixtures                        102,648        128,189
        Leasehold improvements                         77,342         77,342
                                                 -------------    -----------
                                                    1,134,056      1,160,162
        Less accumulated depreciation
                and amortization                    (869,036)      (786,523)
                                                 -------------    -----------

                                                $     265,020  $     373,639
                                                   ===========    ===========

Depreciation and amortization expense for the years ended July 31, 2001 and 2000
was $185,165 and $196,772, respectively.

(4)           CREDIT LINE

On January 12, 2000, Proginet established a line of credit in the amount of
$100,000 with a bank. The interest rate is variable, based on prime plus 1%. As
of July 31, 2001, the Company has not borrowed against this line of credit.
Subsequent to year-end, the Company extended its line of credit agreement to
September 30, 2002.

In May 2001, the Company established an additional line of credit in the amount
of $350,000 with another bank. The interest rate is variable based on the bank's
prime rate plus 1/2%. The line of credit is collateralized by accounts
receivable of the Company and expires May 2002. As of July 31, 2001, the Company
has not borrowed against this line of credit.

(5)           RELATED PARTY TRANSACTIONS

During fiscal 1999, Joseph T. Mohen, the founder of Proginet, resigned as an
officer of the Company and entered into an employment agreement as "Chief of
Strategic Alliances" expiring September 30, 1999, after which time Mr. Mohen was
no longer associated with the Company. At such time, Mr. Mohen agreed to sell
750,000 shares of Proginet common stock to the Company for $.31 a share, the
market price of the stock at the time such agreement was consummated. Of the
$232,500 purchase price, $50,000 was paid on the date of the agreement. The
remainder is being paid over a 36-month period and is included in the
accompanying balance sheet as current portion of notes payable.

Bathurst Ltd. has entered into an agreement with Proginet whereby Bathurst Ltd.
has agreed to vote all shares it owns consistent with the votes of the Board of
Directors of the Company through December 31, 2001.


                                      -21-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

(6)           INCOME TAXES

The Company's 2000 provision for income taxes reflects the utilization of net
operating loss (NOL) carry forwards of which the tax benefit had not been
previously recorded due to the establishment of a valuation allowance. There was
no current or deferred tax expense (benefit) recorded for the year ended July
31, 2001 and 2000.

The following is a reconciliation of the tax provision with the amount obtained
by applying the statutory U.S. Federal income tax rate to the income (loss)
before income taxes:
<TABLE>
<CAPTION>
                                                                   2001             2000
                                                                   ------------     -----------
<S>                                                             <C>              <C>
 Expense (benefit) at statutory rate                            $     (77,000)   $   (363,000)
 Increases (reductions) in taxes due to:
      Nondeductible expenses                                             2,000           2,000
      State tax expense, net of federal benefit                       (15,000)        (64,000)
      Increase in valuation allowance                                  296,000         162,000
      Change in deferred taxed due to prior year adjustments         (206,000)         263,000
                                                                   ------------     -----------
 Income tax provision                                           $            -  $            -
                                                                  ============     ===========
</TABLE>
At July 31, 2001, the Company had available Federal NOL carryforwards amounting
to $7,936,000 and research and development tax credit carryforwards of $286,000,
which expire in fiscal years 2007 through 2020. Under current tax law,
utilization of net operating losses will be restricted if an ownership change
were to occur. In addition, their use is limited to future earnings of the
Company.


                                      -22-
<PAGE>
                              PROGINET CORPORATION
                          Notes To Financial Statements
                             July 31, 2001 and 2000

For income tax purposes, the Company utilizes the cash method of accounting for
revenues and expenses. The types of temporary differences, which represent items
that are reflected in the financial statements and the tax return at different
times that give rise to a significant portion of the deferred tax asset
(liability) and their approximate tax effects are as follows:

                                                    2001             2000
                                               ---------------   --------------

Deferred tax assets:
--------------------
       Net operating loss carryforward         $    2,909,000    $   2,991,000
       Accounts payable and other                     128,000          146,000
       Deferred revenue                               565,000          457,000
       Deferred contract costs                         47,000           62,000
       Purchased software                             385,000          149,000
       Property and equipment                          17,000            3,000
       Research and development carryforward          286,000          256,000
       Unbilled rent                                   55,000           53,000
                                               ---------------   --------------
Gross deferred tax asset                            4,392,000        4,117,000
Valuation allowance                               (2,607,000)      (2,311,000)
                                               ---------------   --------------
                 Net deferred tax asset             1,785,000        1,806,000

Deferred tax liabilities:
       Capitalized software development costs       1,529,000        1,536,000
       Accounts receivable                            242,000          259,000
       Prepaid expenses                                14,000           11,000
                                               ---------------   --------------
Gross deferred tax liabilities                      1,785,000        1,806,000
                                               ---------------   --------------

                 Net deferred tax asset        $            -    $           -
                                               ===============   ==============

At July 31, 2001 and 2000, the Company has provided a valuation allowance
against its net deferred tax assets as the Company does not believe realization
is more likely than not in light of operating losses in recent years.

(7)           TREASURY STOCK

During fiscal 2000, the Company repurchased 233,184 shares of common stock for
$172,601.


                                      -23-
<PAGE>
                              PROGINET CORPORATION
                          Notes To Financial Statements
                             July 31, 2001 and 2000

(8)           STOCK PURCHASE WARRANTS

In the first quarter of fiscal 2000, Proginet entered into an agreement with
Mallory Factor Inc. (MFI) whereby MFI will provide guidance and support on a
"Strategic Corporate and Communications Counseling Program" for Proginet. The
terms of the entire agreement were approved by the Canadian Venture Exchange
(CDNX) and provide for granting of up to 500,000 warrants exercisable at a price
of $.54 per share depending upon achievement of pre-determined goals. The first
150,000 warrants vested upon regulatory approval of the agreement and the next
100,000 vested upon Proginet's stock price reaching $1.25. The next 250,000
vest, if and only if, two criteria are satisfied: (i) Proginet's achievement of
a listing on the United States OTC:BB and (ii) Proginet's stock price reaching
established thresholds. When Proginet's stock price reaches $2.25, then 100,000
warrants will vest; when Proginet's stock price reaches $3.25, then 100,000
additional warrants will vest; and when Proginet's stock price reaches $4.25,
the final 50,000 warrants will vest. During the years ended July 31, 2001 and
2000, Proginet recognized a non-cash expense of $9,583 and $47,918 relating to
this agreement.

(9)           STOCK OPTION PLANS

Under the 1997 Stock Option Plan and 1994 Equity Incentive Plan (the "prior
Plans"), as amended, the Company had reserved an aggregate of 2,000,000 shares
of common stock for grants to employees, directors and consultants. In June
2000, the Board of Directors authorized the increase of the number of shares
reserved under the 1997 Stock Option Plan to 2,500,000. In October 2000, the
Board of Directors approved the 2000 Stock Option Plan (the "2000 Plan") which
limits the aggregate number of shares available under the 2000 Plan and the
prior Plans to 2,500,000. At the Company's Annual Stockholders' Meeting on
November 14, 2000, the stockholders approved the 2000 Plan and the increase in
the number of shares reserved under the prior Plans, up to an aggregate of
2,500,000. Grants under the 2000 Plan can be in the form of qualified or
non-qualified stock options. Qualified stock options (which are intended to
qualify as incentive stock options under Section 422A of the United States
Internal Revenue Code) may be awarded only to employees of the Company and must
have an exercise price of not less than 100% of the fair market value of the
Company's common stock on the grant date (110% for qualified options granted to
any 10% or greater stockholder of the Company). The 2000 Plan provides that a
committee selected by the Board of Directors of the Company will administer the
2000 Plan and have full authority to determine the identity of the recipients of
the options and the number of shares subject to each option. The term of any
option may be fixed by the committee but in not event shall exceed 10 years from
the date of grant.

Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
                                  SHARES SUBJECT       EXERCISE PRICE     WEIGHTED AVERAGE
                                     TO OPTION           PER SHARE         EXERCISE PRICE
                                  ----------------   -------------------  -------------------
<S>                    <C>              <C>            <C>     <C>                    <C>
 Outstanding at August 1, 1999          1,222,100      $0.71 - $0.75                  $ 0.74
      Granted                           1,269,000      $0.62 - $1.85                  $ 0.78
      Exercised                         (486,600)          $0.75                      $ 0.75
      Cancelled                         (367,200)      $0.62 - $1.10                  $ 0.73
                                  ----------------

 Outstanding at July 31, 2000           1,637,300      $0.62 - $1.85                  $ 0.77
                                  ----------------
     Granted                              456,000      $0.25 - $0.76                  $ 0.58
     Exercised                           (40,000)          $0.75                      $ 0.75
     Cancelled                          (409,500)      $0.62 - $1.80                  $ 0.72
                                  ----------------
 Outstanding at July 31, 2001           1,643,800      $0.25 - $1.85                  $ 0.73
                                  ================
</TABLE>

                                      -24-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

The following table summarizes information about Employee Stock Options
outstanding and exercisable at July 31, 2001.
<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                       Number       Weighted - average          Weighted          Number           Weighted -
                     outstanding        remaining               -average        exercisable         average
                     at July 31,     contractual life           exercise        at July 31,         exercise
Exercise prices         2001             (years)                 price             2001              price
<S>     <C>               <C>               <C>            <C>
$0.25 - $0.60             164,000           10             $      0.32
$0.62 - $0.85           1,374,800           9                     0.68             1,068,550   $     0.68
$1.10 - $1.85             105,000           9                     1.58                47,500         1.58
                    --------------                                             --------------

                        1,643,800           9              $      0.73             1,116,050   $     0.79
                    ==============                                             ==============
</TABLE>
All options have been granted with exercise prices at the market price of the
stock at the date of the grant.

On March 2, 1999, the exercise price of 824,000 options were repriced to $.75
which was greater than the market value of the stock on that date. On June 22,
2001, the Board of Directors approved a cash payment of $0.10 per option for
128,400 options that were previously repriced by the Company. For the year ended
July 31, 2000, a charge of $12,840 was recorded to compensation expense for this
payment. As of July 31, 2001, there are no repriced options outstanding.

Additionally, on June 22, 2000, the Board of Directors approved the removal of
specific performance criteria from 325,300 outstanding stock options and
accelerated the vesting of these options to July 1, 2000. The Company reported a
charge of $66,017 during the year ending July 31, 2000 to compensation expense
relating to the removal of the performance criteria of these options.

On January 12, 2001, the Board of Directors approved the removal of specific
performance criteria from all remaining stock options (40,000) and accelerated
the vesting of these options to January 19, 2001. No stock compensation expense
was recorded related to these options for fiscal 2001 as the exercise price of
the options was less than the market price of the Company's Common Stock on the
date of Board of Directors approval.

The Company applies APB Opinion No.25 in accounting for its stock option grants
and, accordingly, no compensation cost has been recognized in the financial
statements for its stock options, which have exercise prices equal to or greater
than the fair value of the stock on the date of grant. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No.123, the Company's net loss and net loss per share
would have been the following pro forma amounts:

                                                  2001             2000
                                           ----------------  -----------------

     Net loss:
          As reported                        $ (226,126)     $ (1,066,282)
          Pro forma                            (428,811)       (1,605,121)
     Basic and diluted net loss per share:
          As reported                              (.02)             (.08)
          Pro forma                                (.03)             (.12)


                                      -25-
<PAGE>
                             PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

Pro forma net loss reflects only options granted in fiscal 1996 and thereafter.
Therefore, the full impact of calculating compensation cost for stock options
under the fair value method is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to August 1, 1995 was not
considered.

The per share weighted average fair value of stock options granted during fiscal
2001 and 2000 was $.58 and $.56, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: expected dividend yield of 0% for fiscal 2001 and 2000; risk free
interest rate of 5.4% and 5.3% in fiscal 2001 and 2000, respectively, expected
stock volatility of 97% and 102% in 2001 and 2000, respectively, and an expected
option life of approximately five years for both years. These assumptions are
used for these calculations only and they do not necessarily represent an
indication of management's expectations of future developments.

(10)          MANAGEMENT AGREEMENTS

The Company has entered into a management agreement with one key employee. When
a change of control in the Company occurs, this agreement provides for:

       o   A lump sum payment equal to the present value of the aggregate of the
           executive's base compensation (equal to the highest rate of base
           compensation in effect during the three-year period immediately
           preceding the termination) for the eighteen month period following
           the termination and the aggregate amount of annual bonuses (equal to
           the highest aggregate amount of such bonuses that the executive
           received in any one of the three years preceding the termination)
           that the executive would have received for the eighteen month period
           following the termination.

       o    Continuation at the Company's expense of all benefits to which the
            executive was entitled prior to termination for a period of eighteen
            months.

(11)          COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES

As of July 31, 2001, the future minimum lease payments under noncancelable
operating leases for office space and equipment was as follows:

                   Year ended July 31:

                             2002                      $        325,000
                             2003                               275,000
                             2004                               241,000
                             2005                               250,000
                             2006                               152,000
                                                           -------------
                                                              1,243,000

                             Sub-lease rental income            128,000
                                                           -------------
                                                       $      1,115,000
                                                           =============

The total amount of the minimum rent is expensed on a straight-line basis over
the term of the lease. Total rent expense, net of sub-lease rental income, for
the years ended July 31, 2001 and 2000, was $205,246 and $218,791 respectively.


                                      -26-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2001 AND 2000

         LITIGATION AND CLAIMS

The Company is involved in various claims and legal actions in the ordinary
course of business. It is the opinion of Management that the outcome of such
litigation will not have a material adverse effect on the Company's financial
condition and results of operations.

(12)          CONCENTRATION OF RISKS

Revenue for the years ended July 31, 2001 and 2000 included sales in foreign
countries of approximately $1,386,082 and $404,000, respectively. As of July 31,
2001, three customers accounted for approximately 53% of total accounts
receivable. As of July 31, 2000, four customers accounted for approximately 49%
of total accounts receivable. No customer represented 10% or more of revenues in
the years ended July 31, 2001 and 2000.

(13)          RETIREMENT PLAN

The Company maintains a 401(k) savings plan which covers all full-time
employees. Employees become eligible for participation in the plan after one
year of service and attainment of age twenty-one. Under the plan, employees may
contribute up to 15% of their salary to the plan. The Company matches between 0%
and 100%, as determined by the Board of Directors, of the employee's
contribution up to 10%. The Company's contributions were $66,905 and $69,114 for
the years ended July 31, 2001 and 2000, respectively.


                                      -27-
<PAGE>


ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

None

                                      -28-
<PAGE>

                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
              COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.

The information called for by this Item is set forth under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the
Annual Meeting of Stockholders to be held on November 14, 2001 and is
incorporated herein by reference.

ITEM 10.      EXECUTIVE COMPENSATION

The information called for by this Item is set forth under the caption
"Executive Compensation" in the Proxy Statement for the Annual Meeting of
Stockholders to be held on November 14, 2001, and is incorporated herein by
reference.

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this Item is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
for the Annual Meeting of Stockholders to be held on November 14, 2001 and is
incorporated herein by reference.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this Item is set forth under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement for the Annual
Meeting of Stockholders to be held on November 14, 2001 and is incorporated
herein by reference.

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

Unless otherwise noted, the exhibits below are incorporated by reference to the
Company's Registration Statement on Form 10-SB/A, filed with the SEC on July 18,
2001:
<TABLE>
<CAPTION>
----------------------- -----------------------------------------------------------------------------------
EXHIBIT NO.             EXHIBIT NAME
----------------------- -----------------------------------------------------------------------------------
<S>                     <C>
3(i)                    Certificate of Incorporation.
----------------------- -----------------------------------------------------------------------------------
3(i)(a)                 Certificate of Amendment of Certificate of Incorporation dated December 2, 1996.
----------------------- -----------------------------------------------------------------------------------
3(ii)                   Amended and Restated Bylaws of the Registrant.
----------------------- -----------------------------------------------------------------------------------
9                       Shareholder Voting Agreement between Bathhurst, Ltd. and the Company, dated
                        September 20, 1999.
----------------------- -----------------------------------------------------------------------------------
10.1                    Form of Employee Confidential Information and Non-Competition Agreement.
----------------------- -----------------------------------------------------------------------------------
10.2                    Form of Confidential Information and Non-Competition Agreement For Consultants.
----------------------- -----------------------------------------------------------------------------------
10.3                    Investor Relations Agreement.
----------------------- -----------------------------------------------------------------------------------
10.4                    Form of Software License Agreement.
----------------------- -----------------------------------------------------------------------------------
10.5                    Form of Distributor Agreement.
----------------------- -----------------------------------------------------------------------------------
10.6                    Form of OEM Agreement.
----------------------- -----------------------------------------------------------------------------------
10.7                    Form of Management Continuity Agreement.
----------------------- -----------------------------------------------------------------------------------
10.8                    Independent  Directors Stock Option Plan,  amended and restated as of February 21,
                        1995.
----------------------- -----------------------------------------------------------------------------------
10.9                    1995 Equity Incentive Plan, amended and restated as of December 5, 1995.
----------------------- -----------------------------------------------------------------------------------
10.10                   1997 Stock Option Plan.
----------------------- -----------------------------------------------------------------------------------
10.11                   Form of Incentive Stock Option Agreement.
----------------------- -----------------------------------------------------------------------------------
10.12                   Stock Redemption  Agreement between the Company and Joseph T. Mohen, dated October
                        20, 1998.
----------------------- -----------------------------------------------------------------------------------

                                      -29-
<PAGE>

----------------------- -----------------------------------------------------------------------------------
EXHIBIT NO.             EXHIBIT NAME
----------------------- -----------------------------------------------------------------------------------
10.13                   Consulting   Agreement  between  the  Company  and  Mallory  Factor,  Inc.,  dated
                        September 22, 1999.
----------------------- -----------------------------------------------------------------------------------
10.14                   1997 Stock Option Plan, as amended and restated as of November 14, 2000*
----------------------- -----------------------------------------------------------------------------------
10.15                   2000 Stock Option Plan*
----------------------- -----------------------------------------------------------------------------------
* Incorporated by reference to Notice of Annual Meeting of Stockholders dated November 14, 2000

(B) REPORTS ON FORM 8-K

None

</TABLE>

                                      -30-
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Garden City,
State of New York, on the 20th day of September, 2001.
<TABLE>
<CAPTION>
                                        PROGINET CORPORATION
<S>                                     <C>

                                        BY: /s/ Kevin M. Kelly
                                           -------------------------------------
                                           Kevin M. Kelly
                                           President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the date indicated.

                NAME                                TITLE                                DATE
                ----                                -----                                ----

/s/ Kevin M. Kelly
---------------------------
Kevin M. Kelly                        President, Chief Executive          September 20, 2001
                                      Officer and Director


/s/ Debra A. DiMaria                  Corporate Secretary and Chief       September 20, 2001
---------------------------           Financial and Accounting Officer
Debra A. DiMaria


/s/ John C. Daily                     Chairman                            September 20, 2001
---------------------------
John C. Daily


/s/ Stephen Sternbach                 Director                            September 20, 2001
---------------------------
Stephen Sternbach


/s/ E. Kelly Hyslop                   Director                            September 20, 2001
---------------------------
Dr. E. Kelly Hyslop
</TABLE>
                                      -31-