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, 2002

[   ]    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
                                                -------

                              PROGINET CORPORATION
        (Exact name of small business issuer as specified in its charter)

            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 $6,562,576.

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
August 16, 2002 was approximately $1,578,306.  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 13,152,554 shares of Common Stock outstanding at August 16, 2002.

Transitional Small Business Disclosure Format:

Yes     No X
   ----    -----

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

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

Item 2.  Description of Property...............................................6

Item 3.  Legal Proceedings.....................................................7

Item 4.  Submission of Matters to a Vote of Security Holders...................7

                                 PART II

Item 5.  Market for Common Equity and Related Stockholder Matters..............8

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

Item 7.  Financial Statements.................................................13

Item 8.  Changes In And Disagreements With Accountants on Accounting and
         Financial Disclosure.................................................31

                                PART III

Item 9.  Directors, Executive Officers, Promoters and Control
         Persons, Compliance with Section 16 (a) of the Exchange Act..........32

Item 10. Executive Compensation...............................................32

Item 11. Security Ownership of Certain Beneficial Owners and Management.......32

Item 12. Certain Relationships and Related Transactions.......................32

Item 13. Exhibits and Reports on Form 8-K.....................................33

         Signatures...........................................................34

         Certification .......................................................35

<PAGE>

                                     PART I


ITEM 1.       DESCRIPTION OF BUSINESS

Proginet  Corporation  (Proginet or the Company) is a leading global  enterprise
software company.  Proginet's  software  solutions allow our customers to manage
the various components and technologies within their information technology (IT)
systems, which span every business sector of the economy. The Company's products
can be used on all major hardware  platforms,  operating systems and application
development  environments  for  enterprise  computing.  The Company  maintains a
philosophy of internally  developing  products,  coupled with the acquisition of
key technology,  the integration of the two, and the  establishment of a network
of  strategic  alliances  with key  business  partners.  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's  stock is traded on the OTC
Bulletin Board under the symbol PRGF. The Company's stock also trades on the TSX
Venture 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.

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.


                                       1
<PAGE>

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.

In 2002,  Proginet  introduced the SecurPass  Reset  product,  allowing users to
reset their own  passwords by answering a set of questions  previously  selected
and answered by users.  This capability  eliminates the users' dependency on the
"Help Desk" reducing both cost and time delay in accessing systems.

Proginet  believes  enterprises  must simplify and  consolidate  their  security
administration  functions, as a first step to regaining and keeping control over
their information technology environments.

STRATEGY

Proginet's  strategy has been and continues to be to develop  security  software
applications that are 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  security
software requirements of large enterprises.  Such technology includes encryption
and  management  features  to assure  secure  access  to  systems  and  reliable
transfers.

Proginet is a leading vendor providing secure information management software to
the Financial Services and Healthcare Industries worldwide and other enterprises
which   benefit   from  our   technologies.   Proginet's   technology   provides
comprehensive  features and  capabilities  to assure  compliance  with all laws,
regulations and standards  appropriate for these  industries - generating,  cost
effective,  efficient,  scalable,  reliable and secure  infrastructure  to move,
manage, protect and secure these enterprises most important asset - their data.

The driving  force behind  Proginet's  Strategy is the absolute  dedication  and
commitment  to  fully  utilize  Proginet's  expertise,   background,   and  core
competencies  in the  critical  area of security  related to data  movement  and
control.  These  competencies  have  resulted in Proginet's  development  of the
Security and Information Exchange  Architecture for the Global Enterprise (SIEA)
Model.  This model is one of the most  comprehensive  data movement and security
models ever introduced in the software industry - in the instant access world of
the Internet.

The SIEA model  offers a  technology  "road map" and  provides a master  control
system  for data with a "Data  Wall" of  protection  to secure and  protect  the
access to and movement of enterprise data - anywhere,  anytime and anyhow - with
industry standards for compliance and control.

Proginet's  roadmap  provides  a  logical  and  orderly  migration  path  -  and
evolutionary approach - to building and managing a total infrastructure for data
movement.  The roadmap  also  defines the  deployment  strategies  and phases of
deployment required to achieve a secure data integration environment.

The  SIEA  Model   capitalizes  on  Proginet's   position  as,  a  multi-vendor,
multi-protocol,  multi-standards  software  innovator.  Proginet  steps in where
other vendors leave off, and provides the standardized  integration of disparate
architectures,  to empower large  complex  enterprises  to seamlessly  integrate
their  myriad of computing  platforms  and  applications  for a totally open and
standards  based  infrastructure.  The  global  enterprise  must have a standard
infrastructure   that  can  be  modified   and/or   changed  as  their  business
requirements  evolve and change.  The  constraints,  and restrictions of the old
"legacy" approach or the "uncontrolled" distributed approach will not suffice in
today's anytime, anywhere, anyway environment.

Since the advent of the mini-computer,  where  organizations  began distributing
their data processing and their data, the enterprise model has become incredibly
more complex.  Security,  data  integrity,  reliability,  scalability,  disaster
recovery,


                                       2
<PAGE>

and  so  many  other  issues  have  made  it  increasingly  more  difficult  for
organizations to keep up with their customer demands and regulatory obligations.
Achieving a reasonable  profitability  and return on  investments is a much more
difficult challenge.

Proginet's  SIEA  Model  addresses  all of the major  requirements  of the large
global  enterprises  which  have  worldwide-distributed  information  processing
configurations.  The  SIEA  Model  provides  for  major  functionality  for data
movement  and  security   through   Proginet   software.   Proginet's   software
architecture also provides for standards  compliance and deployment and provides
for full integration to the extensive  software tools and applications  deployed
or to be  deployed  throughout  the  Global  Enterprises.  The  SIEA  Model is a
superior solution for all global enterprises.


                                       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  domestic and
international  sales through  distribution  partners in over 30 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 supports the distributors with authorized
assistance and support,  customer installations and training whenever necessary.
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 among other items,
a quarterly news update of corporate information to investors.

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 press coverage,  trade
shows,  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 30  countries  engaged in the  financial,  telecommunications,  healthcare,
government,  and other industry sectors. No one customer represented 10% or more
of Proginet's revenues during the past two fiscal years.

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,  2002,  Proginet had 45 full-time  salaried  employees  and three
consultants on retainer.  The Company  believes its relations with its employees
are satisfactory.

COMPETITION

The enterprise  management software business is highly competitive.  Many of our
competitors including IBM, Computer Associates and Sterling Commerce, as well as
large  computer  manufacturers  such  as  Sun  and  HP,  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.

We believe  that the key criteria  considered  by  potential  purchasers  of our
products are as follows: the operational advantages and cost savings provided by
our products;  product  quality and  capability;  product price and the terms on
which the product is  licensed;  ease of  integration  of the  product  with the
purchaser's  existing systems;  ease of product installation and use; quality of
support and product documentation; and the experience and financial stability of
the vendor.

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,  TCS and  TransAccess in the
United States. These trademarks are considered  significant in the protection of
the  Company's  technology.  The Company  believes  that its 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.

RESEARCH AND DEVELOPMENT ACTIVITIES

During the years  ended July 31,  2002 and 2001,  Proginet  spent  $246,968  and
$481,188, respectively, on research and development activities.


                                       5
<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.

<TABLE>
<CAPTION>
----------------------------------- ------------------ --------------- ---------------------- --------------
                                                                                                 Current
Description                             Location         Square Ft.      Lease Expiration      Annual Cost
----------------------------------- ------------------ --------------- ---------------------- --------------
<S>                                 <C>                         <C>    <C>                         <C>
Headquarters                        Garden City, NY             9,804  February 28, 2006           $222,593
----------------------------------- ------------------ --------------- ---------------------- --------------
Subleased to another Tenant         Chicago, IL                 6,068  December 31, 2002           $12,136*
----------------------------------- ------------------ --------------- ---------------------- --------------
* Amount is net of related sublease revenue.

</TABLE>


                                       6

<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.


                                       7
<PAGE>

                                     PART II


ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Proginet's  common stock is listed on the TSX Venture  Exchange ("TSX Venture"),
formerly the Canadian  Venture  Exchange  ("CDNX"),  under the symbol PRF.U. The
".U"  extension  indicates  that these  shares are traded in U.S.  dollars.  The
Toronto Stock Exchange  acquired CDNX,  through an internal  reorganization  was
renamed the TSX group of companies,  which  collectively  manages all aspects of
Canada's senior and junior capital markets. TSX are the initials attached to the
core business of the TSX group of companies: Toronto Stock Exchange, TSX Venture
Exchange and TSX Markets.

In September 2000,  Proginet common stock also began trading on the OTC Bulletin
Board ("OTC-BB") under the symbol PRGF.

The following table shows the high and low bid information,  in U.S. dollars, of
Proginet's  common  stock on the  OTC-BB  for each  quarter  within the last two
fiscal years:

------------------------------------------------ ----------- --------------
Quarter Ended                                    High        Low
------------------------------------------------ ----------- --------------
July 31, 2002                                    $0.36       $0.13
------------------------------------------------ ----------- --------------
April 30, 2002                                   $0.40       $0.22
------------------------------------------------ ----------- --------------
January 31, 2002                                 $0.43       $0.22
------------------------------------------------ ----------- --------------
October 31, 2001                                 $0.48       $0.14
------------------------------------------------ ----------- --------------
July 31, 2001                                    $0.52       $0.17
------------------------------------------------ ----------- --------------
April 30, 2001                                   $0.65       $0.28
------------------------------------------------ ----------- --------------
January 31, 2001                                 $0.75       $0.28
------------------------------------------------ ----------- --------------
October 31, 2000                                 $0.70       $0.45
------------------------------------------------ ----------- --------------

The following table shows the high and low bid information,  in U.S. dollars, of
Proginet's  common stock on the TSX Venture for each quarter within the last two
fiscal years:

------------------------------------------------ ----------- --------------
Quarter Ended                                    High        Low
------------------------------------------------ ----------- --------------
July 31, 2002                                    $0.29       $0.11
------------------------------------------------ ----------- --------------
April 30, 2002                                   $0.55       $0.20
------------------------------------------------ ----------- --------------
January 31, 2002                                 $0.45       $0.25
------------------------------------------------ ----------- --------------
October 31, 2001                                 $0.30       $0.11
------------------------------------------------ ----------- --------------
July 31, 2001                                    $0.43       $0.17
------------------------------------------------ ----------- --------------
April 30, 2001                                   $0.65       $0.32
------------------------------------------------ ----------- --------------
January 31, 2001                                 $0.51       $0.30
------------------------------------------------ ----------- --------------
October 31, 2000                                 $0.90       $0.43
------------------------------------------------ ----------- --------------


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

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.


                                       8
<PAGE>


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.

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

 In preparing our  financial  statements,  we make  estimates,  assumptions  and
judgments  that can have a  significant  impact  on our  revenues,  income  from
operations,  and net  income,  as well as on the value of certain  assets on our
balance sheet.  We believe that there are several  accounting  policies that are
critical to an understanding of our historical and future performance,  as these
policies  affect the reported  amounts of revenues,  expenses,  and  significant
estimates  and  judgments  applied by  management.  While  there are a number of
accounting policies,  methods and estimates affecting our financial  statements,
areas that are particularly  significant include revenue recognition and capital
software  development  costs.  These policies are described in detail below.  In
addition,  please refer to Note 1 to the accompanying  financial  statements for
further discussion of our accounting policies.

In  addition  to the  estimates  and  assumptions  that  we use to  prepare  our
historical  financial  statements,  we monitor  our sales  pipeline  in order to
estimate the timing and amount of future revenues.  If we are unable to properly
estimate  the timing  and amount of  revenues,  our future  operations  could be
significantly  impacted.  Our  sales  pipeline  may not  consistently  relate to
revenues in a  particular  period,  as the data upon which the  assumptions  and
estimates were made by management may change. For example,  the current economic
slowdown has resulted in reduced information technology spending that has caused
customers  to delay and  reduce  purchasing  decisions.  Accordingly,  it may be
harder to close  contracts  with  customers,  the size of the  transactions  may
decrease,  and many of our license  contracts  are pushed to the very end of the
quarter,  making it difficult for us to forecast  revenues for the quarter,  and
adjust  spending to respond to variations in revenue  growth during the quarter,
all of which may adversely affect our business,  financial condition and results
of operations.

REVENUE RECOGNITION

We recognize  revenue in accordance  with  Statement of Position,  or SOP, 97-2,
"Software  Revenue  Recognition,"  and  SOP  98-9,  "Modification  of SOP  97-2,
Software  Revenue  Recognition,   with  Respect  to  Certain  Transactions."  We
recognize  license  revenues  when  all  of  the  following  criteria  are  met:
persuasive  evidence of an arrangement exists, the fee is fixed or determinable,
collectibility  is  probable,  delivery  of the  product  has  occurred  and the
customer has accepted the product  (including  the  expiration  of an acceptance
period) if the terms of the  contract  include  an  acceptance  requirement.  In
instances when any of the criteria are not met, we will either defer recognition
of the software  license revenue until the criteria are met or we will recognize
the software  license revenue on the ratable basis, as required by SOPs 97-2 and
98-9. We generally utilize written contracts as the means to establish the terms
and  conditions  by which our  products,  support and  services  are sold to our
customers.

We  consider a  non-cancelable  agreement  signed by us and the  customer  to be
evidence  of  an  arrangement.  Delivery  is  considered  to  occur  when  media
containing  the  licensed  programs  is  provided  to a common  carrier,  or the
customer is given electronic  access to the licensed  software.  Our typical end
user license agreements do not contain acceptance  clauses.  We consider the fee
to be fixed or  determinable  if the fee is not subject to refund or adjustment.
If the fee is not fixed or  determinable,  we  recognize  revenue as the amounts
become due and payable.  Probability  of collection is based upon our assessment
of the customer's  financial condition through review of their current financial
statements or credit  reports.  Collection is deemed  probable if we expect that
the  customer  will be able to pay  amounts  under the  arrangement  as payments
become due. For follow-on sales to existing customers,  prior payment history is
also used to evaluate probability of collection. If we determine that collection
is not  probable,  we defer the revenue  and  recognize  the  revenue  upon cash
collection.

Revenues from license and maintenance transactions that include extended payment
terms are  generally  recognized in the same manner as those  requiring  current
payment.  We have an  established  business  practice  of  offering  installment
contracts to customers  and have a history of  successfully  enforcing  original
payment terms without making concessions.  Further,  the payment obligations are
unrelated  to product  implementation  or any other  post-transaction  activity.
Revenues from sales through agents,  distributors  and resellers are recorded at
the gross amount charged based on the economic risks and ongoing product support
responsibilities we assume.


                                       9
<PAGE>

When our software  licenses  contain multiple  elements,  we allocate revenue to
each element based on the relative fair values of the elements. Multiple element
arrangements generally include post-contract support (PCS or support),  software
products, and in some cases, service. Revenue from multiple-element arrangements
is allocated to undelivered  elements of the arrangement,  such as PCS, based on
the relative fair values of the elements  specific to us. Our  determination  of
fair  value  of  each  element  in   multi-element   arrangements  is  based  on
vendor-specific  objective evidence,  which is generally  determined by sales of
the same  element or service to third  parties or by reference to a renewal rate
specified in the related arrangement.

Where   vendor-specific   objective  evidence  of  fair  value  exists  for  all
undelivered  elements,  but  evidence  does not exist for one or more  delivered
elements, we account for the delivered elements in accordance with the "Residual
Method" prescribed by SOP 98-9. Under the residual method, the fair value of the
undelivered  elements is deferred and the remaining  portion of the  arrangement
fee is  recognized  as revenue.  In most cases,  the bundled  multiple  elements
include  PCS and the  software  product.  In such  cases,  when  vendor-specific
objective  evidence  of fair value  exists for all of the  undelivered  elements
(most commonly PCS), the residual amount is recognized as revenue and the PCS is
recognized ratably over the PCS term, which is typically 12 months.

A customer  typically prepays  maintenance  revenues for the first 12 months and
the related maintenance revenues are recognized ratably monthly over the term of
the maintenance  contract,  which is generally 12 months.  Maintenance contracts
include the right to unspecified upgrades on a when-and-if  available basis, and
ongoing support.

Deferred  revenues include amounts received from customers for which revenue has
not yet been  recognized  that  generally  results  from  deferred  maintenance,
consulting or training  services not yet rendered and license  revenue  deferred
until all  requirements  under SOP 97-2 are met.  Deferred revenue is recognized
upon  delivery  of  our  products,   as  services  are  rendered,  or  as  other
requirements requiring deferral under SOP 97-2 are satisfied.

Based on our  interpretation  of SOP  97-2 and SOP  98-9,  we  believe  that our
current  sales  contract  terms and  business  arrangements  have been  properly
reported.  However,  the  American  Institute of  Certified  Public  Accountants
("AICPA")  and its Software  Revenue  Recognition  Task Force  continue to issue
interpretations and guidance for applying the relevant standards to a wide range
of sales  contract  terms and business  arrangements  that are  prevalent in the
software industry. Also, the Securities and Exchange Commission (SEC) has issued
Staff   Accounting   Bulletin  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  which provides  guidance related to revenue  recognition  based on
interpretations  and practices  followed by the SEC. Future  interpretations  of
existing accounting  standards or changes in our business practices could result
in future changes in our revenue accounting  policies that could have a material
adverse effect on our business, financial conditions and results of operations.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

We capitalize our software development costs when the projects under development
reach  technological  feasibility  as defined by Financial  Accounting  Standard
("FAS") No. 86, and amortize  these costs over the  products'  estimated  useful
lives.  Under FAS No. 86, we evaluate  our  capitalized  software  costs at each
balance sheet date to determine if the unamortized  balance related to any given
product  exceeds the estimated net  realizable  value of that product.  Any such
excess is written  off  through  accelerated  amortization  in the quarter it is
identified.  Determining net realizable  value as defined by FAS No. 86 requires
that we estimate  future cash flows to be  generated  by the products and to use
judgment in quantifying the appropriate amount to write off, if any. Actual cash
flows and amounts  realized  from the  software  products  could differ from our
estimates.  Also,  any future changes to our product  portfolio  could result in
significant   research  and  development  expenses  related  to  software  asset
write-offs.

FISCAL PERIODS ENDED JULY 31, 2002 AND JULY 31, 2001

Total  revenues  for the  year  ended  July 31,  2002  amounted  to  $6,562,576,
representing  an  increase  of  $923,679,  or  16.4%  compared  to  revenues  of
$5,638,897 for the year ended July 31, 2001. Software license revenues increased
by $403,596, or 16.5%, to $2,847,885. The increase in software sales and license
revenues  compared  to the  prior  year  was  primarily  due to an  increase  in
enterprise  license  transactions and an increase in license upgrade fees during
fiscal 2002.

Software maintenance fees increased by $487,351, or 15.7% to $3,596,666 compared
to fiscal 2001 software maintenance fees of $3,109,315. The increase in software
maintenance fees is principally attributable to the continued growth in the base
of the Company's  installed  products and the  processing  computer  capacity on
which the software runs, in addition to maintenance  revenue  generated from the
acquisition   of  certain   software   products  from  SureFire   Commerce  Inc.
("Surefire") in fiscal 2001.


                                       10
<PAGE>

Other  revenues  amounted to  $118,205  in fiscal  2002  compared to $85,293 for
fiscal 2001. In fiscal 2002,  $60,000 is  attributable  to services  rendered in
connection  with product  customization  for an OEM partner  established  in May
2002.  Typically,  these revenues are related to ad-hoc consulting services that
are  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  $2,584,524 to $2,861,518 or 10.7%,  resulting
from an increase in costs related to  distributor  support of indirect sales due
to an increase in revenues generated during fiscal 2002.

Operating  expenses  increased to  $3,516,082  from  $3,313,305,  an increase of
$202,777,  or 6.1%, in fiscal 2002  compared to fiscal 2001.  This increase is a
combined  result of a 19.9%  increase  of  $183,873  in  selling  and  marketing
expenses,  a 13.3% increase or $253,124 in general and administrative  expenses,
and a 48.7%  decrease  or $234,220 in research  and  development  expenses.  The
increase  in  selling  and  marketing  expenses  compared  to the prior  year is
primarily  due  to  an  increase  in  sales  and  marketing   salaries  and  the
implementation  of the Company's  marketing  strategies to support the Company's
growth.  The  increase in general and  administrative  expenses  compared to the
prior year is  principally  due to an  increase  in general  and  administrative
payroll and payroll related expenses for expanded staffing levels to support the
future of the Company's business and an increase in bad debt expense as a result
of a bad debt  recovery  in the prior year  offset  slightly  by a  decrease  in
professional  fees due to the registration of the Company's  securities with the
United  States  Securities  and  Exchange  Commission  in  September  2000 and a
decrease in  depreciation  expense for assets which have been fully  depreciated
during  fiscal  2002.  The  decrease in  research  and  development  expenses is
primarily  due to  increased  resources  allocated to  completing  capitalizable
projects which were researched and developed in the prior year.

Interest  income  amounted  to  $11,638  and  $34,772  in fiscal  2002 and 2001,
respectively.  This decrease is primarily due to lower interest income generated
from a lower average cash and cash  equivalents  balance as well as a lower rate
of return in fiscal 2002.

The Company reported a net income of $196,614 for 2002 compared to a net loss of
$226,126 for 2001.

LIQUIDITY AND CAPITAL RESOURCES

At July  31,  2002,  the  Company  had a cash  and cash  equivalent  balance  of
$1,060,231 and a working capital deficit of $85,297 compared to $805,083 of cash
and cash  equivalents  and working capital deficit of $431,208 at July 31, 2001.
The  decrease in the working  capital  deficit is primarily  attributable  to an
increase in cash and cash equivalents compared to July 31, 2001, principally due
to cash payments  made in fiscal 2001 for the  acquisition  of certain  software
products from SureFire  Commerce Inc  ("SureFire")  and an increase in trade and
installment accounts receivable resulting from an increase in revenues generated
in fiscal 2002.

Operating activities provided cash of $1,671,841 and $1,750,066 at July 31, 2002
and  2001,  respectively.  The  decrease  of  $78,225  in net cash  provided  by
operating  activities is primarily  due to an increase in trade and  installment
accounts  receivable at July 31, 2002 due to the increase in software  sales and
license  revenues  and  maintenance  revenues  in fiscal  2002,  a  decrease  in
depreciation  and  amortization  for assets  which have been fully  expensed  in
fiscal 2002 offset slightly by the improved  operations of the Company in fiscal
2002.  Investing activities used cash of $1,262,978 and $2,384,574 for the years
ended July 2002 and 2001, respectively. The decrease in net cash used was due to
the  acquisition  of  certain  software  products  from  SureFire  amounting  to
$1,333,946  in fiscal 2001.  Financing  activities  used net cash of $153,715 as
compared to using net cash of $25,877 in fiscal 2001 representing an increase of
$127,838 primarily due to the purchase of treasury stock in fiscal 2002.

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, 2002, the Company has not borrowed  against this line of credit.  In
July 2002,  the Company  extended its line of credit  agreement to September 30,
2003.

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 31, 2003.  As of July 31,  2002,  the
Company has not borrowed against this line of credit.

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.


                                       11
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2000, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting   Standard   ("FAS")  No.  143,   "Accounting  for  Asset  Retirement
Obligations." This statement  addresses  financial  accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement  costs.  FAS No. 143 is  effective  for  financial
statements  issued for fiscal years  beginning  after June 15, 2002.  Management
believes  the  adoption  of FAS No. 143 will not have a  material  impact in the
Company's results of operations or financial position.

In August 2001, the FASB issued FAS No. 144,  "Accounting  for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement   supersedes  FAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting  provisions of APB Opinion No.
30,  "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business,  and Extraordinary,  Unusual and Infrequently Occurring
Events and  Transaction."  This statement  requires that one accounting model be
used for long-lived  assets to be disposed of by sale,  whether  previously held
and used or newly  acquired,  and it broadens the  presentation  of discontinued
operations  to  include  more  disposal  transactions.  This  statement  is  not
applicable to goodwill or intangible  assets that are not being  amortized,  and
certain other  long-lived  assets.  This statement is effective for fiscal years
beginning after December 15, 2001.  Management believes that the adoption of FAS
No.  144 will  not have a  material  impact  on its  results  of  operations  or
financial position.

In April 2002, the FASB issued FAS No. 145, "Rescission of FAS Statements No. 4,
44, and 64, Amendment of FAS No. 13, and Technical Corrections".  This statement
culminates the current requirements that gains and losses on debt extinguishment
must be classified as extraordinary items in the income statement. Instead, such
gains and losses  will be  classified  as  extraordinary  items only if they are
deemed to be  unusual  and  infrequent,  in  accordance  with the  current  GAAP
criteria for extraordinary classifications.  In addition, FAS No. 145 eliminates
an inconsistency in lease accounting by requiring that  modifications of capital
leases that result in  reclassification  as operating  leases be  accounted  for
consistent with  sales-leaseback  accounting  rules. The statement also contains
other nonsubsrantive  corrections to authoritative  accounting  literature.  The
rescission  of FAS No. 4 is effective in fiscal  years  beginning  after May 15,
2002.  The amendment and technical  corrections  of FAS No. 13 are effective for
transactions  occurring after May 15, 2002. All other  provisions of FAS No. 145
are  effective  for  financial  statements  issued  on or  after  May 15,  2002.
Management  believes  that the  adoption of FAS No. 145 will not have a material
impact on its results of operations or financial position.

In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with
Exit or Disposal  Activities",  which addresses accounting for restructuring and
similar costs. FAS No. 146 supersedes previous accounting guidance,  principally
Emerging  Issues  Task  Force  Issue No.  94-3.  FAS No. 146  requires  that the
liability for costs  associated with an exit or disposal  activity be recognized
when the liability is incurred.  FAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly FAS No. 146
may affect the timing of recognizing future  restructuring  costs as well as the
amount recognized. FAS 146 is effective for exit or disposal activities that are
initiated after December 31, 2002.  Management believes that the adoption of FAS
No.  146 will  not have a  material  impact  on its  results  of  operations  or
financial position.


                                       12
<PAGE>


ITEM 7.       FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independent Certified Public Accountants                           14

Balance Sheets as of July 31, 2002 and 2001                                  15

Statements of Operations for the years ended July 31, 2002 and 2001          16

Statements of Stockholders' Equity for the years ended
July 31, 2002 and 2001.                                                      17

Statements of Cash Flows for the years ended July 31, 2002 and 2001          18

Notes to Financial Statements                                                19


                                       13
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
    PROGINET CORPORATION


We have audited the  accompanying  balance sheets of Proginet  Corporation as of
July 31, 2002 and 2001, 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, 2002 and 2001,  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
August 27, 2002


                                       14
<PAGE>

                              PROGINET CORPORATION
                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                                           July 31,
                  ASSETS                                                           2002                 2001
                                                                             ---------------        ------------
<S>                                                                          <C>                   <C>
Current assets
          Cash and cash equivalents                                          $    1,060,231        $    805,083
          Trade and installment accounts receivable, net                            807,897             590,053
          Prepaid expenses                                                           40,299              34,622
                                                                             --------------        ------------
                               Total current assets                               1,908,427           1,429,758
                                                                             --------------        ------------

Installment accounts receivable, due after one year                                 303,833                   -
Property and equipment, net                                                         175,142             265,020
Capitalized software development costs, net                                       3,811,959           3,734,286
Purchased software, net                                                           1,071,160           1,584,212
Other assets                                                                         44,733              47,953
                                                                             --------------        ------------
                                                                             $    7,315,254        $  7,061,229
                                                                             ==============        ============

          LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
          Current portion of notes payable                                   $            -        $     37,251
          Accounts payable and accrued expenses                                     376,248             344,271
            Purchased software payable                                                    -             100,000
          Current portion of obligation under capital lease                           7,965                   -
          Deferred revenue                                                        1,609,511           1,379,444
                                                                             --------------        ------------
                               Total current liabilities                          1,993,724           1,860,966
                                                                             --------------        ------------

Deferred rent                                                                       117,451             133,792
Long term obligation under capital lease                                             15,617                   -
                                                                             --------------        ------------
                                                                                  2,126,792           1,994,758
                                                                             --------------        ------------

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 shares issued in 2002 and 2001, respectively               14,251              14,251
          Additional paid-in capital                                             11,849,358          11,809,799
          Treasury stock, 1,098,504 and 773,004 shares, at cost,
                in 2002 and 2001, respectively                                     (530,038)           (415,856)
          Accumulated deficit                                                    (6,145,109)         (6,341,723)
                                                                             --------------        ------------
                               Total stockholders' equity                         5,188,462           5,066,471
                                                                             --------------        ------------

                                                                             $    7,315,254        $  7,061,229
                                                                             ==============        ============
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       15
<PAGE>

                              PROGINET CORPORATION
                            Statements of Operations

<TABLE>
<CAPTION>
                                                                                            July 31,
                                                                                   2002                    2001
                                                                           ---------------------    -------------------
Revenues
<S>                                                                  <C>                          <C>
        Software sales and licenses                                  $          2,847,885         $          2,444,289
        Software maintenance fees                                               3,596,666                    3,109,315
        Other                                                                     118,025                       85,293
                                                                           ---------------               --------------
                                                                                6,562,576                    5,638,897

Cost of revenues                                                                2,861,518                    2,584,524
                                                                           ---------------               --------------

        Gross profit                                                            3,701,058                    3,054,373
                                                                           ---------------               --------------

Operating expense
        Research and development                                                  246,968                      481,188
        Selling and marketing                                                   1,108,070                      924,197
        General and administrative                                              2,161,044                    1,907,920
                                                                           ---------------               --------------
                                                                                3,516,082                    3,313,305
                                                                           ---------------               --------------

               Income (loss) from operations                                      184,976                     (258,932)

Other income (expense)
        Interest income                                                            11,638                       34,772
        Other, net                                                                      -                       (1,966)
                                                                           ---------------               --------------


Net income (loss)                                                    $            196,614         $           (226,126)
                                                                           ===============               ==============


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

Weighted average common shares outstanding - basic                             13,311,623                   13,477,721
                                                                           ===============               ==============

                                                                               13,453,356                   13,477,721
Weighted average common shares outstanding - diluted
                                                                           ===============               ==============

</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       16
<PAGE>

                              PROGINET CORPORATION
                       Statements of Stockholders' Equity
                       Years ended July 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                        Additional                      Accum-
                                                                         paid- in       Treasury        ulated
                                                Common stock             capital          stock         deficit          TOTAL
                                       ------------------------------  -------------   ------------  --------------   ------------
                                          Shares            Amount
                                       -------------     ------------
<S>                                      <C>             <C>            <C>            <C>             <C>             <C>
Balance - August 1, 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

                                                                                          (114,182)                       (114,182)

Purchase of treasury stock

Stock purchase warrants issued for
services                                                                     25,175                                         25,175

Stock options granted for services                                           14,384                                         14,384

Net income                                                                                                 196,614         196,614
                                         ----------      ----------     ------------   ----------      ------------    -----------
Balance - July 31, 2002                  14,251,058      $   14,251     $ 11,849,358   $ (530,038)     $ (6,145,109)   $ 5,188,462
                                         ==========      ==========     ============   ==========      ============    ===========

</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       17
<PAGE>

                                                  PROGINET CORPORATION
                                                Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Year ended July 31,
                                                                                2002                2001
                                                                          --------------       ------------

Cash flows from operating activities
<S>                                                                     <C>                <C>
      Net income (loss)                                                 $         196,614  $        (226,126)
      Adjustments to reconcile net income (loss) to cash
      provided by operating activities
          Depreciation and amortization                                         1,754,099          1,908,583
          Provision for  (recovery  of) bad debt  allowance, net                   33,008            (30,889)
          Deferred maintenance revenue                                            190,067             48,851
          Deferred rent                                                           (16,341)             4,625
          Stock options and warrants issued for services                           39,559              9,583
          Changes in operating assets and liabilities
               Trade and installment accounts receivable, net                    (554,685)            71,792
               Prepaid expenses and other current assets                           (5,677)            (7,532)
               Other assets                                                         3,220             (2,252)
               Accounts payable and accrued expenses                               31,977            (26,569)
                                                                        -----------------  -----------------

               Net cash provided by operating activities                        1,671,841          1,750,066

Cash flows from investing activities
          Purchased software                                                      (60,000)        (1,333,946)
          Capitalized software development costs                               (1,168,435)          (974,082)
          Purchase of property and equipment                                      (34,543)           (76,546)
                                                                        -----------------  -----------------
               Net cash used in investing activities                           (1,262,978)        (2,384,574)

Cash flows from financing activities
          Repayment of notes payable                                              (37,251)           (55,877)
          Purchase of treasury stock                                             (114,182)
          Proceeds from exercise of stock options                                                     30,000
          Principal payments under capital lease obligation                        (2,282)                 -
                                                                        -----------------  -----------------
               Net cash used in financing activities                             (153,715)           (25,877)

Net increase (decrease) in cash and cash equivalents                              255,148           (660,385)

Cash and cash equivalents at beginning of the year                                805,083          1,465,468
                                                                        -----------------  -----------------

Cash and cash equivalents at end of the year                            $       1,060,231  $         805,083
                                                                        =================  =================

</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       18
<PAGE>


                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001


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

         NATURE OF BUSINESS
Proginet  Corporation   ("Proginet"  or  "the  Company")  is  a  leading  global
enterprise  software company.  Proginet's software solutions allow our customers
to manage the various  components  and  technologies  within  their  information
technology (IT) systems,  which span every business  sector of the economy.  The
Company's  products  can be  used on all  major  hardware  platforms,  operating
systems and application development  environments for enterprise computing.  The
Company maintains a philosophy of internally  developing products,  coupled with
the  acquisition  of key  technology,  the  integration  of  the  two,  and  the
establishment  of a network of strategic  alliances with key business  partners.
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's stock is traded on the
OTC Bulletin Board under the symbol PRGF. The Company's stock also trades on the
TSX Venture 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. The Company
has  a  standard  business  practice  of  entering  into  long-term  installment
contracts  with  customers.  The Company has a history of enforcing the contract
terms  and  successfully  collecting  under  such  arrangements,  and  therefore
considers  such fees fixed or  determinable.  If at the  outset of the  customer
arrangement,  the Company  determines  that the  arrangement fee is not fixed or
determinable  or that  collectibility  is not probable,  the Company  defers the
revenue and  recognizes  the revenue  when the  arrangement  fee becomes due and
payable.

When software licenses contain multiple elements,  the Company allocates revenue
to each element  based on the  relative  fair values of the  elements.  Multiple
element arrangements  generally include  post-contract support (PCS or support),
software products,  and in some cases,  service.  Revenue from  multiple-element
arrangements is allocated to undelivered  elements of the  arrangement,  such as
PCS,  based on the relative fair values of the elements.  Our  determination  of
fair  value  of  each  element  in   multi-element   arrangements  is  based  on
vendor-specific  objective evidence,  which is generally  determined by sales of
the same  element or service to third  parties or by reference to a renewal rate
specified in the related arrangement.

Where   vendor-specific   objective  evidence  of  fair  value  exists  for  all
undelivered  elements,  but  evidence  does not exist for one or more  delivered
elements, the Company accounts for the delivered elements in accordance with the
"Residual  Method"  prescribed by SOP 98-9. Under the residual method,  the fair
value of the undelivered  elements is deferred and the remaining  portion of the
arrangement fee is recognized as revenue.  In most cases,  the bundled  multiple
elements   include  PCS  and  the  software   product.   In  such  cases,   when
vendor-specific  objective  evidence  of  fair  value  exists  for  all  of  the
undelivered  elements (most commonly PCS), the residual  amount is recognized as
revenue and the PCS is recognized  ratably over the PCS term, which is typically
12 months.


                                       19
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

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

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

In February and July 2002, the Company entered into software license  agreements
with customers amounting to approximately  $509,000 and $205,000,  respectively.
The agreements  provide for installment  payments through July 2004. At July 31,
2002, the outstanding receivables related to these agreements amount to $488,000
and are due as follows:
                                                           License fee
                                                           installment
           Year ended                                      receivable
      ----------------------                              -------------
             July 31, 2003                         $           184,167
             July 31, 2004                                     303,833
                                                          -------------
             Total                                 $           488,000
                                                          =============
         ACCOUNTS RECEIVABLE
The Company  continually  reviews accounts for collectibility and establishes an
allowance  for  doubtful  accounts.  As of July 31, 2002 and 2001,  there was an
allowance for doubtful accounts of $40,000 and $77,000, 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,  which is generally
five years or the lease term.  Accelerated  methods of depreciation are used for
tax  purposes.  Property and  equipment  is retired from the balance  sheet when
fully depreciated.

         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.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial  instruments,  consisting of cash and
cash equivalents,  trade and installment 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.


                                       20
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

       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  $1,090,762  and $973,508 for fiscal 2002 and 2001,
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 $3,645,458  and $3,154,734 at July 31,
2002 and 2001, respectively.  Capitalized software development costs are retired
from the balance sheet when fully amortized.

         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 income (loss) and
net income (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 income  (loss) per common share ("EPS") is computed by dividing net income
(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.

The  following  table sets forth the  computation  of basic and  diluted  income
(loss) per share:

                                                        Year ended
                                                         July 31,
                                               ------------------------------
                                                  2002               2001
                                               ------------      ------------
Numerator
     Net income (loss)                     $       196,614  $       (226,126)
                                               ============     =============
Denominator
     Weighted average number
       of common shares (basic)                 13,311,623        13,477,721
                                               ------------     -------------
     Effect of dilutive securities:
        Stock options                              141,733                 -
                                               ------------     -------------
     Weighted average number
       of common shares (diluted)               13,453,356        13,477,721
                                               ============     =============
Basic and diluted income (loss)
       per share                           $          0.01  $          (0.02)
                                               ============     =============


                                       21
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

Potential  common  shares of 2,110,700  and 2,143,800 at July 31, 2002 and 2001,
respectively from stock options and warrants are excluded in computing basic and
diluted  net loss per share for  fiscal  2002 and  2001,  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 AND LIQUIDITY
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  $694,074  and  $308,262  at July 31, 2002 and 2001,
respectively,  consisted of a liquid reserve  mutual fund. No interest  payments
were made during the years  ended July 31,  2002 and 2001.  There were no income
taxes paid  during the years ended July 31,  2002 and 2001.  Equipment  acquired
under capital lease was $25,864 in fiscal 2002.

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.

         RECENT ACCOUNTING PRONOUNCEMENTS
In July 2000, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting   Standard   ("FAS")  No.  143,   "Accounting  for  Asset  Retirement
Obligations." This statement  addresses  financial  accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement  costs.  FAS No. 143 is  effective  for  financial
statements  issued for fiscal years  beginning  after June 15, 2002.  Management
believes  the  adoption  of FAS No. 143 will not have a  material  impact in the
Company's results of operations or financial position.

In August 2001, the FASB issued FAS No. 144,  "Accounting  for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement   supersedes  FAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting  provisions of APB Opinion No.
30,  "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business,  and Extraordinary,  Unusual and Infrequently Occurring
Events and  Transaction."  This statement  requires that one accounting model be
used for long-lived  assets to be disposed of by sale,  whether  previously held
and used or newly  acquired,  and it broadens the  presentation  of discontinued
operations  to  include  more  disposal  transactions.  This  statement  is  not
applicable to goodwill or intangible  assets that are not being  amortized,  and
certain other  long-lived  assets.  This statement is effective for fiscal years
beginning after December 15, 2001.  Management believes that the adoption of FAS
No.  144 will  not have a  material  impact  on its  results  of  operations  or
financial position.

In April 2002, the FASB issued FAS No. 145, "Rescission of FAS Statements No. 4,
44, and 64, Amendment of FAS No. 13, and Technical Corrections".  This statement
culminates the current requirements that gains and losses on debt extinguishment
must be classified as extraordinary items in the income statement. Instead, such
gains and losses  will be  classified  as  extraordinary  items only if they are
deemed to be  unusual  and  infrequent,  in  accordance  with the  current  GAAP
criteria for extraordinary classifications.  In addition, FAS No. 145 eliminates
an inconsistency in lease accounting by requiring that  modifications of capital
leases that result in  reclassification  as operating  leases be  accounted  for
consistent with  sales-leaseback  accounting  rules. The statement also contains
other nonsubsrantive  corrections to authoritative  accounting  literature.  The
rescission  of FAS No. 4 is effective in fiscal  years  beginning  after May 15,
2002.  The amendment and technical  corrections  of FAS No. 13 are effective for
transactions  occurring after May 15, 2002. All other  provisions of FAS No. 145
are  effective  for  financial  statements  issued  on or  after  May 15,  2002.
Management  believes  that the  adoption of FAS No. 145 will not have a material
impact on its results of operations or financial position.

In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with
Exit or Disposal  Activities",  which addresses accounting for restructuring and
similar costs. FAS No. 146 supersedes previous accounting guidance,  principally
Emerging  Issues  Task  Force  Issue No.  94-3.  FAS No. 146  requires  that the
liability for costs  associated with an exit or disposal  activity be recognized
when the liability is incurred.  FAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly FAS No. 146
may affect the timing of recognizing future  restructuring  costs as well as the
amount recognized. FAS 146 is effective for exit or disposal activities that are


                                       22
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

initiated after December 31, 2002.  Management believes that the adoption of FAS
No.  146 will  not have a  material  impact  on its  results  of  operations  or
financial position.

(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. Amortization expense charged to operations was $79,281
and $109,224 in fiscal 2002 and 2001,  respectively.  As of July 31, 2002,  this
software was fully amortized.

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
                                              ================

Amortization expense charged to operations was $104,181 in fiscal 2002 and 2001.
As of July 31, 2002, this software was fully amortized.

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 each payable in sixty
and  one  hundred  and  fifty  days  subsequent  to the  effective  date  of the
agreement.  Each future  payment was reduced by an equal portion of the deferred
revenue  amount  upon  payment.  SureFire  maintained  a security  interest  and
continuing lien on all existing customer agreements acquired until final payment
of the purchase price. An additional  payment of up to $250,000 was payable,  of
which  $100,000  had been  accrued  for at July 31, 2001 as  purchased  software
payable. In April 2002, a final net payment of $60,000 was made to SureFire. The
total cost of the acquired  product line and technology is $1,607,946,  which is
recorded as purchased  software and is being amortized over a five-year  period.
Amortization  expense  charged to operations was $329,592 and $247,194 in fiscal
2002 and 2001, respectively. Accumulated amortization at July 31, 2002 and 2001,
amounted to $576,786 and $247,194, respectively.


                                       23
<PAGE>


                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001


(3)           PROPERTY AND EQUIPMENT

Property and equipment consist of the following at July 31:

                                                   2002            2001
                                               -------------    -----------
        Computer and other equipment           $     887,566  $     954,066
        Furniture and fixtures                        77,466        102,648
        Leasehold improvements                        77,342         77,342
                                                -------------    -----------
                                                   1,042,374      1,134,056
        Less accumulated depreciation
                and amortization                    (867,232)      (869,036)
                                                -------------    -----------

                                               $     175,142  $     265,020
                                                =============    ===========

Included in computer and other  equipment  at July 31, 2002 are assets  recorded
under capitalized lease amounting to $25,864, net of accumulated depreciation of
$1,293.

Depreciation and amortization expense for the years ended July 31, 2002 and 2001
was $150,283 and $185,165, 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, 2002, the Company has not borrowed  against this line of credit.  In
July 2002,  the Company  extended its line of credit  agreement to September 30,
2003.

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 31, 2003.  As of July 31,  2002,  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 was paid over a 36-month period through March 2002.


                                       24
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

(6)           INCOME TAXES

The Company's 2001  provision for income taxes  reflects the  utilization of net
operating  loss  (NOL)  carryforwards  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, 2002 and 2001.

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:

                                                           2002          2001
                                                        -----------  -----------

Expense (benefit) at statutory rate                      $   67,000  $  (77,000)
Increases (reductions) in taxes due to:
     Nondeductible expenses                                   2,000       2,000
     State tax expense, net of federal benefit               14,000     (15,000)
     Change in valuation allowance and utilization
      of NOL carryforwards                                  (83,000)    296,000
     Change in deferred taxed due to prior year
      adjustments                                                      (206,000)
                                                         ----------    ---------
Income tax provision                                     $        -   $        -
                                                         ==========   ==========

At July 31, 2002, the Company had available Federal NOL carryforwards  amounting
to $7,786,000 and research and development tax credit carryforwards of $332,000,
which  expire  in  fiscal  years  2007  through  2021.  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.


                                       25
<PAGE>


                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

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:

<TABLE>
<CAPTION>
                                                            2002                2001
                                                       ---------------      --------------
<S>                                                <C>                 <C>
Deferred tax assets
       Net operating loss carryforward             $        2,847,000  $        2,909,000
       Accounts payable and other                             144,000             128,000
       Deferred revenue                                       659,000             565,000
       Deferred contract costs                                 31,000              47,000
       Purchased software                                     512,000             385,000
       Property and equipment                                  28,000              17,000
       Research and development carryforward                  332,000             286,000
       Unbilled rent                                           48,000              55,000
                                                       ---------------      --------------
Gross deferred tax asset                                    4,601,000           4,392,000
Valuation allowance                                        (2,568,000)         (2,607,000)
                                                       ---------------      --------------
                 Deferred tax asset                         2,033,000           1,785,000

Deferred tax liabilities
       Capitalized software development costs               1,561,000           1,529,000
       Accounts receivable                                    455,000             242,000
       Prepaid expenses                                        17,000              14,000
                                                       ---------------      --------------
                 Deferred tax liability                     2,033,000           1,785,000
                                                       ---------------      --------------
                 Net deferred tax asset            $                -  $                -
                                                       ===============      ==============
</TABLE>

At July 31,  2002 and 2001,  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 the  Company's  operating  results in recent
years.

(7)           TREASURY STOCK

In  September  2001,  the Board of  Directors  authorized  the purchase of up to
1,000,000 shares of Proginet common stock under a stock repurchase program.  The
repurchase  program  commenced  on October 3, 2001 and will  continue  until the
earlier  of (i) the date on which  1,000,000  shares of common  stock  have been
acquired or (ii) October 3, 2002. The purchases will be made by the Company from
time to time on the TSX Venture  Exchange at the  Company's  discretion  and are
dependent on market conditions.  During the fiscal year ended July 31, 2002, the
Company purchased 325,500 shares of its common stock for aggregate consideration
of $114,182.


                                       26
<PAGE>


                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

(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 TSX Venture  Exchange  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 would have
vested, if and only if, two criteria were satisfied:  (i) Proginet's achievement
of a listing  on the  United  States  OTC:BB  and (ii)  Proginet's  stock  price
reaching  established  thresholds.  For the year ended July 31,  2001,  Proginet
recognized a non-cash expense of $9,583 relating to this agreement.

On December 28,  2001,  the Company  amended the MFI  agreement.  The  amendment
required the exchange of the remaining  250,000 unvested warrants (the "original
warrants"), exercisable at $.54 per share for 125,000 fully vested warrants (the
"exchanged  warrants")  exercisable at $.22,  which  represented the fair market
value of the  Company's  common stock on the date of the  amendment.  A non-cash
charge to  operations  amounting  to $25,175  (as  determined  by  Black-Scholes
pricing  model) was  recorded  by the  Company  for the year ended July 31, 2002
relating to the amendment.

(9)           STOCK OPTION PLANS

Under the 1997 Stock  Option  Plan and 1995  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 no event shall exceed 10 years from
the date of grant.

Transactions  involving  the 2000 Plan and the prior  Plans  are  summarized  as
follows:

<TABLE>
<CAPTION>
                                             SHARES SUBJECT         EXERCISE PRICE         WEIGHTED AVERAGE
                                                TO OPTION             PER SHARE             EXERCISE PRICE
                                             ----------------     -------------------     --------------------
<S>                                                <C>              <C>                         <C>
        Outstanding at August 1, 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
            Granted                                  678,000        $0.16 - $0.37               $ 0.26
            Cancelled                               (293,300)       $0.25 - $1.70               $ 0.68
                                             ----------------
        Outstanding at July 31, 2002               2,028,500        $0.16 - $1.85               $ 0.58
                                             ================

</TABLE>


                                       27
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

The  following  table  summarizes   information  about  employee  stock  options
outstanding and exercisable at July 31, 2002.

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                         Number             Weighted -            Weighted           Number          Weighted -
                       outstanding      average remaining         -average        exercisable         average
                       at July 31,       contractual life         exercise        at July 31,         exercise
 Exercise prices          2002               (years)               price              2002             price
------------------    --------------    -------------------     -------------     -------------     -------------
<S>                       <C>                   <C>             <C>                  <C>            <C>
$0.16 - $0.37               716,500             10              $    0.26              414,250      $       0.24
$0.43 - $0.68               710,000             8                    0.63              626,500              0.63
$0.71 - $1.85               602,000             8                    0.91              570,000              0.91
                      --------------                                              -------------
                          2,028,500             9               $    0.58            1,610,750      $       0.59
                      ==============                                              =============

</TABLE>

All options have been granted  with  exercise  prices at the market price of the
stock at the date of the grant.

On January 12,  2001,  the Board of  Directors  approved the removal of specific
performance criteria from all outstanding 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.

In fiscal 2002, the Board of Directors granted stock options to a director and a
consultant,  for executive  recruitment  services, to purchase 60,000 and 25,000
shares of common stock, respectively, at exercise prices of $.26 and $.16, which
represent the fair market value of the  underlying  common stock on the dates of
grant. A charge to operations amounting to $14,384 was recorded for these grants
for the year ended July 31, 2002.

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 those  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 FAS No. 123, the Company's net income (loss) and net income
(loss) per share would have been the following pro forma amounts:

                                                     2002              2001
                                              -------------        -----------

      Net income (loss):
           As reported                            $ 196,614       $  (226,126)
           Pro forma                                 25,671          (428,811)
      Basic and diluted net income (loss)
           per share:
           As reported                                  .01             (.02)
           Pro forma                                    .00             (.03)


                                       28
<PAGE>


                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001

Pro forma net income  (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
income (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
2002 and 2001 was $.20 and $.58,  respectively,  on the dates of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  expected  dividend yield of 0% for fiscal 2002 and 2001; risk free
interest rate of 4.2% and 5.4% in fiscal 2002 and 2001,  respectively,  expected
stock volatility of 104% and 97% in 2002 and 2001, 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.  If 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

         LEASES
The Company leases office space under noncancelable operating leases expiring in
fiscal  2006.  The  Company  also  leases  certain  computer  equipment  under a
noncancelable capital lease expiring in fiscal 2005. The following is a schedule
of future  minimum  payments,  by year and in the  aggregate,  under the capital
lease and noncancelable  operating leases with initial or remaining terms of one
year or more at July 31, 2002:

      Year ended July 31,               Capital lease         Operating leases
-----------------------------         -----------------    ---------------------

              2003                 $            10,200    $             275,000
              2004                              10,200                  241,000
              2005                               7,057                  250,000
              2006                                                      152,000
                                      -----------------    ---------------------
                                   $            27,457    $             918,000
Sublease rental income                               -                   38,000
                                      -----------------    ---------------------

Total minimum lease payments       $            27,457    $             880,000
                                                           =====================
Amounts representing interest                    3,875
                                      -----------------

Present value of net minimum
lease payments ($7,965 of
which is current)                  $            23,582
                                      =================


Rental  expense  charged to  operations  was $184,184 and $205,246 in the fiscal
years ended July 31, 2002 and 2001, respectively.


                                       29
<PAGE>

                              PROGINET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2002 AND 2001


         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

Revenues  for the years ended July 31, 2002 and 2001  included  sales in foreign
countries of approximately $1,064,345 and $1,386,082,  respectively.  As of July
31, 2002 and 2001, three different customers accounted for approximately 63% and
53%,  respectively  of total  trade and  installment  accounts  receivables.  No
customer  represented  10% or more of  revenues in the years ended July 31, 2002
and 2001.

(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 may match up to
100%, as determined by the Board of Directors, of the employee's contribution up
to 10% of eligible  compensation.  The Company's  contributions were $89,690 and
$66,905 for the years ended July 31, 2002 and 2001, respectively.


                                       30
<PAGE>


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

None


                                       31
<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  October  24,  2002  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 October  24,  2002,  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 October  24, 2002 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  October  24,  2002 and is  incorporated
herein by reference.


                                       32
<PAGE>


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:

EXHIBIT NO.             EXHIBIT NAME

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.**

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.

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*

23        Consent of Grant Thornton LLP **

99        Certification  Pursuant to 18 U.S.C.  SS. 1350, as adopted pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002 **

* Incorporated  by reference to Notice of Annual Meeting of  Stockholders  dated
November 14, 2000
** Filed herewith

(B) REPORTS ON FORM 8-K

None


                                       33
<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 18th day of September, 2002.


                                    PROGINET CORPORATION


                                    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.


<TABLE>
<CAPTION>
            NAME                           TITLE                            DATE
            ----                           -----                            ----


<S>                              <C>                                 <C>

/s/ Kevin M. Kelly
---------------------------      President, Chief Executive          September 18, 2002
Kevin M. Kelly                   Officer and Director


/s/ Debra A. DiMaria
---------------------------      Corporate Secretary and Chief       September 18, 2002
Debra A. DiMaria                 Financial and Accounting Officer


/s/ John C. Daily
---------------------------      Chairman                            September 18, 2002
John C. Daily


/s/ Stephen Sternbach
---------------------------      Director                            September 18, 2002
Stephen Sternbach


/s/ Dr. E. Kelly Hyslop
---------------------------      Director
Dr. E. Kelly Hyslop                                                  September 18, 2002

</TABLE>


                                       34
<PAGE>


                                  CERTIFICATION

I,  Kevin  M.  Kelly,   President  and  Chief  Executive   Officer  of  Proginet
Corporation, certify that:

1. I have reviewed this annual report on Form 10-KSB of Proginet Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: September 18, 2002


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


I, Debra A.  DiMaria,  Corporate  Secretary and Chief  Financial and  Accounting
Officer of Proginet Corporation, certify that:

1. I have reviewed this annual report on Form 10-KSB of Proginet Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: September 18, 2002

                                          /s/ Debra A. DiMaria
                                          -------------------------------
                                          Debra A. DiMaria
                                          Corporate Secretary and
                                          Chief Financial and Accounting Officer


                                       35