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, 2000

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

               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
                                                    -------------------
</TABLE>

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 $4,149,699.

The  aggregate  market value of the voting stock (based on the closing  price of
such stock on the Canadian Venture Exchange (CDNX) held by non-affiliates of the
issuer as of October 5, 2000 was  approximately  $7,800,000.  All  officers  and
directors  of the  issuer  have  been  deemed,  solely  for the  purpose  of the
foregoing calculation, to be "affiliates" of the issuer.

There were 13,483,301 shares of Common Stock outstanding at October 5, 2000.

                                       1

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item
----

Page
----

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

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

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

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


                                     PART II

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

6.       Management's Discussion and Analysis or Plan of Operation.............8

7.       Financial Statements.................................................10

8.       Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure.........................................28

                                    PART III

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

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

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

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

13.      Exhibits and Reports on Form 8-K.....................................29


                                       -i-

<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

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

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.  Proginet is
a Long  Island,  New  York-based  software  development  company  that  provides
software  solutions  for  seamlessly  integrating  IBM  mainframes  and midrange
computers  with  Microsoft  Windows  NT  and  other  distributed   client/server
environments.  The Company's  products address the systems  management  software
space,  including password  management,  enterprise  managed data transfer,  and
Internet managed data transfer.

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 a material amount
of revenues for Proginet.  Proginet  offers five  software  solutions for moving
information  between  computers.  CyberFusion  is  designed  for  Internet  file
transfer and the other four are designed for internal network file transfers.

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.

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

<PAGE>

systems in a typical  environment.  Often they resort to writing  passwords on a
"Post-It". Such practices cause enterprises to have an exposure when users write
the  password  down or choose  simple  passwords  that are  easier to  remember.
Another  consequence  develops when users create complex  passwords for improved
security and then forget their passwords, creating a significant burden for help
desk personnel.

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

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

STRATEGY

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

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

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

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

Proginet  continually  evaluates  new  technology  that has great  impact on the
Internet  and  determines  how  this  new  technology  may fit  into  Proginet's
strategy.  Two recent examples of this approach are Linux,  now available in the
CyberFusion family of products, and LDAP, now being implemented in the SecurPass
line.

                                      -2-
<PAGE>

SALES AND MARKETING

Proginet's  sales  strategy is comprised of three sales models:  direct sales in
the U.S;  indirect  sales  through  distribution  partners in over 20  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  augmented by the use of outside  telemarketing  services
related to lead  generation  for the direct  sales  force.  The  Company  has an
arrangement with an outside  telemarketing  firm with fees based upon the number
of hours used in the generation of a lead. The Company's  experience is that the
cost per lead averages  approximately  $400 per qualified lead. Leads are turned
over to the Proginet's  internal  direct sales force,  who then cover the entire
sales  process.  The direct  sales model covers the entire sales cycle from lead
generation  through trial  evaluation  process,  typically 30 to 60 days, to the
signing of a software license  agreement.  Proginet estimates that the "typical"
sales cycle averages about 90 days and Proginet closes approximately  two-thirds
of trials started.

The indirect  sales model is built on the premise that presence and knowledge in
local markets is paramount to establishing  necessary business relationships and
closing sales.  Therefore,  distributor  partnerships  are  established in local
markets  (countries)  and Proginet  commits  significant  resources to train and
support  distributors  to  sell  Proginet  software  in  their  countries.   The
distributors' role is to act as agents, make the marketplace aware of Proginet's
technology  and  explain  how  the  technology  can be used  in  their  business
environments.  Proginet backs-up the distributors with authorized assistance and
support, customer installations and training whenever necessary. The distributor
agreement  specifies that they cannot sell competitors'  products.  Distributors
are typically  compensated  at a commission  rate of 25% or 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  relationship  with
Microsoft  most  directly  benefits the direct  sales model and the  distributor
sales model. In both models, while there is no contractual obligation, Microsoft
continues to provide  leads and  references to  prospective  customers who could
benefit  from  Proginet's   products  and  their  integration  into  Microsoft's
technology.  The Company, however, does not maintain statistics on the amount of
revenues attributable to its relationship with Microsoft.

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  advertising and
participation in many industry trade shows and related programs.

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

                                      -3-
<PAGE>

CUSTOMERS

Proginet has  established  a worldwide  user base of more than 400  companies in
over 25  countries  engaged in the  financial,  telecommunications,  healthcare,
government,  and other industry sectors.  No one customer represents 10% or more
of Proginet's revenues.

SUPPLIERS

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

EMPLOYEES

As of July 31, 2000,  Proginet had 45-  full-time  salaried  employees,  and two
consultants on retainer.

COMPETITION

Several companies in the marketplace  provide  technologies that are similar, or
are  perceived  by the  marketplace  to be similar,  to  Proginet's  technology.
Competitive  information  is difficult to obtain and statistics on the number of
customers  and  products  sold are not  disclosed  by either  private  or public
companies. For example, Computer Associates and IBM bundle product offerings and
they  themselves  do not  fully  know what  products  are  specifically  used by
customers.  The  information in this section was compiled from public sources as
well as from  discussions  with  Proginet's  partners,  vendors,  and customers.
Proginet believes the information to be reasonably accurate.

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

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

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

The  Company's  information  movement  technology  products  compete  with major
computer and communication  systems vendors  including IBM, Computer  Associates
and Sterling  Commerce,  as well as smaller  companies such as SureFire Commerce
(Formerly Micro Tempus)., Firesign and Hilgraeve Systems.

No  competitor  has more  than 10  percent  market  share  and  Proginet  has an
insignificant market share at this time.

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

                                      -4-
<PAGE>

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

In the password  management  market, we believe Proginet has two key advantages:
(1) its  expertise  in  mainframe  development  and (2)  its  relationship  with
Microsoft which while informal, is helpful to Proginet.

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

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

The Company's  password  management  technology product line competes with major
software  vendors,  including  IBM and Computer  Associates,  as well as smaller
companies such as Axent and Blockade.  Proginet's current informal  relationship
with Microsoft has positioned the Company to exploit the most advanced  elements
of security  provided by Microsoft  in its own  products.  Proginet  builds upon
Microsoft  security,  while the other  vendors  merely  replace  it.  Proginet's
compliance with native Windows security ensures that the security  components of
all applications,  which are BackOffice compliant,  will also be fully compliant
with Proginet's offering.

Proginet's  technological  informal working relationship with Microsoft has also
enabled Proginet to provide a product that is server-centric,  requiring no code
on the client  desktop.  This enables  customers to perform far simpler and less
costly  installation  and  maintenance  than  the  many  other  products  in the
marketplace that require specific desktop code.

Proginet's  long-term strategy is to build upon its relationship with Microsoft,
remain at the forefront of new Microsoft technology and expand offerings related
to the Internet.

GOVERNMENT REGULATION

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

INTELLECTUAL PROPERTY

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

                                      -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 $6,883 per month, until the lease expiration.
<TABLE>
<CAPTION>
----------------------------------- ------------------ --------------- ---------------------- --------------
Description                         Location           Square Ft.      Lease Expiration       Current
                                                                                              Annual Cost
----------------------------------- ------------------ --------------- ---------------------- --------------
<S>                                                             <C>             <C> <C>            <C>
Headquarters                        Garden City, NY             9,804  February 28, 2006           $211,525
----------------------------------- ------------------ --------------- ---------------------- --------------
Subleased to another Tenant         Chicago, IL                 6,068  December 31, 2002           $12,074*
----------------------------------- ------------------ --------------- ---------------------- --------------
</TABLE>
* Amount is net of related sublease revenue.


                                      -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 PRICE OF AND  DIVIDENDS ON THE  REGISTRANT'S  COMMON  EQUITY AND
         OTHER SHAREHOLDER MATTERS

Since May of 1995,  Proginet  common  stock has  traded on the  Vancouver  Stock
Exchange,  under the symbol PRF.U. The ".U" extension  indicates that the shares
are traded in U.S.  dollars.  In December  1999,  the Vancouver  Stock  Exchange
merged with the Calgary  Stock  Exchange and is now called the Canadian  Venture
Exchange, CDNX.  Proginet's  stock is held by over  three  hundred  holders  of
record.  In September 2000, the Company's  Registration  Statement on Form 10-SB
cleared  comments  with the SEC and Proginet  common stock also began trading on
the OTC-Bulletin Board under the symbol PRGF.

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

Year       Quarter                           High ($U.S.)            Low($U.S.)
---------- -------------------------- -------------------- ---------------------
2000       QTR 4                                     1.15                  0.65
           QTR 3                                     2.45                  0.97
           QTR 2                                     2.20                  0.52
           QTR 1                                     0.84                  0.54
---------- -------------------------- -------------------- ---------------------
1999       QTR 4                                     0.89                  0.40
           QTR 3                                     1.25                  0.49
           QTR 2                                     0.70                  0.29
           QTR 1                                     0.60                  0.23

DIVIDENDS

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

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         GENERAL

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

FISCAL PERIODS ENDED JULY 31, 2000 AND JULY 31, 1999
Total  revenues were  $4,149,699 in fiscal 2000 compared to $4,174,163 in fiscal
1999,  a  decline  of less  then 1%.  Software  license  revenues  decreased  by
$377,287,  or 18.3%,  to  $1,686,149.  The fiscal  2000  decrease  in revenue is
primarily  attributable  to  slower  sales  of  Proginet's  software  as the Y2K
conversion lockdown severely impacted  Proginet's sales cycle,  including delays
of many trials.

Software  maintenance  fees  increased to  $2,266,755  compared to 1999 software
maintenance  fees of $2,048,409.  The increase in software  maintenance  fees is
from new products licensed, with the continued retention of existing maintenance
support customers.

                                      -8-
<PAGE>

Other  revenues were $196,795  compared to $62,318 for 1999.  These revenues are
for consulting  services  provided to customers who request specific support for
installations  of Proginet's  software.  Proginet has had increasing  demand for
services  and expects to expand our  technical  infrastructure  to expand  these
service offerings in the new fiscal year.

Cost of revenues increased from $1,314,368 to $1,760,469,  an increase of 33.9%,
resulting  in  part  from  an  increase  of  $163,000  due  to  amortization  of
capitalized  software  development  costs , an  increase of $110,000 in customer
support costs due to the  expansion of the Company's  customer base and $170,000
in increased costs related to indirect sales.

Operating  expenses  increased to  $3,523,450  from  $2,898,014,  an increase of
$625,436,  or 21.6%, in 2000 compared to 1999.  Research and  development  costs
were $385,965, a 24.6% reduction compared to 1999,  reflective of reduced levels
of resources dedicated to analysis of research and development activities.

Selling and  marketing  expenses  were  $944,886 in 2000 compared to $525,738 in
1999.  These results  represent an increase of $419,148 or 79.7% and are related
to increased  expenditures  for external sales lead generation  programs and for
increased  personnel  and  related  expenses  for  expanded  internal  marketing
programs.

General  and  administrative  expenses  in 2000 were  $2,192,599  an increase of
$332,001 or 17.8%, compared to general and administrative expenses of $1,860,598
in 1999.  These increases are primarily  attributable to an increase in bad debt
expense of $106,000, an increase in professional fees of $66,000 relating to the
Company's U.S.  registration process and an increase in investor relations costs
and compensatory stock option expense of $147,000.

Proginet  experienced  an operating  loss of $1,134,220  for 2000 compared to an
operating  loss  of  $38,219  for  1999.  The  Company  reported  a net  loss of
$1,066,282 for 2000 compared to net income of $19,533 for 1999.

         LIQUIDITY AND CAPITAL RESOURCES

At July  31,  2000,  the  Company  had a cash  and cash  equivalent  balance  of
$1,465,468  and working  capital of $580,202  compared to $1,691,163 of cash and
cash equivalents and working capital of $1,260,534 at July 31, 1999.

The Company's  operating  activities  provided cash of $1,042,444 and $2,274,700
for fiscal 2000 and 1999,  respectively.  The  decrease in net cash  provided by
operating  activities resulted primarily from the Company's fiscal 2000 net loss
of $1,066,282.  During fiscal 2000 and 1999, investing activities used net cash
of  $1,039,661  and  $1,181,734,  respectively,  principally  from  increases in
capitalized  software  development  costs and financing  activities used cash of
$228,478 and 134,305,  respectively,  primarily  from the Company's  purchase of
treasury stock.

In  January  2000,  the  Company  established  a line of credit in the amount of
$100,000 with a bank.  The interest rate is variable based on prime plus 1%. The
line of credit expires in September 2001. The Company does not currently owe any
money under this line of credit.

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

                                      -9-
<PAGE>


<TABLE>
<CAPTION>

         ITEM 7.  FINANCIAL STATEMENTS

                                                                                         Page
                                                                                         ----
<S>                                                                                        <C>
Report of Independent Certified Public Accountants                                        11
------------------------------------------------------------------------- -----------------------------------
Independent Auditors' Report                                                              12
------------------------------------------------------------------------- -----------------------------------
Balance Sheets as of July 31, 2000 and 1999                                               13
------------------------------------------------------------------------- -----------------------------------
Statements of Operations for the years ended July 31, 2000 and 1999                       14
------------------------------------------------------------------------- -----------------------------------
Statements of  Stockholders'  Equity for the years ended July 31, 2000
and 1999.                                                                                 15
------------------------------------------------------------------------- -----------------------------------
Statements of Cash Flows for the years ended July 31, 2000 and 1999                       16
------------------------------------------------------------------------- -----------------------------------
Notes to Financial Statements                                                           17-27
------------------------------------------------------------------------- -----------------------------------
</TABLE>

                                      -10-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
    PROGINET CORPORATION

We have audited the  accompanying  balance sheet of Proginet  Corporation  as of
July 31, 2000, and the related  statements of operations,  stockholders'  equity
and cash  flows for the year 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 audit.

We conducted our audit 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  audit  provides  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, 2000, and the results of its operations and its cash flows for the year then
ended in conformity with accounting  principles generally accepted in the United
States of America.

GRANT THORNTON LLP


Melville, New York
September 22, 2000

                                      -11-
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Proginet Corporation:

We have audited the accompanying balance sheet of Proginet Corporation as of
July 31, 1999, and the related statements of operations, stockholders' equity
and cash flows for the year 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 audit in accordance with generally accepted auditing standards.
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 audit provides 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, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

                                                                    KPMG LLP

Melville, New York
September 14, 1999


                                      -12-
<PAGE>

                              PROGINET CORPORATION
                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                         YEAR ENDED JULY 31,
                            ASSETS                                     2000               1999
Current assets:
<S>                                                             <C>               <C>
    Cash and cash equivalents                                   $       1,465,468 $       1,691,163
    Accounts receivable, net                                              630,956           520,343
    Prepaid expenses                                                       27,090            99,750
                                                                ----------------- -----------------
                       Total current assets                             2,123,514         2,311,256
                                                                ================= =================

Property and equipment, net                                               373,639           504,096
Capitalized software development costs, net                             3,733,712         3,571,427
Purchased software, net                                                   686,176         1,188,892
Other assets                                                               45,701            45,701
                                                                ----------------- -----------------
                                                                $       6,962,742 $       7,621,372
                                                                ================= =================

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of notes payable                             $         55,877 $          55,877
    Accounts payable and accrued expenses                                 370,840           263,124
    Deferred revenue                                                    1,116,593           731,721
                                                                ----------------- -----------------
                       Total current liabilities                        1,543,310         1,050,722
                                                                ================= =================


Notes payable, net of current portion                                      37,251            93,128
Other long-term liabilities                                               129,167           123,561
                                                                        1,709,728         1,267,411
                                                                ================= =================

Stockholders' equity:
    Preferred stock, $.01 par value, 10,000,000 shares authorized,
       none issued                                                              -                 -
    Common stock, $.001 par value, 40,000,000 shares authorized,
       14,211,058 and 14,140,000  shares issued
       in 2000 and 1999, respectively                                      14,211            14,140
    Additional paid-in capital                                         11,770,256        11,632,391
    Treasury stock, 773,004 and 539,820 shares in 2000 and 1999,
       respectively, at cost                                             (415,856)         (243,255)
    Accumulated deficit                                                (6,115,597)       (5,049,315)
                                                                ----------------- -----------------
                       Total stockholders' equity                       5,253,014         6,353,961
                                                                ----------------- -----------------

                                                                $       6,962,742 $       7,621,372
                                                                ================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                      -13-
<PAGE>

                              PROGINET CORPORATION
                            Statements of Operations
<TABLE>
<CAPTION>

                                                                              YEAR ENDED JULY 31,
                                                                           2000               1999
                                                                   ----------------- --------------------
Revenues
<S>                                                                <C>               <C>
    Software sales and licenses                                    $       1,686,149 $          2,063,436
    Software maintenance fees                                              2,266,755            2,048,409
    Other                                                                    196,795               62,318
                                                                   ----------------- --------------------
                                                                           4,149,699            4,174,163

Cost of revenues                                                           1,760,469            1,314,368
                                                                   ----------------- --------------------

          Gross profit                                                     2,389,230            2,859,795
                                                                   ----------------- --------------------

Operating expenses
    Research and development                                                 385,965              511,678
    Selling and marketing                                                    944,886              525,738
    General and administrative                                             2,192,599            1,860,598
                                                                   ----------------- --------------------
                                                                           3,523,450            2,898,014
                                                                   ----------------- --------------------

Loss from operations                                                      (1,134,220)             (38,219)

Other income
    Interest income                                                           66,781               46,160
    Other, net                                                                 1,157               11,592
                                                                   ----------------- --------------------

Net income (loss)                                                  $      (1,066,282)$             19,533
                                                                   ================= ====================

Basic and diluted income (loss) per common share                   $           (0.08)$               0.00
                                                                   ================= ====================

Weighted average common shares outstanding, basic and diluted             13,562,995           13,485,254
                                                                   ================= ====================
</TABLE>

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

                                      -14-
<PAGE>

                              PROGINET CORPORATION
                       Statements of Stockholders' Equity
                       Years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
                                                                 ADDITIONAL                      ACCUM-
                                          COMMON STOCK             PAID-IN        TREASURY       ULATED
                                     SHARES         AMOUNT         CAPITAL         STOCK         DEFICIT         TOTAL
                                    ----------  -------------  --------------  -------------  ------------  -------------
<S>              <C>                <C>         <C>            <C>             <C>            <C>           <C>
Balance - August 1, 1998            14,140,000  $      14,140  $   12,495,246  $  (1,452,800) $ (5,068,848) $   5,987,738

Purchase of treasury stock                   -              -               -       (283,310)            -       (283,310)

Issuance of shares in connection
     with Microsoft transaction              -              -        (862,855)     1,492,855             -        630,000

Net income                                   -              -               -              -        19,533         19,533
                                    ----------  -------------  --------------  -------------  ------------  -------------
Balance - July 31, 1999             14,140,000         14,140      11,632,391       (243,255)   (5,049,315)     6,353,961

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

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

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

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

Net loss                                     -              -               -              -    (1,066,282)    (1,066,282)
                                    ----------  -------------  --------------  -------------  ------------  -------------
Balance - July 31, 2000             14,211,058  $      14,211  $   11,770,256  $    (415,856) $ (6,115,597) $   5,253,014
                                    ==========  =============  ==============  =============  ============  =============
</TABLE>

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

                                      -15-
<PAGE>

<TABLE>
<CAPTION>
                              PROGINET CORPORATION
                            Statements of Cash Flows
                                                                                               Year ended July 31,
                                                                                                2000           1999
Cash flows from operating activities:
<S>                                                                                        <C>            <C>
    Net income (loss)                                                                      $  (1,066,282) $      19,533
    Adjustments to reconcile net income (loss) to net cash provided by
       operating activities:
          Depreciation and amortization                                                        1,510,549      1,396,441
          Provision for doubtful accounts                                                        225,629        119,198
          Deferred revenue                                                                       384,872        (65,705)
          Warrants issued for services                                                            47,918              -
          Exercise of stock options                                                               24,001              -
          Compensatory stock option expense                                                       66,017              -
          Changes in operating assets and liabilities
             Accounts receivable                                                                (336,242)       320,598
             Notes receivable from employees                                                           -         12,000
             Prepaid expenses and other current assets                                            72,660         33,131
             Other receivables                                                                         -        525,000
             Other assets                                                                              -          1,847
             Accounts payable and accrued expenses                                               107,716       (101,946)
             Other long-term liabilities                                                           5,606         14,603
                                                                                           -------------  -------------
                 Net cash provided by operating activities                                     1,042,444      2,274,700
                                                                                           -------------  -------------
Cash flows from investing activities:

    Increase in capitalized software development costs                                          (973,346)    (1,174,112)
    Purchases of property and equipment                                                          (66,315)        (7,622)
                                                                                           -------------  -------------
                 Net cash used in investing activities                                        (1,039,661)    (1,181,734)
                                                                                           -------------  -------------
Cash flows from financing activities:

    (Repayment) proceeds of notes payable                                                        (55,877)       149,005
    Purchase of treasury stock                                                                  (172,601)      (283,310)
                                                                                           -------------  -------------
                 Net cash used in financing activities                                          (228,478)      (134,305)
                                                                                           -------------  -------------
Net Increase (Decrease)  in Cash and Cash Equivalents                                           (225,695)       958,661

Cash and cash equivalents at beginning of year                                                 1,691,163        732,502
                                                                                           -------------  -------------
Cash and cash equivalents at end of year                                                   $   1,465,468  $   1,691,163
                                                                                           =============  =============
</TABLE>

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

                                      -16-
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

                             JULY 31, 2000 AND 1999

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

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

         REVENUE RECOGNITION

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

Software  maintenance  fees are deferred and recognized as revenue  ratably over
the  term of the  contract,  typically  one  year.  Cost of  revenues  primarily
consists of product  costs,  amortization  of capitalized  software  development
costs and salaries and consulting fees relating to providing  customer  software
support under maintenance contracts.

         ACCOUNTS RECEIVABLE

The Company  continually  reviews accounts for collectibility and establishes an
allowance  for  doubtful  accounts.  As of July 31, 2000 and 1999,  there was an
allowance for doubtful accounts of $107,889 and $127,500, 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, generally five years. Leasehold improvements are amortized
over the lesser of the economic life of the asset or the lease term. Accelerated
methods of depreciation are used for tax purposes.

         INCOME TAXES

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

         FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                      -17-
<PAGE>

         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.

                                      -18-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

         RESEARCH AND 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 $811,061  and  $668,601  for fiscal 2000 and 1999,
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 $2,181,227 and $2,128,126 at July 31, 2000 and 1999,
respectively.

         ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company  measures  stock-based  awards using the intrinsic value method.  As
described in Note 9, pro-forma disclosure of the effect of net 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  earnings  (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.  Potential  common shares of
2,137,300  and  1,222,100  at July 31,  2000 and 1999  from  stock  options  and
warrants are excluded in computing basic and diluted net income (loss) per share
for fiscal 2000 and 1999 as their effects would be antidilutive.

         USE OF ESTIMATES

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

         STATEMENT OF CASH FLOWS

The Company  considers  all highly  liquid debt  instruments  with a maturity of
three  months  or less at the  time of  purchase  to be cash  equivalents.  Cash
equivalents,  amounting to $1,109,489  and $1,085,707 at July 31, 2000 and 1999,
respectively,  consisted of a liquid reserve  mutual fund. No interest  payments
were made during the years  ended July 31,  2000 and 1999.  There were no income
taxes paid during the years ended July 31, 2000 and 1999.

         RECLASSIFICATIONS

Certain prior years balances have been re-classified to conform with the current
year's presentations.

                                      -19-
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

(2)      ACQUISITIONS

On December 17, 1996, the Company acquired its TransAccess software product line
from Microsoft,  which enables transaction  processing across a diverse range of
platforms  within the  enterprise  network.  The  Company  received  an existing
software  product and assumed  maintenance  contracts  with deferred  revenue of
$324,246 on the date of  acquisition.  The purchase  price  consisted of 100,000
shares of common  stock issued at closing,  which were not  tradable  until June
1998,  and $2.1 million of common stock to be issued in October 1998 (the number
of shares issued was to be based on the average price of the common stock during
the twenty days prior to the payment  date),  which become  tradable from two to
three  years  after the closing  date.  The fair value of the 100,000  shares of
common  stock  and  shares  subsequently  issuable,   based  on  an  independent
appraisal,  was $246,000  and  $1,170,000,  respectively.  The total cost of the
acquired product and technology was $1,800,246, including $60,000 of transaction
costs, which was recorded as purchased software and is being amortized over five
years.  In October  1998,  the  Company and  Microsoft  settled  certain  issues
relating  to this matter and amended the  agreement  which  allowed  Proginet to
satisfy all  obligations  to  Microsoft by issuing and  delivering  to Microsoft
1,260,000 shares of Proginet common stock from treasury.  In connection with the
settlement,  the acquisition  obligation and purchased software carrying amounts
were reduced by $540,000. Accumulated amortization at July 31, 2000 and 1999 was
$990,744 and $800,520, respectively.

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

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

                                                 $      1,657,000

The fair value of the purchased  software was based on an independent  appraisal
and its net book value at July 31, 2000 and 1999 was $416,673 and $729,166. This
asset is being amortized over 5 years from the date of acquisition.

                                       20
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

(3)      PROPERTY AND EQUIPMENT

Property and equipment consist of the following at July 31:
<TABLE>
<CAPTION>

                                                                           2000           1999
                                                                   -------------    -----------
<S>                                                               <C>            <C>
                         Computer and other equipment             $     954,631  $     931,130
                         Furniture and fixtures                         128,189        273,425
                         Leasehold improvements                          77,342        101,790
                                                                   -------------    -----------
                                                                      1,160,162      1,306,345
                         Less accumulated depreciation

                                 and amortization                     (786,523)      (802,249)
                                                                   -------------    -----------

                                                                  $     373,639  $     504,096
                                                                     ===========    ===========
</TABLE>
Depreciation and amortization expense for the years ended July 31, 2000 and 1999
was $196,772 and $202,574, 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,  2000,  the Company has not  borrowed  against  this line of credit.
Subsequent  to year-end,  the Company  extended its line of credit  agreement to
September 30, 2001.

(5)      RELATED PARTY TRANSACTIONS

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

The aggregate maturities of long-term debt are as follows:
                        2001         $      55,877
                        2002                37,251
                                         ----------

                                     $      93,128
                                        ==========

Bathurst Ltd. has entered into an agreement with Proginet  whereby Bathurst Ltd.
has agreed to vote all shares it owns  consistent with the votes of the Board of
Directors of the Company through December 31, 2000.

                                       21
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999



 (6)     INCOME TAXES

The following is a reconciliation  of the tax provision with the amount obtained
by applying the  statutory  U.S.  Federal  income tax rate to the income  (loss)
before income taxes:
<TABLE>
<CAPTION>
                                                                             2000             1999
                                                                         ------------     ----------
<S>                                                                       <C>              <C>
           Expense (benefit) at statutory rate                            $     (363,000)  $      3,000
           Increases (reductions) in taxes due to:
                Nondeductible expenses                                             2,000          1,000
                State tax expense, net of federal benefit                        (64,000)       (86,000)
                Increase in valuation allowance                                  162,000        222,000
                NOL utilization                                                        -        (53,000)
                Change  in  deferred  taxed due to  differences  in rate
                booked at beginning of year and prior year adjustments           263,000        (87,000)
                                                                             ------------     ----------
           Income tax provision                                           $            -   $          -
                                                                             ============     ==========
</TABLE>

At July 31, 2000,  the Company had available  Federal net  operating  loss (NOL)
carryforwards  and  research  and  development  tax credit  (R&D)  carryforwards
expiring in the following fiscal years:
<TABLE>
<CAPTION>
                                              R&D                 NOL
                                              ---                 ---
               <S>                   <C>                   <C>
                 2007         $               54,000$                  -
                 2008                         31,000                   -
                 2009                         29,000             174,000
                 2010                         42,000           1,064,000
                 2011                              -           1,519,000
                 2012                         32,000           1,395,000
                 2018                         34,000           3,427,000
                 2019                         34,000             530,000
                                    ----------------    ----------------
                              $              256,000$          8,109,000
                                    ================    ================
</TABLE>

                                       22
<PAGE>

                              PROGINET CORPORATION
                          Notes To Financial Statements
                             July 31, 2000 and 1999

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>
                                                            2000                1999
                                                       ---------------      --------------
Deferred tax assets:
--------------------
<S>                                                <C>                 <C>
       Net operating loss carryforward             $        2,991,000  $        2,776,000
       Accounts payable and other                             146,000             109,000
       Deferred revenue                                       457,000             304,000
       Deferred contract costs                                 62,000              77,000
       Purchased software                                     149,000             383,000
       Property and equipment                                   3,000                   -
       Research and development carryforward                  256,000             222,000
       Unbilled rent                                           53,000              52,000
                                                       ---------------      --------------
Gross deferred tax asset                                    4,117,000           3,923,000
Valuation allowance                                       (2,311,000)         (2,150,000)
                                                       ---------------      --------------
                 Net deferred tax asset                     1,806,000           1,773,000

Deferred tax liabilities:
       Capitalized software development costs               1,536,000           1,466,000
       Accounts receivable                                    259,000             265,000
       Other receivables                                            -              29,000
       Prepaid expenses                                        11,000              12,000
       Other                                                        -               1,000
                                                       ---------------      --------------
Gross deferred tax liabilities                              1,806,000           1,773,000
                                                       ---------------      --------------

                 Net deferred tax asset            $                -  $                -
                                                       ===============      ==============
</TABLE>

At July 31,  2000 and 1999,  the  Company  has  provided a  valuation  allowance
against its net deferred tax assets as the Company does not believe  realization
is more likely than not in light of operating losses in recent years.

(7)      TREASURY STOCK

In October 1997 and renewed in December 1998, the Board of Directors  authorized
the Company to purchase up to 300,000  shares of its common  stock.  The Company
purchased 5,000 and 61,000 shares in fiscal 2000 and 1999,  respectively,  under
these authorizations. In conjunction with the settlement between the Company and
Joseph Mohen (as discussed in footnote 5), the Company  purchased 750,000 shares
in fiscal  1999.  In  addition,  the  Company  purchased  from two other  former
employees  50,000  shares in fiscal 1999. In May 2000,  the Company  repurchased
228,184 shares from a former officer at a cost of $168,856.

The total cost of these stock  repurchases  was  $172,601 and $283,310 in fiscal
2000 and 1999, respectively.

                                       23
<PAGE>

                              PROGINET CORPORATION
                          Notes To Financial Statements
                             July 31, 2000 and 1999

(8)      STOCK PURCHASE WARRANTS

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

(9)      STOCK OPTION PLANS

Under the 1997 Stock Option Plan and 1994 Equity  Incentive  Plan, (the "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  Plan to  2,500,000.  Grants  under  the  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 Plans provide
that they will be administered by a committee selected by the Board of Directors
of the Company and that the committee  will 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 Plans are summarized as follows:
<TABLE>
<CAPTION>
                                           SHARES SUBJECT          EXERCISE PRICE         WEIGHTED AVERAGE
                                              TO OPTION              PER SHARE             EXERCISE PRICE
                                           ----------------       -----------------      -------------------
<S>                           <C>                <C>               <C>     <C>                       <C>
        Outstanding at August 1, 1998            1,025,000         $0.97 - $4.85                     $ 1.80
             Granted                               432,100             $0.71                         $ 0.71
             Cancelled                           (235,000)         $0.71 - $3.61                     $ 1.76
                                           ----------------
        Outstanding at July 31, 1999             1,222,100         $0.71 - $0.75                     $ 0.74
             Granted                             1,269,000         $0.62 - $1.85                     $ 0.78
             Exercised                           (486,600)             $0.75                         $ 0.75
             Cancelled                           (367,200)         $0.62 - $1.10                     $ 0.73
                                           ----------------
        Outstanding at July 31, 2000             1,637,300         $0.62 - $1.85                     $ 0.77
                                           ================
</TABLE>

                                       24
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

The  following  table  summarizes   information  about  Employee  Stock  Options
outstanding and exercisable at July 31, 2000.
<TABLE>
<CAPTION>

                                     OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                       Number       Weighted - average          Weighted          Number           Weighted -
                     outstanding        remaining               -average        exercisable         average
                     at July 31,     contractual life           exercise        at July 31,         exercise
Exercise prices         2000             (years)                 price             2000              price
<S>     <C>             <C>                         <C>    <C>                     <C>         <C>
$0.62 - $0.85           1,517,300                   9.5    $          0.71         1,024,800   $          0.74
$1.10 - $1.20              35,000                    10               1.17                 -                 -
$1.70 - $1.85              85,000                    10               1.72                 -                 -
                    --------------                                             --------------

                        1,637,300                   9.5    $          0.77         1,024,800   $          0.74
                    ==============                                             ==============
</TABLE>

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

On March 2, 1999,  the exercise  price of 824,000  options were repriced to $.75
which was greater than the market  value of the stock on that date.  On June 22,
2000,  the Board of  Directors  approved a cash  payment of $0.10 per option for
128,400 options that were previously repriced by the Company. For the year ended
July 31, 2000, a charge of $12,840 was recorded to compensation expense for this
payment. At July 31, 2000, 138,000 repriced options remain outstanding.

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

At July 31, 2000, an additional 115,000 outstanding options vest only if certain
specific  performance  criteria are met,  generally  aggressive  Company revenue
targets or  identified  individual  goals.  No stock  compensation  expense  was
recorded related to these options for fiscal 2000 and 1999.

The Company  applies APB Opinion No.25 in accounting for its stock option grants
and,  accordingly,  no  compensation  cost has been  recognized in the financial
statements for its stock options, which have exercise prices equal to or greater
than  the  fair  value  of the  stock  on the  date of  grant.  Had the  Company
determined  compensation  cost based on the fair value at the grant date for its
stock  options  under SFAS No.123,  the Company's net income (loss) and net loss
per share would have been the following pro forma amounts:
<TABLE>
<CAPTION>
                                                                     2000                      1999
                                                              ------------------        -------------------
                      Net income (loss):
<S>                                                          <C>                       <C>
                           As reported                       $  (1,066,282)            19,533
                           Pro forma                            (1,605,121)          (214,289)
                      Basic and diluted net loss per share:
                           As reported                                (.08)                 -
                           Pro forma                                  (.12)               (.02)
</TABLE>

                                       25
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

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

The per share weighted average fair value of stock options granted during fiscal
2000 and 1999 was $.58 and $.56,  respectively,  on the date of grant  using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  expected  dividend yield of 0% for fiscal 2000 and 1999; risk free
interest  rate  of 6.1%  and  5.3% in  fiscal  2000  and  1999,  expected  stock
volatility  of 91% and  102% in 2000 and  1999,  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 management agreements with two key employees.  When
a change of control in the Company occurs, these agreements provide for:

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

(11)     COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES

As of July 31, 2000,  the future  minimum  lease  payments  under  noncancelable
operating leases for office space and equipment was as follows:

                 Year ended July 31:
                           2001                      $        313,000
                           2002                               325,000
                           2003                               275,000
                           2004                               241,000
                           2005                               250,000
                           Thereafter                         152,000
                                                         -------------
                                                            1,556,000
                           Sub-lease rental income          (215,000)
                                                         -------------
                                                     $      1,341,000
                                                         =============

Total rent expense, net of sub-lease rental income, for the years ended July 31,
2000 and 1999, was $218,791 and $195,616, respectively.

                                       26
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999

         LITIGATION AND CLAIMS

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

(12)     CONCENTRATION OF RISKS

Revenue  for the years ended July 31,  2000 and 1999  included  sales in foreign
countries of approximately $404,000 and $550,000,  respectively.  As of July 31,
2000,  four  customers   accounted  for  approximately  49%  of  total  accounts
receivable.  As of July 31, 1999, two customers  accounted for approximately 67%
of total accounts receivable. No customer represented 10% or more of revenues in
the years ended July 31, 2000 and 1999.

(13)     RETIREMENT PLAN

The  Company  maintains  a  401(k)  savings  plan  which  covers  all  full-time
employees.  Employees  become eligible for  participation  in the plan after one
year of service and attainment of age twenty-one.  Under the plan, employees may
contribute up to 15% of their salary to the plan. The Company matches between 0%
and  100%,  as  determined  by  the  Board  of  Directors,   of  the  employee's
contribution up to 10%. The Company's  contributions were approximately  $69,114
and $51,204 for the years ended July 31, 2000 and 1999, respectively.

                                       27
<PAGE>

         ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

On July 20, 2000,  Proginet terminated the client-auditor  relationship  between
the Company and KPMG LLP ("KPMG"),  and the Company  engaged Grant  Thornton LLP
("Grant") as its independent  auditors for the fiscal year ending July 31, 2000.
The  decision  to engage  Grant was  approved by the Board of  Directors  of the
Company,  upon  the  recommendation  of the  Audit  Committee  of the  Board  of
Directors.  KPMG's reports on the financial statements of the Company for fiscal
years 1999 and 1998 did not  contain  any  adverse  opinion or a  disclaimer  of
opinion,  and were not qualified or modified as to  uncertainty,  audit scope or
accounting  principles.  During  fiscal  years 1999 and 1998 and the  subsequent
interim period  preceding the termination of KPMG,  there were no  disagreements
with KPMG regarding any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the  satisfaction of KPMG,  would have caused KPMG to make reference
to the subject matter of the  disagreements  in connection with its report.  The
Company requested that KPMG furnish it with a letter addressed to the Securities
and Exchange Commission stating whether it agrees with the above statements. The
letter, dated August 23, 2000, indicating KPMG's response,  has been filed as an
exhibit to the Company's Form 8-K/A.



                                      -28-
<PAGE>

                                    PART III

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

The information  called for by this Item is set forth under the caption "Section
16(a) Beneficial Ownership Reporting  Compliance" in the Proxy Statement for the
Annual  Meeting  of  Stockholders  to be  held  on  November  14,  2000  and  is
incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION

The  information  called  for by  this  Item  is set  forth  under  the  caption
"Executive  Compensation"  in the Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held on  November  14,  2000 and is  incorporated  herein by
reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this Item is set forth under the caption "Security
Ownership of Certain  Beneficial  Owners and  Management" in the Proxy Statement
for the Annual  Meeting of  Stockholders  to be held on November 14, 2000 and is
incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


The information called for by this Item is set forth under the caption " Certain
Relationships  and Related  Transactions"  in the Proxy Statement for the Annual
Meeting of  Stockholders  to be held on November  14,  2000 and is  incorporated
herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

Unless otherwise noted, the exhibits below are incoporated by reference to the
Company's Registration Statement on Form 10-SB/A, filed with the SEC on July 18,
2000:
<TABLE>
<CAPTION>

EXHIBIT NO.             EXHIBIT NAME
----------------------- -----------------------------------------------------------------------------------
<S>                   <C>
3(i)                    Certificate of Incorporation.
----------------------- -----------------------------------------------------------------------------------
3(i)(a)                 Certificate of Amendment of Certificate of Incorporation dated December 2, 1996.
----------------------- -----------------------------------------------------------------------------------
3(ii)                   Bylaws of the Registrant.
----------------------- -----------------------------------------------------------------------------------
3(ii)(a)                Amended and Restated Bylaws of the Registrant.
----------------------- -----------------------------------------------------------------------------------
9                       Shareholder Voting Agreement between Bathhurst, Ltd. and the Company, dated
                        September 20, 1999.
----------------------- -----------------------------------------------------------------------------------
10.1                    Form of Employee Confidential Information and Non-Competition Agreement.
----------------------- -----------------------------------------------------------------------------------
10.2                    Form of Confidential Information And Non-Competition Agreement For Consultants.
----------------------- -----------------------------------------------------------------------------------
10.3                    Investor Relations Agreement.
----------------------- -----------------------------------------------------------------------------------
10.4                    Form of Software License Agreement.
----------------------- -----------------------------------------------------------------------------------
10.5                    Form of Distributor Agreement.
----------------------- -----------------------------------------------------------------------------------
10.6                    Form of OEM Agreement.
----------------------- -----------------------------------------------------------------------------------
10.7                    Form of Management Continuity Agreement.
----------------------- -----------------------------------------------------------------------------------
10.8                    Independent  Directors Stock Option Plan,  amended and restated as of February 21,
                        1995.
----------------------- -----------------------------------------------------------------------------------
10.9                    1995 Equity Incentive Plan, amended and restated as of December 5, 1995.
----------------------- -----------------------------------------------------------------------------------
10.10                   1997 Stock Option Plan.
----------------------- -----------------------------------------------------------------------------------
10.11                   Form of Incentive Stock Option Agreement.
----------------------- -----------------------------------------------------------------------------------
</TABLE>

                                      -29-
<PAGE>
<TABLE>
<CAPTION>
----------------------- -----------------------------------------------------------------------------------
EXHIBIT NO.             EXHIBIT NAME
----------------------- -----------------------------------------------------------------------------------
<S>                   <C>
10.12                   Stock Redemption  Agreement between the Company and Joseph T. Mohen, dated October
                        20, 1998.
----------------------- -----------------------------------------------------------------------------------
27                      Financial Data Schedule.*
----------------------- -----------------------------------------------------------------------------------
</TABLE>

* Filed herewith.


(B) REPORTS ON FORM 8-K

A Form 8-K and a Form 8-K/A were filed on August 10,  2000 and August 23,  2000,
respectively,  each of  which  reported  on the  termination  of KPMG LLP as the
Company's independent accountants in Item 4, "Changes in Registrant's Certifying
Accountant," of said Form 8-K or Form 8-K/A.


                                       30
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Garden City,
State of New York, on the 25th day of October, 2000.

                                   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          October 25, 2000
-----------------------------         Officer and Director
Kevin M. Kelly



 /s/ James F. Kelly                   Director, Secretary and Senior      October 25, 2000
-----------------------------         Vice President
James F. Kelly



 /s/ John C. Daily                    Chairman                            October 25, 2000
-----------------------------
John C. Daily



 /s/ Stephen Sternbach                Director                            October 25, 2000
-----------------------------
Stephen Sternbach



 /s/ E. Kelly Hyslop                  Director                            October 25, 2000
-----------------------------
Dr. E. Kelly Hyslop
</TABLE>

                                       31