**UNITED
          STATES**
 **SECURITIES
          AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
  **FORM
          10-KSB**
 
 **[
                  X ]**
                **ANNUAL
                    REPORT PURSUANT TO SECTION 13 OR 15****(d)****OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
                    JULY 31,
                    2005**
 
 [    
                  ]
                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** **000-30151**
 
 **Proginet
          Corporation**
 (Name
          of
          small business issuer in its charter)
 
 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 (516)
          535-3600
 
 Securities
          registered under Section 12(b) of the Exchange Act:
  Title
                    of each class
                Name
                    of each exchange on which registeredNone
                None
 
 Securities
          registered under Section 12(g) of the Exchange Act:
 Common
          Stock
 (Title
          of
          class)
 
 Check
          whether the issuer: (1) filed all reports required to be filed by Section
          13 or
          15(d) of the Exchange Act during the past 12 months (or for such shorter
          period
          that the registrant was required to file such reports), and (2) has been
          subject
          to such filing requirements for the past 90 days.
 
 Yes
                X
                
                No
 
 Check
          if
          there is no disclosure of delinquent filers in response to Item 405 of
          Regulation S-B contained in this form, and no disclosure will be contained,
          to
          the best of registrant’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.
 
 Indicate
          by check mark whether the registrant is a shell company (as defined in
          Rule
          12b-2 of the Exchange Act).
 
 Yes
                
                
                No
                X
 
 The
          issuer’s revenues for its most recent fiscal year were $7,898,818.
 
 The
          aggregate market value of the voting stock (based on the closing price
          of such
          stock on the OTC Bulletin Board) held by non-affiliates of the issuer as
          of
          September 22, 2005 was approximately $6,582,874. 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 14,628,609 shares of Common Stock outstanding at September 22,
          2005.
 
 Documents
          Incorporated by Reference: The information required by Part III of this
          Form
          10-KSB is incorporated by reference from the Proxy Statement for the 2005
          Annual
          Meeting of Stockholders.
 
 Transitional
          Small Business Disclosure Format:
 
 Yes
                
                
                No
  
 
 
 
 **TABLE
                    OF CONTENTS**Page**Part
                    I**Item
                    1.
                Description
                    of Business
                1Item
                    2.
                Description
                    of Property
                7Item
                    3.
                Legal
                    Proceedings
                7Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                7**Part
                    II**Item
                    5.
                Market
                    for Common Equity, Related Stockholder Matters and Small Business
                    Issuer
                    Purchases of Equity Securities
                8Item
                    6.
                Management's
                    Discussion and Analysis or Plan of Operation
                9Item
                    7.
                Financial
                    Statements
                14Item
                    8.
                Changes
                    in and Disagreements With Accountants on Accounting and Financial
                    Disclosure
                31Item
                    8A.
                Controls
                    and Procedures
                31Item
                    8B.
                Other
                    Information
                31**Part
                    III**Item
                    9.
                Directors
                    and Executive Officers of the Registrant.
                32Item
                    10.
                Executive
                    Compensation
                32Item
                    11.
                Security
                    Ownership of Certain Beneficial Owners and Management and Related
                    Stockholder Matters
                32Item
                    12.
                Certain
                    Relationships and Related Transactions
                32Item
                    13.
                Exhibits
                33Item
                    14.
                Principal
                    Accountant Fees and Services
                34Signatures
                34
 
 
 
 
 
 
 **Part
          I**
 
 **Item
                    1.**
                **Description
                    of Business**
  Proginet
          Corporation (“Proginet” or “the Company”) is a global enterprise software
          company. Proginet’s software solutions allow our customers to effectively and
          securely manage their security passwords and data within their information
          technology (IT) systems, which span most business sectors of the economy.
          The
          Company’s products can be used on all major hardware platforms, operating
          systems and application development environments for enterprise computing.
          The
          Company maintains a philosophy of internally developing products, coupled
          with
          the acquisition of key technology, the integration of the two, and the
          establishment of a network of strategic alliances with key technology partners.
          The Company sells its products in the U.S. through its direct sales force
          and
          internationally through distributors. The Company also sells its products
          through Original Equipment Manufacturer (OEM) partners in the United States
          and
          Europe. The Company’s stock is traded on the OTC Bulletin Board under the symbol
          PRGF.
  **General
          Development of the Business**
  Proginet
          was incorporated in New York in 1986 as the Teleprocessing Connection,
          Inc.
          (TCI) and changed its name in 1990 to Proginet Corp. In 1994 Proginet Corp.
          merged with a Delaware corporation, was renamed Proginet Corporation and
          became
          a public company by listing on the Vancouver Stock Exchange. In addition
          to the
          development of software technology, Proginet has acquired several technologies
          from other companies including the acquisition of Network Navigator and
          IND$FILE
          from Novell Inc. in 1994, the acquisition of TransAccess from Microsoft
          in 1995,
          the acquisition of NetWk software from KnowledgeNet in 1995 and the acquisition
          of TCS from SureFire Inc. in 2000 and most recently, the acquisition of
          Blockade
          Systems Corp. in early 2005.
  **Products**
  The
          following is a brief description of the principal products currently marketed
          by
          Proginet. Proginet has designed its products with an emphasis on security,
          reliability, ease of deployment and use, and strong ROI’s. Proginet’s goal is to
          protect its customers’ investments in numerous networking hardware and software,
          and most recently to provide its customers with the ability to secure and
          integrate their information assets, while satisfying regulatory compliance
          mandates and driving corporate efficiency.
  *Information
          Movement Products*
  Proginet’s
          enterprise file transfer 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. Proginet offers several software solutions for moving information
          between computers. The Secure Internet File Transfer product (SIFT) was
          introduced to the market in July 2004, as a standards based web service
          technology to address the B2B data transfer requirements of hundreds of
          thousands of companies. The CyberFusion Integration Suite (CFI) was introduced
          to the market in the summer of 2005 as the result of a re-branding of the
          CyberFusion and SIFT technology and the introduction of a new Command Center.
  Proginet
          currently offers the following products in the information movement
          space:
 
 ·
                Proginet's
                    CyberFusion Integration Suite (CFI) is a totally integrated advanced
                    managed file transfer solution that provides a single point of
                    control for
                    all file transfer activity inside and outside the extended
                    enterprise.A
                    multi-platform solution that serves the mainframe world and all
                    major
                    distributed platforms, CFI enables organizations to conduct all
                    file
                    transfer securely and efficiently with suppliers, business partners,
                    and
                    customers, and to integrate with a broad range of B2B applications
                    in
                    support of end-to-end processing.
 
 CFI
          is
          comprised of three major components, as detailed below:
 
 CFI
          Command Center provides a single point of control to manage all enterprise
          file
          transfers, inside and outside the enterprise, and across all platforms.
          The
          Command Center's Web-based interface provides a single view of all file
          transfer
          activity, including server management, user profiles, alerts, status reporting,
          and audit logging - exactly what is required to keep a pulse on the incoming
          and
          outbound file transfers of a company and the company's business
          partners.
 
 
 1
  CFI
          Platform Server's core strength is handling multi-platform transfers. The
          Platform Server provides total security and control for every file entering
          or
          leaving the enterprise, regardless of platform. The Platform Server's
          peer-to-peer architecture, enterprise-level automation, and high-volume
          file
          transfer capabilities enable seamless integration with other enterprise
          applications to deliver true end-to-end processing.
 
 CFI
          Internet Server enables organizations to exchange information securely
          over the
          Internet - with complete control. The Internet Server is ideal for integrating
          with trading partners; their only requirement is a standard Web browser
          (no
          software is required on the client side).
 
 ·
                TransAccess
                    is a data access and middleware solution for cross-platform data
                    retrieval, update, and transaction processing. TransAccess enables
                    enterprise-wide applications to be distributed across an extensive
                    range
                    of computing platforms.
 
 ·
                Network
                    Navigator is a solution providing batch file transfer capability
                    between
                    client/server and MVS environments.
 
 ·
                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.
 
 ·
                TCSTM
                    is a peer-to-peer file transfer solution for the enterprise.
                    TCS allows
                    end users and Information Technology staff to easily transfer,
                    access, and
                    manage data across an enterprise network, regardless of location,
                    file
                    type or protocol. TCS file transfer is flexible, secure, centrally
                    managed
                    and scalable, and offers complete platform protocol and Application
                    Program Interface (API) support for MVS, OS/2, Netware, UNIX
                    and all
                    versions of Windows. For those customers who do not require the
                    fully
                    automated file transfer capabilities of CyberFusion, TCS is an
                    excellent
                    alternative, at a lower price
                    point.
 
 *Password
          Management Product*
 
 Proginet’s
          password management technology addresses the problem of “too many passwords”
          that affects individual users from small to large corporate enterprises.
          Individual users may have many passwords to access the different systems
          in a
          typical environment. Often they resort to writing passwords on a “Post-It”. Such
          practices cause enterprises to have an exposure when users write the password
          down or choose simple passwords that are easier to remember. Another negative
          consequence develops when users create complex passwords for improved security
          and then forget their passwords, creating a significant burden for help
          desk
          personnel.
 
 SecurPass,
          with its password synchronization technology, password management features,
          and
          extendable application program interfaces (APIs), allows enterprises to
          gain
          control over users’ passwords. By utilizing the password management and password
          synchronization technology in SecurPass, a company can specify the rules
          for
          creating a password, and have those rules enforced among all of the security
          systems throughout the company. The capabilities in SecurPass allow a user
          to
          specify one password, and have that password allow the user to gain access
          to
          all of the systems needed. When a password is reset, SecurPass propagates
          the
          password change throughout the environment to ensure that all passwords
          are
          secure and in-sync.
 
 In
          2004,
          Proginet introduced a new version of the SecurPass Reset product, providing
          improved performance capabilities. These improvements reduce both cost
          and time
          delay in accessing systems.
 
 In
          January, 2005, Proginet acquired most of the assets of Blockade Systems
          Corp.
          This included all of the software for four products; ManageID, ESaccess,
          RTMA
          for MIIS, and Blockade for MVS, a legacy product that is supported but
          not
          actively marketed. Also acquired was the customer base of approximately
          30
          customers, almost all using ESaccess and about 20 using one or more of
          the
          components of ManageID.
 
 ESaccess,
          an access control and Web Single sign on product that authenticates and
          provides
          authorization services for web site users, utilizing mainframe security
          systems
          for authentication. ManageID is a product suite that offers password
          synchronization, reset, identity management and RTMA (Real Time Management
          Agents), that extend Microsoft’s MIIS (Microsoft Identity Information Server) to
          the mainframe.
 
 Blockade
          products are well engineered, well written, and well documented. These
          products
          are being merged into the Proginet product family and sold by our direct
          sales
          force. Proginet is currently considering expanding the distribution of
          its
          Blockade products through international distributors.
 
 
 2
  Proginet
          believes that enterprises can simplify and consolidate their security
          administration functions using SecurPass Sync and Reset, as a first step
          to
          regaining and keeping control over their information technology environments
          and
          expanding their security protections with the Blockade Managed ID
          products.
 
 **Strategy**
 
 Proginet’s
          strategy continues to be to develop and market relevant security software
          applications that are standards based technology applications for information
          movement and password management. Proginet implements its strategy by investing
          in a highly qualified and motivated research and development team, that
          produces
          and brings to market unique and creative products geared to the security
          software requirements of large, medium and small enterprises. Such technology
          includes security and management features to assure secure access to systems
          and
          reliable transfers.
 
 Proginet
          is a significant vendor providing secure enterprise file transfer software
          to
          many diversified industries worldwide, which benefit from our technologies.
          Proginet’s technology provides comprehensive features and capabilities to assure
          compliance with all laws, regulations and standards appropriate for these
          industries - generating cost effective, efficient, scalable, reliable and
          secure
          infrastructure to move, manage, protect and secure these enterprises’ most
          important asset - their data.
 
 The
          driving force behind Proginet’s strategy is the absolute dedication and
          commitment to fully utilize Proginet’s expertise, background, and core
          competencies in the critical area of security related to data movement
          and
          control. These competencies resulted in Proginet’s development of the Security
          and Information Exchange Architecture for the Global Enterprise (SIEA)
          Model in
          2003. This model is a comprehensive data movement and security model introduced
          for the instant access world of the Internet. In 2004, the Company continued
          the
          implementation of this model with the introduction of SIFT, the next major
          component of the SIEA strategy. In 2004 the Company continued the development
          of
          this strategic model with support for additional protocols for FTP, and
          web
          service architectures.
 
 CFI
          is an
          end-to-end, advanced managed file transfer (AMFT) solution that tightly
          integrates all enterprise file-transfer activity, both inside and outside
          the
          enterprise - enabling the organization to achieve total control, security,
          and
          efficiency with all file-based business activity.
 
 CFI's
          value proposition is underpinned by the fundamental concepts of: single
          point of
          control, total security, total auditability, guaranteed delivery, end to
          end,
          and transfers inside and outside the enterprise.
 
 A
          single
          point of control means you have absolute control over all data movement
          inside
          and outside the enterprise. The Command Center component of CFI is the
          digital
          dashboard that provides a single point of control for all files transferred
          -
          whether it be internally, across the extended enterprise, or externally
          with
          customers, and business and trading partners.
 
 Total
          security means security that is architected and engineered into every aspect
          of
          the solution. CFI security starts with comprehensive authentication and
          authorization for all users, servers, clients, and databases in the CFI
          network.
          In addition, each server contains its own authentication and authorization
          schematics which can restrict access in very granular detail. Encryption
          technologies are extensively used for internal system communications as
          well as
          for all file transfers. Delegated administration is a core function of
          CFI
          ensuring that system administrators have powers consistent with their
          organizational role and security status.
 
 In
          the
          typical CFI network, file transfer activity is happening 24x7, frequently
          at
          high volumes, and usually between parties that are spread across a broad
          geographic area. CFI logs each and every transfer-related event at the
          local and
          central level, and produces detailed reports of every aspect of all transfers.
          In addition to a standard set of detailed audit reports, CFI features an
          extensive set of online inquiry tools to support ongoing operational and
          management needs. CFI also contains a full set of real-time alerts that
          can
          notify personnel instantaneously as circumstances warrant. Having information
          about every aspect of every file transfer available enables an organization
          to
          achieve total auditability of enterprise file transfer, thereby satisfying
          regulatory compliance mandates in addition to helping guide corporate decision
          making.
 
 Guaranteed
          delivery means that the data to be transferred is absolutely, positively
          transferred to its intended destination, and that the file arrives on time.
          This
          becomes critical in B2B relationships especially those contingent upon
          service-level guarantees. Guaranteed delivery is only possible in advanced
          MFT
          systems, through the use of automated restarts, exception alerts, queuing,
          production-workflow balancing, and software reliability rates of greater
          than
          99.999%.
 
 End-to-end
          is the uninterrupted transfer of data from an outside partner to deep inside
          the
          enterprise. End-to-end transmission facilitates integration with other
          applications (through rule based processing) whereby files can be set up
          to
          automatically process upon receipt. In addition, the end-to-end nature
          of
          CyberFusion does not require a store and forward approach (eliminating
          the risk
          of having intermediate systems in unsecured networks such as the DMZ).
  
 3
 
 End-to-end
          processing permits an organization to automate and streamline many of the
          fundamental business processes built around file transfer.
 
 The
          word
          enterprise can encompass corporations, small businesses, non-profit
          organizations, government bodies, and other kinds of institutions. Larger
          organizations are often referred to as extended enterprises - whereby the
          organization has a global presence with locations in multiple cities, regions,
          or continents.
 
 Extended
          enterprises need to operate on an integrated infrastructure, and need to
          integrate efficiently with both internal and external organizations (outside
          of
          the enterprise). These can include key suppliers, manufacturers, business
          partners, and end-customers.
 
 Identity
          management systems represent a growing market, but one that is more and
          more
          dominated by very large vendors. It appears that the roadmap of companies
          such
          as IBM, Sun, HP, and Microsoft is to embed identity management and provisioning
          functionality as an integral part of their operating systems. As this becomes
          a
          reality, there will be a substantially smaller potential for standalone
          solutions.
 
 The
          bright side is that the large vendor offerings take a tremendous amount
          of
          effort to install and maintain. Multi-year, multi-million dollar implementations
          (reminiscent of SAP) seem to be the norm.
 
 Standalone
          solutions that can offer measurable ROI’s will still have a substantial market
          opportunity for the next few years and Proginet intended the pursuit of
          this
          niche.
 
 ManageID
          is a well engineered and well architected package which can be successfully
          sold
          domestically, but may have even greater potential with European and South
          American distributors, additionally, there is still a large opportunity
          for
          ManageID, especially among companies with large mainframe or iSeries focus.
          The
          SIEA model offers a technology “road map” and provides a master control system
          for data to secure and protect the access to and movement of enterprise
          data -
          anywhere, anytime and anyhow - with industry standards for compliance and
          control.
 
 Proginet
          provides a logical and orderly migration path - and evolutionary approach
          - to
          building and managing a total infrastructure for data movement. We also
          define
          the deployment strategies and phases of deployment required to achieve
          a secure
          data integration environment.
 
 The
          SIEA
          Model capitalizes on Proginet’s position as a multi-vendor, multi-protocol,
          multi-standards software innovator. Proginet provides the standardized
          integration of disparate architectures, to empower large complex enterprises
          to
          seamlessly integrate their myriad of computing platforms and applications
          for a
          totally open and standards based infrastructure. The global enterprise
          must have
          a standard infrastructure that can be modified and/or changed as its business
          requirements evolve and change. The constraints and restrictions of the
          old
“legacy” approach or the “uncontrolled” distributed approach will not suffice in
          today’s anytime, anywhere, anyway environment.
 
 Since
          the
          advent of the mini-computer, where organizations began distributing their
          data
          processing and their data, the enterprise model has become incredibly more
          complex. Security, data integrity, reliability, scalability, disaster recovery,
          and so many other issues have made it increasingly more difficult for
          organizations to keep up with their customer demands and regulatory obligations.
          Achieving a reasonable profitability and return on investments is a much
          more
          difficult challenge.
 
 Proginet’s
          SIEA Model addresses all of the major requirements of the large global
          enterprises which have worldwide-distributed information processing
          configurations and with the introduction of CFI the Company’s technology is
          deployable and beneficial for dramatically expanded marketplace of small
          and
          medium companies as well. The SIEA Model provides for major functionality
          for
          data movement and security through Proginet software. Proginet’s software
          architecture also provides for standards compliance and deployment and
          provides
          for full integration to the extensive software tools and applications deployed
          or to be deployed throughout the global enterprises. The SIEA Model as
          it
          continues to be developed is a superior solution for all size enterprises.
 
 
 
 4
  **Sales
          and Marketing**
 
 Proginet’s
          sales strategy is comprised of three sales models: direct sales in the
          U.S.;
          indirect international sales through distribution partners in over 25 countries
          around the world; and alliances with partners who integrate Proginet’s
          technology with their technology and sell the combined product(s). This
          last
          model is commonly referred to as OEM.
 
 The
          direct sales model includes a direct telemarketing and sales force comprised
          of
          Proginet employees. The direct sales model covers the entire sales cycle
          from
          lead generation through a proof-of-concept (POC) evaluation process, typically
          90 to 180 days, to the signing of a software license agreement. Proginet
          estimates that the “typical” sales cycle averages about 120 days and Proginet
          closes approximately forty (40) percent of POC’s started.
 
 The
          indirect international sales model is built on the premise that presence
          and
          knowledge in local markets is paramount to establishing necessary business
          relationships and closing sales. Therefore, distributor partnerships are
          established in local markets (countries) and Proginet commits significant
          resources to train and support distributors to sell Proginet software in
          their
          countries. The distributors’ role is to act as agents, make the marketplace
          aware of Proginet’s technology and explain how the technology can be used in
          their business environments. Proginet supports the distributors with authorized
          assistance and support, customer installations and training whenever necessary.
          Distributors are typically compensated at a commission rate of 40% to 50%
          of the
          license revenue generated based upon their level of effort, resources assigned,
          and commitment to closing sales.
 
 The
          OEM
          sales model is based on the ability of an outside software company with
          complementary technology to sell, install and support Proginet’s technology.
          These OEMs incorporate Proginet’s technology to provide services to other
          customers. The OEM arrangements include a commission structure similar
          to
          distributors and also include specific fixed pricing for the number of
“users”
          the product is licensed for.
 
 All
          of
          Proginet’s sales are dependent on visibility in the marketplace and the market's
          acceptance of Proginet’s products. As such, the relationships with technology
          partners such as IBM, Microsoft, HP and others, gives Proginet visibility
          on
          their websites, which will continue to benefit both the direct and indirect
          sales model. In both models, while there is no contractual obligation for
          website coverage, this visibility provides leads and references to prospective
          customers who could benefit from Proginet’s products and their integration into
          our partner’s technology. The Company, however, does not maintain statistics on
          the amount of revenues attributable to such leads.
 
 Proginet’s
          marketing strategy is centered on communicating the Company’s product solutions
          to the marketplace. It is focused in three primary categories: targeted
          vertical
          marketing, product management and marketing communications.
 
 Targeted
          vertical marketing identifies specific vertical markets where Proginet’s
          products are most beneficial to create the greatest number of opportunities
          and
          then develops positioning, programs and materials to reach these customers
          and
          support sales activities.
 
 Product
          management’s function is to translate customer requirements, market requirements
          and competitive differentiators into product development plans, and to
          work with
          the development team through product completion. Product management is
          also
          responsible for training the Company’s sales team on product information and
          strategy.
 
 Marketing
          communications is a comprehensive program to deliver Proginet’s message to
          identified audiences. These methods include trade press coverage, trade
          show
          attendance, industry conference participation, developing industry analyst
          relationships, targeted direct mail campaigns and through our internet
          website.
          Our website is an important part of our sales lead generation program,
          and as
          such, we continue to invest in improving our website content and promoting
          the
          website in search engines and paid online advertising.
 
 **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 represented 10% or more of
          Proginet’s revenues during the past two fiscal years.
 
 **Suppliers**
 
 Proginet
          is not reliant on any particular supplier for any of its operating needs.
          Any
          products required can be purchased from a number of sources.
 
 
 
 5
 
 **Competition**
 
 The
          enterprise management software business is highly competitive. Many of
          our
          competitors including IBM, Computer Associates, Sterling Commerce Tumbleweed,
          and Sopra as well as large computer manufacturers such as Sun and HP, have
          longer operating histories, larger customer bases, greater brand recognition
          and
          significantly greater financial, marketing and other resources. Certain
          of our
          competitors may devote greater resources to marketing and promotional campaigns,
          adopt more aggressive pricing policies and devote substantially more resources
          to web site and systems development. If our competitors are able to offer
          products and services on more favorable terms, we may experience reduced
          operating margins, loss of market share and a diminished brand franchise.
          We
          cannot assure you that we will compete successfully against our current
          and
          future competitors. Competitive pressures created by any one of our competitors,
          or by our competitors collectively, could have a material adverse effect
          on our
          business, prospects, financial condition and results of operations.
 
 We
          believe that the key criteria considered by potential purchasers of our
          products
          are substantially as they have been reported in previous years, including:
          the
          operational advantages and cost savings provided by our products; product
          quality and capability; product price and the terms on which the product
          is
          licensed; ease of integration of the product with the purchaser’s existing
          systems; ease of product installation and use; quality of support and product
          documentation; and the experience and financial stability of our company.
          Additionally, companies are required to address the extensive regulatory
          requirements that have been imposed over the past several years, including
          HIPAA
          and Sarbanes Oxley, and more recently serious security and privacy concerns
          -
          including those raised by Congress with the introduction of the Specter-Leahy
          sponsored Personal Data Privacy and Security Act of 2005.
 
 **Proprietary
          Rights**
 
 Proginet
          does not possess any patents. Proginet relies on a combination of trademark,
          copyright and trade secret laws to protect its proprietary rights. Proginet
          has
          registered the trademarks IND$File, TCS, CyberFusion, SecurPass and TransAccess
          in the United States. These trademarks are considered significant in the
          protection of the Company's technology. The Company believes that its source
          code and its product designs are best protected by the Company’s Employee
          Confidential Information and Non-Competition Agreements entered into with
          each
          of its employees. In addition, Proginet owns most of the Internet domain
          names
          for its products.
 
 **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.
 
 **Employees**
 
 As
          of
          July 31, 2005, Proginet had forty nine full-time salaried employees and
          two
          consultants on retainer. The Company believes its relations with its employees
          are satisfactory.
 
 **Research
          and Development Activities**
 
 During
          the years ended July 31, 2005 and 2004, Proginet spent $51,507 and $126,726,
          respectively, on research and development activities.
 
 
 6
 
 
 **Item
                    2.**
                **Description
                    of Property**
 
 Proginet
          maintains its headquarters at 200 Garden City Plaza, Garden City, New York,
          11530 where most employees are located. This lease expires May 2013 with
          current
          monthly rent payments of approximately $21,000.. Proginet also maintains
          a
          satellite office at 21 St. Clair Avenue East, Suite 301, Toronto, Ontario.
          This
          lease expires in May 2007 with current monthly payments of approximately
          $4,000.
 
 **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
 
 **Part
          II**
 
 **Item
                    5.**
                **Market
                    for Common Equity, Related Stockholder Matters****and Small Business Issuer Purchases of Equity
                    Securities**
 
 In
          September 2000, Proginet common stock began trading on the OTC Bulletin
          Board
          (“OTC-BB”) under the symbol PRGF. The following table shows the high and low bid
          information, in U.S. dollars, of Proginet’s common stock on the OTC-BB for each
          quarter within the last two fiscal years:
 
 Quarter
                    Ended
                High
                LowJuly
                    31, 2005
                $0.81
                $0.45April
                    30, 2005
                $1.75
                $0.69January
                    31, 2005
                $1.65
                $0.69October
                    31, 2004
                $0.85
                $0.60July
                    31, 2004
                $0.90
                $0.48April
                    30, 2004
                $1.40
                $0.35January
                    31, 2004
                $0.70
                $0.24October
                    31, 2003
                $0.35
                $0.20
  Proginet’s
          stock is held by approximately three hundred holders of record.
 
 **Dividends**
 
 Proginet
          has not paid dividends and does not anticipate paying dividends in the
          foreseeable future. The Board of Directors intends to retain earnings,
          if any,
          to finance growth. Accordingly, any payment of dividends by Proginet in
          the
          future will depend upon the need for working capital and the financial
          condition
          of the Company at the time.
 
 
 
 8
 
 **Item
                    6.**
                **Management's
                    Discussion and Analysis or Plan of
                    Operation**
 
 **General**
 
 You
          should read the following discussion in conjunction with our financial
          statements and the notes thereto included elsewhere herein. Certain statements
          under the captions “Description of Business”, “Management's Discussion and
          Analysis or Plan of Operation” and elsewhere in this Form 10-KSB contain
“forward-looking statements” within the meaning of the Securities Exchange Act
          of 1934. Words such as “may”, “should”, “could”, “believe”, “expect”,
“anticipate”, “estimate”, “intend”, “strategy”, “likely” and similar expressions
          are intended to identify forward-looking statements about the Company’s future
          plans, objectives, performance, intentions and expectations. Such
          forward-looking statements are subject to a number of known and unknown
          risks,
          uncertainties and other factors which may cause the Company's actual results
          of
          operations and future financial condition to differ materially from those
          expressed or implied in or by any such forward-looking statements. Such
          factors
          include factors that may be beyond the Company’s control and include, among
          others, the following: general economic and business conditions, competition
          from existing and potential competitors and availability of qualified
          personnel.
 
 The
          Company cautions that the foregoing list of important factors is not exclusive.
          The Company does not undertake to update any forward-looking statements
          contained herein or that may be made from time to time by or on behalf
          of the
          Company.
 
 **Use
          of Estimates and Critical Accounting Policies**
 
 In
          preparing our financial statements, we make estimates, assumptions and
          judgments
          that can have a significant impact on our revenues, income from operations,
          and
          net income, as well as on the value of certain assets on our balance sheet.
          We
          believe that there are several accounting policies that are critical to
          an
          understanding of our historical and future performance, as these policies
          affect
          the reported amounts of revenues, expenses, and significant estimates and
          judgments applied by management. While there are a number of accounting
          policies, methods and estimates affecting our financial statements, areas
          that
          are particularly significant include revenue recognition and capitalized
          software development costs. These policies are described in detail below.
          In
          addition, please refer to Note 1 to the accompanying financial statements
          for
          further discussion of our accounting policies.
  In
          addition to the estimates and assumptions that we use to prepare our historical
          financial statements, we monitor our sales pipeline in order to estimate
          the
          timing and amount of future revenues. If we are unable to properly estimate
          the
          timing and amount of revenues, our future operations could be significantly
          impacted. Our sales pipeline may not consistently relate to revenues in
          a
          particular period, as the data upon which the assumptions and estimates
          were
          made by management may change. For example, the current economic slowdown
          has
          resulted in reduced information technology spending that has caused customers
          to
          delay and reduce purchasing decisions. Accordingly, it may be harder to
          close
          contracts with customers, the size of the transactions may decrease, and
          many of
          our license contracts are pushed to the very end of the quarter, making
          it
          difficult for us to forecast revenues for the quarter, and adjust spending
          to
          respond to variations in revenue growth during the quarter, all of which
          may
          adversely affect our business, financial condition and results of operations.
  **Revenue
          Recognition**
 
 We
          recognize revenue in accordance with Statement of Position, or SOP, 97-2,
          “Software Revenue Recognition,” and SOP 98-9, “Modification of SOP 97-2,
          Software Revenue Recognition, with Respect to Certain Transactions.” We
          recognize software license revenues when all of the following criteria
          are met:
          persuasive evidence of an arrangement exists, the fee is fixed or determinable,
          collectibility is probable, delivery of the product has occurred and the
          customer has accepted the product (including the expiration of an acceptance
          period) if the terms of the contract include an acceptance requirement.
          In
          instances when any of the criteria are not met, we will either defer recognition
          of the software license revenue until the criteria are met or we will recognize
          the software license revenue on a ratable basis, as required by SOPs 97-2
          and
          98-9. We generally utilize written contracts as the means to establish
          the terms
          and conditions by which our products, support and services are sold to
          our
          customers.
 
 We
          consider a non-cancelable agreement signed by us and the customer to be
          evidence
          of an arrangement. Delivery is considered to occur when media containing
          the
          licensed programs is provided to a common carrier, or the customer is given
          electronic access to the licensed software. Our typical end user license
          agreements do not contain acceptance clauses. We consider the fee to be
          fixed or
          determinable if the fee is not subject to refund or adjustment. If the
          fee is
          not fixed or determinable, we recognize revenue as the amounts become due
          and
          payable. Probability of collection is based upon our assessment of the
          customer’s financial condition through review of its current financial
          statements or credit reports. Collection is deemed probable if we expect
          that
          the customer will be able to pay amounts under the arrangement as payments
          become due. For follow-on sales to existing customers, prior payment history
          is
          also used to evaluate probability of collection. If we determine that collection
          is not probable, we defer the revenue and recognize the revenue upon cash
          collection.
 
 
 
 9
 
 Our
          revenues are derived from direct sales executives, distributors and OEM
          partners. Commission expense is recorded at the time of sale. Commission
          rates
          to direct sales people are based on a graduating scale, ranging from 5%
          to 14%
          of the sale, dependent upon the revenue volume generated by the sales executive.
          Distributors are typically compensated at a commission rate of 40% to 50%
          of the
          license revenue generated based upon their level of effort, resources assigned
          and products sold. The OEM arrangements include a commission structure
          similar
          to distributors and also may include specific fixed pricing for the number
          of
“users” the product is licensed for. Revenues from sales through distributors
          are recorded at the gross amount charged based on the economic risks and
          ongoing
          product support responsibilities we assume.
 
 When
          our
          software licenses contain multiple elements, we allocate revenue to each
          element
          based on the relative fair values of the elements. Multiple element arrangements
          generally include post-contract support (PCS or support), software products
          and,
          in some cases, service. Revenue from multiple-element arrangements is allocated
          to undelivered elements of the arrangement, such as PCS, based on the relative
          fair values of the elements specific to us. Our determination of fair value
          of
          each element in multi-element arrangements is based on vendor-specific
          objective
          evidence, which is generally determined by sales of the same element or
          service
          to third parties or by reference to a renewal rate specified in the related
          arrangement.
 
 Where
          vendor-specific objective evidence of fair value exists for all undelivered
          elements, but evidence does not exist for one or more delivered elements,
          we
          account for the delivered elements in accordance with the “Residual Method”
          prescribed by SOP 98-9. Under the residual method, the fair value of the
          undelivered elements is deferred and the remaining portion of the arrangement
          fee is recognized as revenue. In most cases, the bundled multiple elements
          include PCS and the software product. In such cases, when vendor-specific
          objective evidence of fair value exists for all of the undelivered elements
          (most commonly PCS), the residual amount is recognized as revenue and the
          PCS is
          recognized ratably over the PCS term, which is typically 12 months.
 
 A
          customer typically prepays maintenance revenues for the first 12 months
          and the
          related maintenance revenues are recognized ratably monthly over the term
          of the
          maintenance contract, which is generally 12 months. Maintenance
          contracts
          include the right to unspecified upgrades on a when-and-if available basis
          and
          ongoing support.
 
 Deferred
          revenues include amounts received from customers for which revenue has
          not yet
          been recognized that generally results from deferred maintenance, consulting
          or
          training services not yet rendered and license revenue deferred until all
          requirements under SOP 97-2 are met. Revenue is recognized upon delivery
          of our
          products, as services are rendered, or as other requirements requiring
          deferral
          under SOP 97-2 are satisfied.
 
 Based
          on
          our interpretation of SOP 97-2 and SOP 98-9, we believe that our current
          sales
          contract terms and business arrangements have been properly reported. However,
          the American Institute of Certified Public Accountants and its Software
          Revenue
          Recognition Task Force continue to issue interpretations and guidance for
          applying the relevant standards to a wide range of sales contract terms
          and
          business arrangements that are prevalent in the software industry. Also,
          the SEC
          has issued Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
          Statements,” which provides guidance related to revenue recognition based on
          interpretations and practices followed by the SEC. Future interpretations
          of
          existing accounting standards or changes in our business practices could
          result
          in future changes in our revenue accounting policies that could have a
          material
          adverse effect on our business, financial condition and results of operations.
  **Capitalized
          Software Development Costs**
 
 We
          capitalize our software development costs when the projects under development
          reach technological feasibility as defined by Financial Accounting Standard
          (“FAS”) No. 86, and amortize these costs over the products’ estimated useful
          lives. Under FAS No. 86, we evaluate our capitalized software costs at
          each
          balance sheet date to determine if the unamortized balance related to any
          given
          product exceeds the estimated net realizable value of that product. Any
          such
          excess is written off through accelerated amortization in the quarter it
          is
          identified. Determining net realizable value as defined by FAS No. 86 requires
          that we estimate future cash flows to be generated by the products and
          use
          judgment in quantifying the appropriate amount to write off, if any. Actual
          cash
          flows and amounts realized from the software products could differ from
          our
          estimates. Also, any future changes to our product portfolio could result
          in
          significant research and development expenses related to software asset
          write-offs. In the forth quarter of fiscal 2005, the Company reported an
          impairment charge of $150,098 to write off certain capitalized software
          costs
          due to a decline in the market need resulting in no future anticipated
          revenue
          for that product.
 
 
 
 10
 
 **Goodwill,
          Other Intangible Assets and Other Long-Lived Assets**
 
 The
          Company performs an evaluation of whether goodwill is impaired annually
          or when
          events occur or circumstances change that would more likely than not reduce
          the
          fair value of the asset below its carrying amount. Fair value is determined
          using market comparables for similar businesses or forecasts of discounted
          future cash flows. The Company also reviews other intangible assets, which
          are
          all currently amortized over their respective estimated lives, and other
          long-lived assets when indication of potential impairment exists, such
          as a
          significant reduction in cash flows associated with the assets, significant
          changes in the manner or our use of the assets or the strategy for our
          overall
          business and significant negative industry or economic trends. In addition,
          in
          all cases of an impairment review, we will re-evaluate the remaining useful
          life
          of the asset and modify it, as appropriate. Should the fair value of the
          Company's long-lived assets decline because of reduced operating performance,
          market declines, or other indicators of impairment, a charge to operations
          for
          impairment may be necessary.
 
 **Fiscal
          Periods Ended July 31, 2005 and July 31, 2004**
 
 Total
          revenues for the year ended July 31, 2005 amounted to $7,898,818, representing
          an increase of $1,597,000, or 25.3% compared to revenues of $6,301,818
          for the
          year ended July 31, 2004.
 
 Software
          license revenues for the year ended July 31, 2005 amounted to $2,784,617
          representing an increase of $464,915, or 20.0%, compared to software license
          revenues of $2,319,702 for the year ended July 31, 2004. Software license
          revenue is sold directly through domestic sales executives, indirectly
          through
          international distributors and domestically and internationally through
          OEM
          partners. Direct sales, international distributor sales and OEM sales amounted
          to $1,552,047, $894,936 and $337,634 for the year ended July 31, 2005 compared
          to $653,973, $724,528 and 941,202 for the year ended July 31, 2004. Direct
          sales
          were favorably impacted for the current year from an increase in software
          sales
          to new customers of $238,287, sales to newly-acquired Blockade Systems
          Corp.
          customers of $87,750 and by a one-time sale to an existing customer amounting
          to
          $540,000 in October 2004. The Company does not expect to generate any future
          software revenues from this one-time sale. OEM sales decreased for the
          year
          ended July 31, 2005 due to a third party acquisition of an OEM partner
          in
          November 2004.
 
 Software
          maintenance fees and other increased by $865,496, or 21.9% to $4,815,760
          compared to such fees in fiscal 2004 of $3,950,264. The increase in software
          maintenance fees and other is primarily due to additional maintenance revenues
          of $752,998 resulting from the acquisition in January 2005 of certain assets
          and
          the business of Blockade Systems Corp.
 
 Fees
          for
          professional services for the year ended July 31, 2005 amounted to $298,441
          compared to fees for professional services of $31,852 for the year ended
          July
          31, 2004. The increase in professional service fees revenue for the current
          year
          is primarily due to consulting services rendered to the newly acquired
          Blockade
          Systems Corp. customers amounting to $71,605 and services rendered pursuant
          to a
          consulting agreement entered into with a customer amounting to $180,000
          for
          design and implementation services.
 
 **Operating
          Expenses**
 
 Operating
          expenses were increased to $8,367,702 from $6,787,409 for year ended July
          31,
          2005 and July 31, 2004 respectively, an increase of $1,580,293 or 23.3%.
          The
          increase in operating expenses for the year is primarily a combined result
          of
          the following fluctuations:
 
 Cost
          of
          software licenses (which primarily includes amortization of capitalized
          software
          costs) for the year ended July 31, 2005 amounted to $2,101,402, representing
          an
          increase of $614,658 or 41.3%, compared to cost of software licenses of
          $1,486,744 for the year ended July 31, 2004. The increase in cost of software
          licenses for the year end is primarily due to the amortization of acquired
          software and customer relationships acquired from Blockade Systems Corp.
          in
          January 2005 of $300,584, as well as an increase in amortization expense
          for
          internally developed software completed and announced available for sale
          during
          the year ended July 31, 2005 and an impairment charge of $150,098 to write
          off
          certain capitalized software costs due to a decline in the market need
          resulting
          in no future anticipated revenue for that product.
 
 Cost
          of
          maintenance fees and other (which is principally consist of technical support
          payroll) for the year ended July 31, 2005 amounted to $999,264, representing
          an
          increase of $239,570 or 31.5%, compared to cost of maintenance fees and
          other of
          $759,694 for year ended July 31, 2004. The increase in cost of maintenance
          fees
          and other for year ended July 31, 2005 is due to an increase in facility
          and
          employee related costs of $304,920 for technical services related to the
          Blockade Systems Corp. acquisition offset by a decrease in consulting technical
          services of $55,203.
 
 Costs
          of
          professional services for the year ended July 31, 2005 amounted to $101,681
          compared to $4,577 in fiscal 2004, representing 34.1% and 14.4% of professional
          service revenues, respectively. The increased percentage cost is due to
          the
          company establishing a professional service organization in fiscal 2005
          and
          entering into substantial professional service agreements whereas in the
          prior
          year consulting services were rendered on an ad-hoc basis.
 
 
 
 11
 
 Commissions
          amounted to $1,064,160 for the year ended July 31, 2005 compared to $952,967,
          representing an increase of $111,193 or 11.7% for fiscal year ended July
          31,
          2004. The increase in commission expense is primarily due to an increase
          in
          direct sales revenues, however, no commission expense was incurred on the
          one-time sale to an existing customer of $540,000 and an increase in revenues
          by
          distributors, whose commission rates range from 25% to 50% of the license
          arrangements.
 
 Research
          and development amounted to $51,507 for the year ended July 31, 2005 compared
          to
          $126,726, representing a decrease of $75,219 or 59.4%. The decrease in
          research
          and development expenses is attributable to increased resources allocated
          to
          professional services and to support the Company’s customer base and installed
          products.
 
 Selling
          and marketing expense for the year ended July 31, 2005 amounted to $2,003,646
          representing an increase of $638,423 or 46.8%, compared to selling and
          marketing
          expense of $1,365,223 for the year ended July 31, 2004. The increase in
          selling
          and marketing for the year ended July 31, 2005 is primarily due to an increase
          in employee and employee related costs of $538,394 due to the expansion
          of the
          selling and marketing departments in the current year period and retention
          of an
          industry analyst during fiscal 2005 amounting to $98,296.
 
 General
          and administrative expense for the year ended July 31, 2005 amounted to
          $2,046,042, representing a decrease of $45,436 or 2.2% compared to $2,091,478
          in
          general and administrative expense for the year ended July 31, 2004. The
          decrease in general and administrative expense is primarily due to a reduction
          of $67,591 in consulting service costs, a bad debt expense reduction of
          $48,903
          due to a prior year write off from receivables for a terminated OEM agreement,
          a
          reduction of executive recruitment fees of $45,565 for the expansion of
          selling
          and marketing departments in latter fiscal 2004, and a reduction in Company’s
          general office expenditures of $41,148 offset by increase in facility,
          employee
          and employee related costs of the Company’s Canadian operations due to the
          acquisition of Blockade Systems Corp. in January 2005 amounting to $155,830.
 
 The
          Company reported a net loss of $488,617 for 2005 compared to a net loss
          of
          $482,627 for 2004.
 
 **LIQUIDITY
          AND CAPITAL RESOURCES**
 
 At
          July
          31, 2005, the Company had a cash and cash equivalent balance of $1,353,316.
 
 Operating
          activities provided cash of $1,886,146 for the fiscal year ended July 31,
          2005.
          This resulted primarily from a net loss of $488,617 and an increase in
          trade and
          installment accounts receivable due to an increase in revenues in fourth
          quarter
          2005, offset by non-cash charges for depreciation and amortization of $1,996,620
          and an increase in deferred revenue (net of acquired deferred revenues)
          principally due to billings and cash collections of former Blockade customers
          and an impairment charge of $150,098 to write off certain capitalized
          software.
 
 Investing
          activities used cash of $3,536,286 for the fiscal year ended July 31, 2005,
          primarily for costs associated with acquisition of Blockade assets and
          the
          development of the Company’s software products. During fiscal 2005, we expended
          $206,315 for property and equipment in comparison to $46,769 during fiscal
          2004.
          The majority of the capital expenditures during fiscal 2005 were related
          to
          furniture and fixtures and leasehold improvements to the Company’s office
          facilities in Garden City, New York. Our operating plan for fiscal 2006
          estimates expenditures at the fiscal 2004 level, however, we may spend
          more or
          less depending on opportunities and circumstances.
 
 Financing
          activities provided cash of $1,873,013 as the Company issued a Promissory
          Note
          (the “Note”) on January 10, 2005 for $1,000,000 with a bank to finance the
          acquisition of Blockade. The Note is payable in 35 monthly installments
          of
          $27,775 commencing February 10, 2005 with the balance of $27,779 due on
          February
          10, 2008. The Note bears interest at 1⁄2% above the Bank’ prime rate per annum and
          is collateralized by the accounts receivable and certain intellectual property
          of Proginet. The amounts due under the Note will become due and payable
          immediately upon the occurrence of customary events of default and also
          requires
          the Company to maintain a “Minimum Debt Service Coverage Ratio”, as defined, on
          a annual basis. Financing activities also included proceeds from various
          accredited investors for the purchase from the Company of an aggregate
          of
          1,055,555 shares of common stock, at a price of $0.90 per share, for total
          proceeds of $868,786, net of expenses, in a private placement.
 
 The
          Company believes that its present cash and cash equivalents, the cash generated
          from operations and amounts available under its present line of credit
          agreements will be sufficient to meet its cash needs for at
          least
          the next twelve months.
 
 
 
 12
 
 The
          following table lists the Company’s cash contractual obligations as of July 31,
          2005:
  Payments
                      Due by PeriodContractual
                      Obligations:
                  Total
                  
                  Less
                      than 1 year
                  
                  1-3
                      years
                  
                  3-5
                      years
                  
                  More
                      than 5 yearsNote
                      Payable (inclusive of interest)
                  $
                  901,465
                  
                  $
                  377,555
                  
                  $
                  523,910
                  
                  $
                  -
                  
                  $
                  -Operating
                      Lease Obligations (1)
                  
                  2,244,587
                  
                  
                  242,333
                  
                  
                  573,406
                  
                  
                  572,453
                  
                  
                  856,395Total
                  $
                  3,146,052
                  
                  $
                  619,888
                  
                  $
                  1,097,316
                  
                  $
                  572,453
                  
                  $
                  856,395
  (1)
                The
                    Company leases office in Garden City, New York and Toronto, Ontario
                    and
                    leases certain computer equipment for technical support efforts
                    and
                    administrative purposes.
 
 **Recent
          Accounting Pronouncements**
 
 In
          December 2004, the FASB issued FASB No. 123R "Share Based Payment". This
          statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based
          Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock
          Issued to
          Employees," and its related implementation guidance. FASB No. 123R addresses
          all
          forms of share based payment ("SBP") awards including shares issued under
          employee stock purchase plans, stock options, restricted stock and stock
          appreciation rights. Under FASB No. 123R, SBP awards result in a cost that
          will
          be measured at fair value on the awards' grant date, based on the estimated
          number of awards that are expected to vest. This statement is effective
          for
          public entities that file as small business issuers - as of the beginning
          of the
          first annual reporting period that begins after December 15, 2005. The
          Company
          does not believe the adoption of FASB No. 123R will have a material effect
          on
          our financial statements as the Company will no longer utilize share based
          payment awards upon the effective date of FASB No. 123R and the fair value
          of
          the unvested outstanding awards is immaterial to the financial
          statements.
 
 
 
 13
 
 **Item
                    7.**
                **Financial
                    Statements**
 
 PageReport
                    of Independent Registered Public Accounting Firm
                15Balance
                    Sheets as of July 31, 2005 and 2004
                16Statements
                    of Operations for the years ended July 31, 2005 and 2004
                17Statements
                    of Stockholders’ Equity for the years ended July 31, 2005 and
                    2004
                18Statements
                    of Cash Flows for the years ended July 31, 2005 and 2004
                19Notes
                    to Financial Statements
                20
 
 
 
 
     
 
 
 14
 
 **REPORT
          OF INDEPENDENT** **REGISTERED
          PUBLIC ACCOUNTING FIRM**
  
 Board
          of
          Directors and Stockholders
 **Proginet
          Corporation**
 
 We
          have
          audited the accompanying balance sheets of Proginet Corporation as of July
          31,
          2005 and 2004, and the related statements of operations, stockholders’ equity
          and cash flows for the years then ended. These financial statements are
          the
          responsibility of the Company’s management. Our responsibility is to express an
          opinion on these financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. The Company is not required
          to
          have, nor were we engaged to perform, an audit of its internal control
          over
          financial reporting. Our audits included consideration of internal control
          over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the Company’s internal control over financial
          reporting. Accordingly, we express no such opinion. An audit also includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the financial statements, assessing the accounting principles used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Proginet Corporation as of
          July 31,
          2005 and 2004, and the results of its operations and its cash flows for
          the
          years then ended in conformity with accounting principles generally accepted
          in
          the United States of America.
 
 
 BDO
          SEIDMAN, LLP
 
 
 Melville,
          New York
 September
          12, 2005
 
 
 
 
  
 
 15
 
 PROGINET
          CORPORATION
 Balance
          Sheets
 July
          31,
          2005
 **Assets**
                
                2005
                
                2004Current
                    assetsCash
                    and cash equivalents
                
                $
                1,353,316
                
                $
                1,130,443Trade
                    accounts receivable, net
                
                
                612,473
                
                
                402,281Prepaid
                    expenses
                
                
                48,162
                
                
                37,094Total
                    current assets
                
                
                2,013,951
                
                
                1,569,818Property
                    and equipment, net
                
                
                253,933
                
                
                114,659Capitalized
                    software development costs, net
                
                
                3,474,172
                
                
                3,883,398Purchased
                    software, net
                
                
                1,417,022
                
                
                411,976Customer
                    relationships, net
                
                
                1,065,630
                
                
                -Goodwill
                
                
                65,334
                
                
                -Other
                    assets
                
                
                32,369
                
                
                32,262$
                8,322,411
                
                $
                6,012,113**Liabilities
                    and Stockholders’ Equity**Current
                    liabilitiesCurrent
                    portion of note payable
                
                $
                333,333
                
                $
                -Accounts
                    payable and accrued expenses
                
                
                513,013
                
                
                356,362Current
                    portion of obligation under capital lease
                
                
                -
                
                
                6,705Deferred
                    revenues
                
                
                2,148,108
                
                
                1,360,426Total
                    current liabilities
                
                
                2,994,454
                
                
                1,723,493Note
                    payable, net of current portion
                
                
                499,999
                
                
                -Deferred
                    revenues
                
                
                14,965
                
                
                51,083Deferred
                    rent
                
                
                88,370
                
                
                70,6833,597,788
                
                
                1,845,259Stockholders’
                    equityPreferred
                    stock, $.01 par value, 10,000,000 shares authorized, none
                    issued
                
                
                -
                
                
                -Common
                    stock, $.001 par value, 40,000,000 shares authorized, 15,731,613
                    and
                    14,271,058shares
                    issued in 2005 and 2004, respectively
                
                
                15,732
                
                
                14,271Additional
                    paid-in capital
                
                
                12,906,643
                
                
                11,861,718Treasury
                    stock 1,103,004 shares, at cost, in 2005 and 2004
                
                
                (531,023
                )
                
                (531,023
                )Accumulated
                    deficit
                
                
                (7,666,729
                )
                
                (7,178,112
                )Total
                    stockholders’ equity
                
                
                4,724,623
                
                
                4,166,854$
                8,322,411
                
                $
                6,012,113
 
 *The
          accompanying notes are an integral part of these financial
          statements.*
 
 
 
 16
 
 PROGINET
          CORPORATION
 Statements
          of Operations
 
 Year
                    ended July 31,2005
                
                2004RevenuesSoftware
                    licenses
                
                $
                2,784,617
                
                $
                2,319,702Software
                    maintenance fees and other
                
                
                4,815,760
                
                
                3,950,264Professional
                    services
                
                
                298,441
                
                
                31,8527,898,818
                
                
                6,301,818Operating
                    expensesCosts
                    of software licenses
                
                
                2,101,402
                
                
                1,486,744Costs
                    of maintenance fees and other
                
                
                999,264
                
                
                759,694Costs
                    of professional services
                
                
                101,681
                
                
                4,577Commissions
                
                
                1,064,160
                
                
                952,967Research
                    and development
                
                
                51,507
                
                
                126,726Selling
                    and marketing
                
                
                2,003,646
                
                
                1,365,223General
                    and administrative
                
                
                2,046,042
                
                
                2,091,4788,367,702
                
                
                6,787,409Loss
                    from operations
                
                
                (468,884
                )
                
                (485,591
                )Other
                    (income) expenseInterest
                    income
                
                
                (9,293
                )
                
                (2,964
                )Interest
                    expense
                
                
                29,026
                
                
                -19,733
                
                
                (2,964
                )Net
                    loss
                
                $
                (488,617
                )
                $
                (482,627
                )Basic
                    and diluted loss per common share
                
                $
                (.03
                )
                $
                (.04
                )Weighted
                    average common shares outstanding - basic and diluted
                
                
                14,073,392
                
                
                13,152,972
 
  
 *The
          accompanying notes are an integral part of these financial
          statements* .
 
 
 17
 
 PROGINET
          CORPORATION
 Statements
          of Stockholders’ Equity
 Years
          ended July 31, 2005 and 2004
 
 Common
                    stock
                
                Additional
                
                
                
                Accum-Shares
                
                Amount
                
                paid-
                    in capital
                
                Treasury
                    stock
                
                ulated
                    deficit
                
                TotalBalance
                    - August 1, 2003
                
                
                14,251,058
                
                $
                14,251
                
                $
                11,849,358
                
                $
                (531,023
                )
                $
                (6,695,485
                )
                $
                4,637,101Exercise
                    of common stock options
                
                
                20,000
                
                
                20
                
                
                12,360
                
                
                
                
                
                
                
                
                12,380Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (482,627
                )
                
                (482,627
                )Balance
                    - July 31, 2004
                
                
                14,271,058
                
                
                14,271
                
                
                11,861,718
                
                
                (531,023
                )
                
                (7,178,112
                )
                
                4,166,854Exercise
                    of common stock options and warrants
                
                
                405,000
                
                
                405
                
                
                177,195
                
                
                
                
                
                
                
                
                177,600Private
                    placement common stock issuance, net
                
                
                1,055,555
                
                
                1,056
                
                
                867,730
                
                
                
                
                
                
                
                
                868,786Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (488,617
                )
                
                (488,617
                )Balance
                    - July 31, 2005
                
                
                15,731,613
                
                $
                15,732
                
                $
                12,906,643
                
                $
                (531,023
                )
                $
                (7,666,729
                )
                $
                4,724,623
 
  *The
          accompanying notes are an integral part of these financial
          statements.*
    18
 
 
 
 PROGINET
          CORPORATION
 Statements
          of Cash Flows
 
 Year
                    ended July 31,2005
                
                2004Cash
                    flows from operating activitiesNet
                    loss
                
                $
                (488,617
                )
                $
                (482,627
                )Adjustments
                    to reconcile net loss to cash provided by operating
                    activitiesDepreciation
                    and amortization
                
                
                1,996,620
                
                
                1,547,664Provision
                    for bad debt allowance, net
                
                
                -
                
                
                50,000Impairment
                    of capitalized software costs
                
                
                150,098
                
                
                -Deferred
                    revenue
                
                
                275,073
                
                
                (102,718
                )Deferred
                    rent
                
                
                17,686
                
                
                (24,525
                )Changes
                    in operating assets and liabilitiesTrade
                    accounts receivable
                
                
                (210,192
                )
                
                91,351Prepaid
                    expenses and other current assets
                
                
                (11,066
                )
                
                (6,016
                )Other
                    assets
                
                
                (107
                )
                
                -Accounts
                    payable and accrued expenses
                
                
                156,651
                
                
                66,173Net
                    cash provided by operating activities
                
                
                1,886,146
                
                
                1,139,302Cash
                    flows from investing activitiesPurchase
                    of net assets of Blockade Systems Corp
                
                
                (2,319,045
                )
                
                -Capitalized
                    software development costs
                
                
                (1,010,926
                )
                
                (1,142,186
                )Purchase
                    of property and equipment
                
                
                (206,315
                )
                
                (46,769
                )Net
                    cash used in investing activities
                
                
                (3,536,286
                )
                
                (1,188,955
                )Cash
                    flows from financing activitiesPrivate
                    placement common stock issuance, net
                
                
                868,786
                
                
                -Proceeds
                    from exercise of common stock options and warrants
                
                
                177,600
                
                
                12,380Proceeds
                    from note payable
                
                
                1,000,000
                
                
                -Principal
                    payments on note payable
                
                
                (166,668
                )
                
                -Principal
                    payments under capital lease obligation
                
                
                (6,705
                )
                
                (8,911
                )Net
                    cash provided by financing activities
                
                
                1,873,013
                
                
                3,469Net
                    increase (decrease) in cash and cash equivalents
                
                
                222,873
                
                
                (46,184
                )Cash
                    and cash equivalents at beginning of the year
                
                
                1,130,443
                
                
                1,176,627Cash
                    and cash equivalents at end of the year
                
                $
                1,353,316
                
                $
                1,130,443**Supplemental
                    Disclosures of Cash Flow Information**Cash
                    paid during the year for:Interest
                
                $
                29,026
                
                $
                1,289
 
 *The
          accompanying notes are an integral part of these financial
          statements* *.*
 
 
 
 19
  **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND** **2004**
 
 **(1)**
                **Nature
                    of Business and Summary of Significant Accounting
                    Policies**
 
 **Nature
          of Business**
 
 Proginet
          Corporation (“Proginet” or “the Company”) is a global enterprise software
          company. Proginet’s software solutions allow its customers to effectively and
          securely manage their security passwords and data within their information
          technology (IT) systems, which span most business sectors of the economy.
          The
          Company’s products can be used on all major hardware platforms, operating
          systems and application development environments for enterprise computing.
          The
          Company maintains a philosophy of internally developing products, coupled
          with
          the acquisition of key technology, the integration of the two, and the
          establishment of a network of strategic alliances with key technology partners.
          The Company sells its products in the U.S. through its direct sales force
          and
          internationally through distributors. The Company also sells its products
          through Original Equipment Manufacturer (OEM) partners in the United States,
          Europe, South America, Asia and Australia. The Company operates and is
          managed
          as one reportable segment.
 
 **Generally
          Accepted Accounting Principles**
 
 The
          financial statements have been prepared in accordance with accounting principles
          generally accepted in the United States of America (“US GAAP”).
 
 **Revenue
          Recognition**
 
 We
          recognize revenue in accordance with Statement of Position, or SOP, 97-2,
          “Software Revenue Recognition,” and SOP 98-9, “Modification of SOP 97-2,
          Software Revenue Recognition, with Respect to Certain Transactions.” We
          recognize software license revenues when all of the following criteria
          are met:
          persuasive evidence of an arrangement exists, the fee is fixed or determinable,
          collectibility is probable, delivery of the product has occurred and the
          customer has accepted the product (including the expiration of an acceptance
          period) if the terms of the contract include an acceptance requirement.
          In
          instances when any of the criteria are not met, we will either defer recognition
          of the software license revenue until the criteria are met or we will recognize
          the software license revenue on a ratable basis, as required by SOPs 97-2
          and
          98-9. We generally utilize written contracts as the means to establish
          the terms
          and conditions by which our products, support and services are sold to
          our
          customers. Our revenues are derived from direct sales executives, distributors
          and OEM partners. Revenues from sales through distributors are recorded
          at the
          gross amount charged based on the economic risks and ongoing product support
          responsibilities we assume.
 
 We
          consider a non-cancelable agreement signed by us and the customer to be
          evidence
          of an arrangement. Delivery is considered to occur when media containing
          the
          licensed programs is provided to a common carrier, or the customer is given
          electronic access to the licensed software. Our typical end user license
          agreements do not contain acceptance clauses. We consider the fee to be
          fixed or
          determinable if the fee is not subject to refund or adjustment. If the
          fee is
          not fixed or determinable, we recognize revenue as the amounts become due
          and
          payable. Probability of collection is based upon our assessment of the
          customer’s financial condition through review of its current financial
          statements or credit reports. Collection is deemed probable if we expect
          that
          the customer will be able to pay amounts under the arrangement as payments
          become due. For follow-on sales to existing customers, prior payment history
          is
          also used to evaluate probability of collection. If we determine that collection
          is not probable, we defer the revenue and recognize the revenue upon cash
          collection.
 
 
 
 20
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 
 When
          software licenses contain multiple elements, revenue is allocated to each
          element based on the relative fair values of the elements. Multiple element
          arrangements generally include post-contract support (PCS or support),
          software
          products, and in some cases, service. Revenue from multiple-element arrangements
          is allocated to undelivered elements of the arrangement, such as PCS, based
          on
          the relative fair values of the specific elements. The Company’s determination
          of fair value of each element in multi-element arrangements is based on
          vendor-specific objective evidence,
          which is generally determined by sales of the same element or service to
          third
          parties or by reference to a renewal rate specified in the related arrangement.
  Where
          vendor-specific objective evidence of fair value exists for all undelivered
          elements, but evidence does not exist for one or more delivered elements,
          the
          Company accounts for the delivered elements in accordance with the “Residual
          Method” prescribed by SOP 98-9. Under the residual method, the fair value of the
          undelivered elements is deferred and the remaining portion of the arrangement
          fee is recognized as revenue. In most cases, the bundled multiple elements
          include PCS and the software product. In such cases, when vendor-specific
          objective evidence of fair value exists for all of the undelivered elements
          (most commonly PCS), the residual amount is recognized as revenue and the
          PCS is
          recognized ratably over the PCS term, which is typically 12 months.
  A
          customer typically prepays maintenance revenues and such maintenance revenues
          are recognized ratably monthly over the term of the maintenance contract,
          which
          is generally 12 months. Maintenance contracts include the right
          to
          unspecified upgrades on a when-and-if available basis, and ongoing support.
  Deferred
          revenues include amounts received from customers for which revenue has
          not yet
          been recognized that generally results from deferred maintenance, consulting
          or
          training services not yet rendered and license revenue deferred until all
          requirements under SOP 97-2 are met. Deferred revenue is recognized upon
          delivery of our products, as services are rendered, or as other requirements
          requiring deferral under SOP 97-2 are satisfied.
 
 **Commission
          Expense**
 
 Commission
          expense is recorded at the time of sale. Commission rates to direct sales
          people
          are based on a graduating scale, ranging from 5% to 14% of the sale, dependent
          upon the revenue volume generated by the sales executive. Distributors
          are
          typically compensated at a commission rate of 40% to 50% of the license
          revenue
          generated based upon their level of effort, resources assigned and products
          sold. The OEM arrangements include a commission structure similar to
          distributors and also may include specific fixed pricing for the number
          of
“users” the product is licensed for.
 
 **Accounts
          Receivable**
 
 The
          Company continually reviews accounts for collectibility and establishes
          an
          allowance for doubtful accounts. As of July 31, 2005 and 2004, there was
          an
          allowance for doubtful accounts of $16,000.
 
 **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, ranging from three to five years. Leasehold improvements
          are amortized over the lesser of the economic life of the asset, which
          is
          generally seven years, or the lease term. Property and equipment is retired
          from
          the balance sheet when fully depreciated.
 
 **Income
          Taxes**
 
 Deferred
          tax assets and liabilities are recognized for the future tax consequences
          attributable to differences between the tax bases of assets and liabilities
          and
          their financial reporting amounts based on enacted tax laws and statutory
          tax
          rates expected to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. The effect on deferred
          taxes of a change in tax rates is recognized in income in the period that
          includes the enactment date. Valuation allowances are established when
          necessary
          to reduce deferred tax assets to the amount more likely than not to be
          realized.
 
 
 
 21
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 
 **Fair
          Value of Financial Instruments**
  The
            fair
            values of the Company’s financial instruments, consisting of cash and cash
            equivalents, trade accounts receivable, accounts payable and accrued
            expenses,
            and deferred revenues approximate their carrying values in the financial
            statements because of the short-term maturity of these instruments. The
            carrying
            amount of the Company’s variable long-term debt approximates the fair value
            since the interest rate on this instrument is based on market
            rates.
 
 **Goodwill,
          Other Intangible Assets and Other Long-Lived Assets**
 
 The
          Company performs an evaluation of whether goodwill is impaired annually
          or when
          events occur or circumstances change that would more likely than not reduce
          the
          fair value of the asset below its carrying amount. Fair value is determined
          using market comparables for similar businesses or forecasts of discounted
          future cash flows. The Company also reviews other intangible assets, which
          are
          all currently amortized over their respective estimated lives, and other
          long-lived assets when indication of potential impairment exists, such
          as a
          significant reduction in cash flows associated with the assets, significant
          changes in the manner or our use of the assets or the strategy for our
          overall
          business and significant negative industry or economic trends. In addition,
          in
          all cases of an impairment review, we will re-evaluate the remaining useful
          life
          of the asset and modify it, as appropriate. Should the fair value of the
          Company's long-lived assets decline because of reduced operating performance,
          market declines, or other indicators of impairment, a charge to operations
          for
          impairment may be necessary.
 
 **Research
          and Development Costs and Capitalized Software Development
          Costs**
 
 Research
          and development costs consist of salaries and other costs related to the
          development and enhancement of computer software programs. Software development
          costs are capitalized upon the establishment of product technological
          feasibility until the product is available for general release to the public.
          The establishment of technological feasibility and the ongoing assessment
          of
          recoverability of capitalized software development costs require considerable
          judgment by management with respect to certain factors including, but not
          limited to, the timing of technological feasibility, anticipated future
          gross
          revenues, estimated economic life and changes in software and hardware
          technologies. Software development costs not capitalized are expensed as
          research and development.
 
 Amortization
          of capitalized software development costs 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. Amortization expense charged to operations
          was
          $1,270,361 and $1,157,152 in fiscal 2005 and 2004, respectively. Capitalized
          software development costs were net of accumulated amortization of $6,334,885
          and $5,097,422 at July 31, 2005 and 2004, respectively. Estimated amortization
          expense for the succeeding five years is $1,111,000 in fiscal 2006, $968,000
          in
          fiscal 2007, $725,000 in fiscal 2008, $422,000 in fiscal 2009, and $175,000
          in
          fiscal 2010. Capitalized software development costs are retired from the
          balance
          sheet when fully amortized. In the fourth quarter of fiscal 2005, the Company
          reported an impairment charge of $150,098 to write off certain capitalized
          software costs due to a decline in the market need resulting in no future
          anticipated revenue for that product. This charge is included in cost of
          software licenses in the accompanying statement of operations.
 
 
 
 22
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 
 **Loss
          Per Share**
 
 Loss
          per
          common share (“EPS”) is computed by dividing net loss by the weighted average
          number of common shares outstanding and diluted EPS reflects the potential
          dilution that could occur if securities or other contracts to issue common
          stock
          were exercised or converted into common stock or resulted in the issuance
          of
          common stock.
  The
          following table sets forth the computation of basic and diluted loss per
          share:
 
 Year
                    ended July 31,2005
                
                2004NumeratorNet
                    loss
                
                $
                (488,617
                )
                $
                (482,627
                )DenominatorWeighted
                    average number of common shares (basic)
                
                
                14,073,392
                
                
                13,152,972Effect
                    of dilutive securities:Stock
                    options
                
                
                -
                
                
                -Weighted
                    average number of common shares (diluted)
                
                
                14,073,392
                
                
                13,152,972Basic
                    and diluted loss per share
                
                $
                (0.03
                )
                $
                (0.04
                )
 
 Potential
          common shares of 2,039,750 and 2,256,500 at July 31, 2005 and 2004,
          respectively, issueable upon exercise of stock options and warrants are
          excluded
          in computing basic and diluted net loss per share for fiscal 2005 and 2004,
          as
          their effects would be anti-dilutive.
 
 **Stock
          Options and Stock Based Compensation**
 
 The
          Company accounts for employee stock option plans under the recognition
          and
          measurement principles of APB Opinion No. 25, “Accounting for Stock Issued
          Employees, and Related Interpretations”. No stock-based compensation cost is
          reflected in net loss for these plans, as all options granted under these
          plans
          had an exercise price equal to the market value of the underlying common
          stock
          on the date of grant. The following table illustrates the effect on net
          loss and
          loss per share as if the Company had applied the fair value recognition
          provisions of FASB Statement No 123, “Accounting for Stock Based Compensation”
          to stock based compensation:
 
 2005
                
                2004Net
                    loss as reported
                
                $
                (488,617
                )
                $
                (482,627
                )Deduct:
                    Stock-based employee compensation expense determined under fair
                    value
                    based method for all options
                
                
                (507,387
                )
                
                (28,239
                )Net
                    loss as adjusted
                
                $
                (996,004
                )
                $
                (510,866
                )Net
                    loss per share:Basic
                    and diluted-as reported
                
                $
                (.03
                )
                $
                (.04
                )Basic
                    and diluted-as adjusted
                
                $
                (.07
                )
                $
                (.04
                )
 
 The
          per
          share weighted average fair value of stock options granted during fiscal
          2005
          and 2004 was $1.13 and $.26, respectively, on the dates of grant using
          the
          Black-Scholes option-pricing model with the following weighted average
          assumptions: expected dividend yield of 0% for fiscal 2005 and 2004; risk
          free
          interest rate of 3.78%and 2.90% in fiscal 2005 and 2004, respectively,
          expected
          stock volatility of 112% and 129% (based primarily on the Company's historical
          stock prices) in 2005 and 2004, 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.
 
 
 
 23
  **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 **Use
          of Estimates**
 
 The
          preparation of financial statements in conformity with US GAAP requires
          management to make estimates and assumptions that affect the reported amounts
          of
          assets and liabilities and disclosure of contingent assets and liabilities
          at
          the date of the financial statements, and the reported amounts of revenues
          and
          expenses during the reporting period. Actual results could differ from
          those
          estimates.
 
 **Statement
          of Cash Flows and Liquidity**
 
 The
          Company considers all highly liquid debt instruments with a maturity of
          three
          months or less at the time of purchase to be cash equivalents. There were
          no
          cash equivalents at July 31, 2005, cash equivalents, amounting to $203,819
          at
          July 31, 2004, consisted of a liquid reserve mutual fund. Interest payments
          of
          $29,026 and $1,289 were made during the years ended July 31, 2005 and 2004,
          respectively. There were no income taxes paid during the years ended July
          31,
          2005 and 2004.
 
 **Recent
          Accounting Pronouncements**
 
 In
          December 2004, the FASB issued FASB No. 123R "Share Based Payment". This
          statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based
          Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock
          Issued to
          Employees," and its related implementation guidance. FASB No. 123R addresses
          all
          forms of share based payment ("SBP") awards including shares issued under
          employee stock purchase plans, stock options, restricted stock and stock
          appreciation rights. Under FASB No. 123R, SBP awards result in a cost that
          will
          be measured at fair value on the awards' grant date, based on the estimated
          number of awards that are expected to vest. This statement is effective
          for
          public entities that file as small business issuers - as of the beginning
          of the
          first annual reporting period that begins after December 15, 2005. The
          Company
          does not believe the adoption of FASB No. 123R will have a material effect
          on
          our financial statements as the Company will no longer utilize share based
          payment award upon the effective date of FASB No. 123R and the fair value
          of the
          unvested outstanding awards is immaterial to the financial
          statements.
  **(2)**
                **Acquisition**
 
 On
          January 10, 2005, the Company entered into and closed an Asset Purchase
          Agreement (the “Agreement) between the Company and Blockade Systems Corp.
          ("Blockade"), a privately-held Canadian identity management software
          corporation. Pursuant to the Agreement, Proginet acquired certain assets
          and the
          business of Blockade and assumed certain Blockade liabilities, for a cash
          purchase price of $2,319,045. The assets acquired by Proginet include
          complimentary intellectual property, customer contracts, equipment and
          other
          tangible personal property. The Agreement also provides for contingent
          payments
          to Blockade, payable annually over the next three years, upon the acquired
          Blockade business meeting certain revenue thresholds, including up to a
          maximum
          contingent payment of $1,300,000 in aggregate for meeting either software
          or
          maintenance revenue thresholds and a 50% contingent payment for net revenues
          generated from annual sales of identity management tokens **,** as
          defined in the Agreement. The operations of Blockade are included in the
          Company's results from the date of acquisition.
 
 In
          accordance with SFAS No. 141, “Business Combinations,” the acquisition has been
          accounted for under the purchase method of accounting. The total purchase
          price
          was allocated to the net tangible assets and intangible assets acquired
          based on
          estimates of fair value at the date of acquisition. The allocation of the
          total
          purchase price to the acquired technology and other intangible assets,
          including
          maintenance contracts, was based on management’s best estimate. The Company
          allocated $65,334 of the total purchase price to goodwill, which is amortizable
          over fifteen years for income tax purposes.
 
 
 
 24
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 
 The
          preliminary calculation of the total purchase price is as follows:
 
 Cash
                
                $
                2,244,747Acquisition
                    expenses
                
                
                74,298Total
                    purchase price
                
                $
                2,319,045
 
 The
          following allocation of the total purchase price reflects the fair value
          of the
          assets acquired and liabilities assumed:
 
 Computer
                    equipment
                
                $
                29,350Intangible
                    assets (a)
                
                
                2,700,852Goodwill
                
                
                65,334Deferred
                    revenue (b)
                
                
                (476,491
                )Total
                    purchase price
                
                $
                2,319,045
 
 (a)
                Includes
                    $1,199,078 for customer relationships and $1,501,774 for purchased
                    software, which are subject to amortization over a period of
                    five years.
                    Amortization expense for customer relationships and the above
                    purchased
                    software for the year ended July 31, 2005 amounted to $133,448
                    and
                    $167,136. Estimated amortization expense for customer relationships
                    and
                    purchased software for the succeeding five years is $239,820
                    and $300,360
                    for fiscal 2006, 2007, 2008, 2009 per year, $106,350 and $133,198
                    for
                    fiscal 2010, respectively.
 
 (b)
                SFAS
                    141 requires that an acquiring enterprise allocate the cost of
                    an entity
                    acquired in a business combination to the individual assets acquired
                    and
                    liabilities assumed based on their estimated fair values at the
                    date of
                    acquisition. The fair value of deferred maintenance revenues
                    in a business
                    combination generally is not readily available and, accordingly,
                    in
                    practice, the fair value of an assumed liability (which must
                    arise from a
                    legal performance obligation) related to deferred revenue is
                    estimated
                    based on the direct cost of fulfilling the obligation plus a
                    normal profit
                    margin thereon. Also, in practice, the normal profit margin is
                    limited to
                    the profit margin on the costs to provide the product or service
                    (that is,
                    the fulfillment effort).
 
 *Pro
          Forma Information*
 
 The
          following unaudited pro forma information presents the results of operations
          for
          the years ended July 31, 2005 and 2004, as if the acquisition had taken
          place at
          August 1, 2003:
 
 Twelve
                    Months Ended July 31, 2005
                
                Twelve
                    Months Ended July 31, 2004Total
                    revenues
                
                $
                8,977,559
                
                $
                8,517,408Net
                    loss
                
                $
                (1,513,187
                )
                $
                (3,218,920
                )Net
                    loss per common share (basic and diluted)
                
                $
                (.11
                )
                $
                (.24
                )Weighted
                    average number of common shares outstanding (basic and
                    diluted)
                
                
                14,073,392
                
                
                13,152,972
 
 The
          pro
          forma results of operations include adjustments to the historical financial
          statements of the companies and have been prepared for comparative purposes
          only. As Blockade’s fiscal year end was September 30 and the Company’s fiscal
          year ends July 31, timing differences may exist in the periods reported;
          however, management believes these timing differences are not material.
          For
          Blockade, the period from July 1 - June 30 was utilized for the twelve
          month
          periods. These pro forma results do not purport to be indicative of the
          actual
          results of operations had the acquisition occurred at August 1, 2003 or
          which
          may occur in the future. The operations of Blockade as presented above,
          include
          certain expenses that will not be incurred on an ongoing basis by the Company.
          The operations of Blockade were denominated in Canadian dollars and were
          translated using the average rate of exchange for the periods presented
          in the
          pro forma results of operations
 
 
 
 25
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
  **(3)**
                **Purchased
                    Software**
  Purchased
            software includes software purchased in a prior period from a third party
            for an
            original cost of $1,647,946 and accumulated amortization of $1,565,562
            at July
            31, 2005 and software purchased in connection with the Blockade acquisition
            for
            an original cost of $1,501,774 and accumulated amortization of $167,136
            (Note
            2). Purchased software is being amortized over a period of five years.
            Amortization expense charged to operations was $496,728 and $329,592
            for each of
            the years ended July 31, 2005 and July 31, 2004, respectively.
 
 The
          weighted average amortization period of the Company’s purchased software as of
          July 31, 2005 is approximately 54 months. Estimated amortization expense
          for
          fiscal 2006 related to purchase software in a prior period is
          $82,384.
 
 **(4)**
                **Property
                    and Equipment**
 
 Property
          and equipment consist of the following at July 31:
 
 **2005**
                
                **2004**Computer
                    and other equipment
                
                $
                340,016
                
                $
                408,483Furniture
                    and fixtures
                
                
                154,963
                
                
                4,798Leasehold
                    improvements
                
                
                121,966
                
                
                86,542616,945
                
                
                499,823Less
                    accumulated depreciationand
                    amortization
                
                
                (363,012
                )
                
                (385,164
                )$
                253,933
                
                $
                114,659
 
 Depreciation
          and amortization expense for the years ended July 31, 2005 and 2004 was
          $96,390
          and $60,920, respectively.
 
 **(5)**
                **Note
                    Payable**
 
 In
          connection with the acquisition of Blockade Systems Corp. (see Note 2),
          the
          Company entered into a Promissory Note (the “Note”) on January 10, 2005 for
          $1,000,000 with a bank. The Note is payable in 35 monthly installments
          of
          $27,775 commencing February 10, 2005 with the balance of $27,779 due on
          February
          10, 2008. The Note bears interest at 1⁄2% above the Bank’s prime rate per annum
          (6.75% at July 31, 2005) and is collateralized by the accounts receivable
          and
          certain intellectual property of the Company. The amounts due under the
          Note
          will become due and payable immediately upon the occurrence of customary
          events
          of default and also requires the Company to maintain a “Minimum Debt Service
          Coverage Ratio”, as defined, on an annual basis.
 
 **(6)**
                **Credit
                    Lines**
 
 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%. The
          line of credit expires on September 30, 2005, at which time the Company
          intends
          to renew this line of credit. As of July 31, 2005, the Company has not
          borrowed
          against this line of credit.
 
 In
          May
          2001, the Company established an additional line of credit in the amount
          of
          $350,000 with another bank. In July 2005, this line of credit was increased
          to
          $550,000. The interest rate is variable based on the bank’s prime rate plus 1⁄2%.
          The line of credit is collateralized by accounts receivable of the Company
          and
          expires January 31, 2006, at which time the Company intends to renew this
          line
          of credit. As of July 31, 2005, the Company has not borrowed against this
          line
          of credit.
 
 
 
 26
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 **(7)**
                **Income
                    Taxes**
 
 There
          was
          no current or deferred tax expense (benefit) recorded for the year ended
          July
          31, 2005 and 2004. 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:
 
 **2005**
                
                **2004**Federal
                    tax expense (benefit) at statutory rate
                
                $
                (166,000
                )
                $
                (164,000
                )State
                    tax expense (benefit) at statutory rate
                
                
                (26,000
                )
                
                (25,000
                )Increases
                    (reductions) in taxes due to:Nondeductible
                    expenses
                
                
                4,000
                
                
                4,000Change
                    in valuation allowance
                
                
                188,000
                
                
                185,000Income
                    tax provision
                
                $
                -
                
                $
                -
 
 At
          July
          31, 2005, the Company had available Federal NOL carry forwards amounting
          to
          approximately $7,458,000 and research and development tax credit carry
          forwards
          of approximately $332,000, which expire in fiscal years 2007 through 2025.
          Under
          current tax law, utilization of net operating losses will be restricted
          if an
          ownership change were to occur. In addition, their use is limited to future
          earnings of the Company.
 
 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:
 
 **2005**
                
                **2004**Deferred
                    tax assetsNet
                    operating loss carryforward
                
                $
                2,651,000
                
                $
                3,106,000Accounts
                    payable and other
                
                
                35,000
                
                
                70,000Deferred
                    revenue
                
                
                861,000
                
                
                562,000Deferred
                    contract costs
                
                
                -
                
                
                1,000Purchased
                    software
                
                
                716,000
                
                
                601,000Property
                    and equipment
                
                
                (2,000
                )
                
                15,000Research
                    and development carryforward
                
                
                332,000
                
                
                332,000Unbilled
                    rent
                
                
                33,000
                
                
                28,000Gross
                    deferred tax asset
                
                
                4,626,000
                
                
                4,715,000Valuation
                    allowance
                
                
                (3,122,000
                )
                
                (2,934,000
                )Deferred
                    tax asset
                
                
                1,504,000
                
                
                1,781,000Deferred
                    tax liabilitiesCapitalized
                    software development costs
                
                
                1,383,000
                
                
                1,545,000Accounts
                    receivable
                
                
                117,000
                
                
                228,000Prepaid
                    expenses
                
                
                4,000
                
                
                8,000Deferred
                    tax liability
                
                
                1,504,000
                
                
                1,781,000Net
                    deferred tax asset
                
                $
                -
                
                $
                -
 
 At
          July
          31, 2005 and 2004, the Company has provided a valuation allowance against
          its
          net deferred tax assets as the Company does not believe realization is
          more
          likely than not in light of the Company’s operating results in recent
          years.
 
 
 27
 
 **PROGINET
            CORPORATION**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **JULY
            31, 2005 AND 2004**
 
 **(8)**
                **Stock
                    Purchase Warrants**
 
 In
          the
          first quarter of fiscal 2000, Proginet entered into an agreement with Mallory
          Factor Inc. (“MFI”) for certain strategic corporate consulting services, which
          was terminated in fiscal 2001. The terms of the agreement provided for
          granting
          of up to 500,000 warrants exercisable at a price of $.54 per share depending
          upon achievement of pre-determined goals. The first 150,000 warrants vested
          upon
          regulatory approval of the agreement and the next 100,000 vested upon Proginet’s
          stock price reaching $1.25. The next 250,000 would have vested, if and
          only if,
          two criteria were satisfied: (i) Proginet’s achievement of a listing on the
          United States OTC:BB and (ii) Proginet’s stock price reaching established
          thresholds.
 
 On
          December 28, 2001, the Company amended the warrant agreement. The amendment
          required the exchange of the remaining 250,000 unvested warrants (the “original
          warrants”), exercisable at $.54 per share for 125,000 fully vested warrants (the
          “exchanged warrants”) exercisable at $.22, which represented the fair market
          value of the Company’s common stock on the date of the amendment. A non-cash
          charge to operations amounting to $25,175 (as determined by Black-Scholes
          pricing model) was recorded by the Company for the year ended July 31,
          2002
          relating to the amendment. On September 16, 2004, warrants to purchase
          50,000
          and 25,000 shares of common stock were exercised at a price of $.54 and
          $.22,
          respectively. On September 22, 2004, warrants to purchase 100,000 shares
          of
          common stock were exercised at a price of $.54. On January 21, 2005, warrants
          to
          purchase 100,000 shares of common stock were exercised at a price of $0.54
          per
          share. As of July 31, 2005, 100,000 warrants are outstanding under the
          warrant
          agreement, as amended, and expire in December 2006.
 
 **(9)**
                **Stock
                    Option Plans**
 
 Under
          the
          1997 Stock Option Plan and 1995 Equity Incentive Plan (the “prior Plans”), as
          amended, the Company had reserved an aggregate of 2,000,000 shares of common
          stock for grants to employees, directors and consultants. In June 2000,
          the
          Board of Directors authorized the increase of the number of shares reserved
          under the 1997 Stock Option Plan to 2,500,000. In October 2000, the Board
          of
          Directors approved the 2000 Stock Option Plan (the “2000 Plan”) which limits the
          aggregate number of shares available under the 2000 Plan and the prior
          Plans to
          2,500,000. At the Company’s Annual Stockholders’ Meeting on November 14, 2000,
          the stockholders approved the 2000 Plan and the increase in the number
          of shares
          reserved under the prior Plans, up to an aggregate of 2,500,000. Grants
          under
          the 2000 Plan can be in the form of qualified or non-qualified stock options.
          Qualified stock options (which are intended to qualify as incentive stock
          options under Section 422A of the United States Internal Revenue Code)
          may be
          awarded only to employees of the Company and must have an exercise price
          of not
          less than 100% of the fair market value of the Company’s common stock on the
          grant date (110% for qualified options granted to any 10% or greater stockholder
          of the Company). The 2000 Plan provides that a committee selected by the
          Board
          of Directors of the Company will administer the 2000 Plan and have full
          authority to determine the identity of the recipients of the options and
          the
          number of shares subject to each option. The term of any option may be
          fixed by
          the committee but in no event shall exceed 10 years from the date of
          grant.
 
 
 
 28
 
 **PROGINET
              CORPORATION**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **JULY
              31, 2005 AND 2004**
 Transactions
          involving the 2000 Plan and the prior Plans are summarized as
          follows:
 
 **Shares
                    subject to option**
                
                **Exercise
                    price per share**
                
                **Weighted
                    average exercise price**Outstanding
                    at August 1, 2003
                
                1,878,000
                
                $0.16
                    - $1.85
                
                $
                    0.59Granted
                
                90,000
                
                $0.27
                    - $0.33
                
                $0.29Exercised
                
                (20,000)
                
                $0.37
                    - $0.68
                
                $0.62Forfeited
                
                (66,500)
                
                $0.16
                    - $1.20
                
                $0.63Outstanding
                    at July 31, 2004
                
                1,881,500
                
                $0.16
                    - $1.85
                
                $0.58Granted
                
                505,312
                
                $0.65
                    - $1.50
                
                $1.36Exercised
                
                (130,000)
                
                $0.16
                    - $0.37
                
                $0.29Forfeited
                
                (105,812)
                
                $0.16
                    - $1.50
                
                $0.79Outstanding
                    at July 31, 2005
                
                2,151,000
                
                $0.16
                    - $1.85
                
                $0.77
 
 
 The
          following table summarizes information about employee stock options outstanding
          and exercisable at July 31, 2005:
 
 **Options
                    outstanding**
                
                **Options
                    exercisable**Exercise
                  prices
                
                Number
                  Outstanding
                  at
                    July 31,
                  2005
                
                Weighted
                    -
                  average
                    remaining
                  contractual
                    life
                  (years)
                
                Weighted
                    -
                  average
                  exercise
                  price
                
                Number
                  Exercisable
                  at
                    July 31,
                  2005
                
                Weighted
                    -
                  Average
                  Exercise
                  price$0.16
                    - $0.37
                
                
                522,500
                
                
                7
                
                $
                0.25
                
                
                502,500
                
                $
                0.25$0.43
                    - $0.68
                
                
                621,000
                
                
                5
                
                
                0.63
                
                
                601,000
                
                
                0.63$0.71
                    - $1.85
                
                
                1,007,500
                
                
                7
                
                
                1.12
                
                
                922,500
                
                
                1.122,151,000
                
                
                7
                
                $
                0.67
                
                
                2,026,000
                
                $
                0.66
 
 All
          options have been granted with exercise prices at the market price of the
          stock
          at the date of the grant.
 
 
 
 29
 
 **PROGINET
          CORPORATION**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **JULY
          31, 2005 AND 2004**
 
 **(10)**
                **Commitments
                    and Contingencies**
 
 **Leases**
 
 The
          Company leases office space under a noncancelable operating leases expiring
          through fiscal 2013 and certain computer equipment for technical support
          efforts
          and administrative purposes. The following is a schedule of future minimum
          payments, by year and in the aggregate, under noncancelable operating leases
          with initial or remaining terms of one year or more at July 31,
          2005:
 
 Year
                    ending July 31,
                
                Operating
                    leases2006
                
                $                                                  242,0002007
                
                302,0002008
                
                272,0002009
                
                281,0002010
                
                291,000Thereafter
                
                856,000Total
                    minimum lease payments
                
                $                                              
                    2,244,000
 
 Rental
          expense charged to operations was $230,808 and $169,950 in the fiscal years
          ended July 31, 2005 and 2004, respectively.
 
 **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.
 
 **(11)**
                **Concentration
                    of Risks**
 
 Software
          license revenues for the years ended July 31, 2005 and 2004 included sales
          in
          foreign countries of approximately $1,327,675 and $1,019,430 respectively.
          Included in software license revenues in fiscal 2005 were revenues generated
          under one OEM arrangement aggregating 12% of total software license revenues.
          Included in software license revenues in fiscal 2004, were revenues generated
          under two OEM arrangements aggregating 28% and 13% of total software license
          revenues, respectively. No one customer represented 10% or more of revenues
          in
          the years ended July 31, 2005 and 2004.
 
 At
          July
          31, 2005, one customer amounted for approximately 11% of total trade and
          installment accounts receivable. At July 31, 2004, one customer accounted
          for
          approximately 21% of total trade and installment accounts receivables.
 
 **(12)**
                **Retirement
                    Plan**
 
 The
          Company maintains a 401(k) savings plan which covers all full-time employees.
          Employees become eligible for participation in the plan after one year
          of
          service and attainment of age twenty-one. Under the plan, employees may
          contribute up to 15% of their salary to the plan. The Company may match
          up to
          100%, as determined by the Board of Directors, of the employee’s contribution up
          to 10% of eligible compensation. The Company’s contributions were $78,795 and
          $64,093 for the years ended July 31, 2005 and 2004, respectively.
 
 
 
 30
 
 
 
 **Item
                  8.**
                **Changes
                    In and Disagreements with Accountants on Accounting and Financial
                    Disclosure**
 
 None.
 
 **Item
                  8A.**
                **Controls
                    and Procedures**
 
 **Evaluation
          of disclosure controls and procedures**
 
 (a)  Evaluation of Disclosure Controls and Procedures
 
 Our
          management, with the participation of our Chief Executive Officer and Chief
          Financial Officer, evaluated the effectiveness of our disclosure controls
          and
          procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act
          of
          1934), as of the end of the period covered by this Annual Report on Form
          10-KSB.
          Based on that evaluation, our Chief Executive Officer and Chief Financial
          Officer concluded that our disclosure controls and procedures are effective
          to
          ensure that information we are required to disclose in reports that we
          file or
          submit under the Securities Exchange Act of 1934 (i) is recorded, processed,
          summarized and reported within the times periods specified in the Securities
          and
          Exchange Commission rules and forms and (ii) is accumulated and communicated
          to
          our management, including our Chief Executive Officer and Chief Financial
          Officer, as appropriate to allow timely decisions regarding required
          disclosure.
 
 (b)  Changes
          in Internal Controls
 
 There
          were no changes in our internal controls over financial reporting that
          occurred
          during the Company’s most recently completed fiscal quarter that has materially
          affected, or is reasonably likely to materially affect, our internal control
          over financial reporting.
 
 **Item
                    8B.**
                **Other
                    Information**
 None.
 
 
 
 31
 
 **Part
          III**
 **Item
                  9.**
                **Directors
                    and Executive Officers****of the
                    Registrant**
 
 Except
          as
          set forth below, the information called for by this Item is included under
          the
          captions “Information about Nominees”, Information about Non-Director Executive
          Officers”, “Audit Committee” and “Section 16(a) Beneficial Ownership Reporting
          Compliance” in the Proxy Statement for the Annual Meeting of Stockholders to be
          held on November 22, 2005 and is incorporated herein by reference.
 
 Code
          of
          Ethics
 
 The
          Company has adopted a “Code of Business Conduct and Ethics” that applies to all
          Proginet employees and members of its Board of Directors, including Proginet’s
          principal executive officer, principal financial officer, principal accounting
          officer or controller, or persons performing similar functions. A copy
          of the
          Company’s Code of Business Conduct and Ethics was attached as an exhibit to the
          annual report on Form 10-KSB for the year ended July 31, 2004. The Company
          posts
          the Code of Business Conduct and Ethics and related amendments or waivers,
          if
          any, on its website at www.proginet.com .
          Information contained on the Company’s website is not a part of this report.
          Copies of the Company’s Code of Business Conduct and Ethics will be provided
          free of charge upon written request to Proginet Corporation, 200 Garden
          City
          Plaza, Garden City, New York 11530, Attention: Debra A. DiMaria,
          CFO.
  **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 22, 2005, and is incorporated herein by
          reference.
 
 **Item
                    11.**
                **Security
                    Ownership of Certain Beneficial Owners and Management****and Related Stockholder
                    Matters**
 
 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 22, 2005
          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 22, 2005 and is incorporated
          herein by reference.
 
 
 
 32
 
 
 
 **Item
                    13.**
                **Exhibits******
 
 Unless
          otherwise noted, the exhibits below are incorporated by reference to the
          Company's Registration Statement on Form 10-SB/A, filed with the SEC on
          July 18,
          2000:
 
 **Exhibit
                    No.**
                **Exhibit
                    Name**3(i)
                Certificate
                    of Incorporation.3(i)(a)
                Certificate
                    of Amendment of Certificate of Incorporation dated December 2,
                    1996.3(ii)
                Amended
                    and Restated Bylaws of the Registrant.**10.1
                Form
                    of Employee Confidential Information and Non-Competition
                    Agreement.4.3(i)
                Warrant
                    Agreement dated October 22, 1999 by the Company and Mallory
                    Factor*4.3(ii)
                Amendment
                    to Warrant Agreement dated October 22, 22, 1999 between Proginet
                    Corporation and Mallory Factor Inc.*4.10
                Form
                    of Specimen Stock Certificate.*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
                Management
                    Continuity Agreement - Kevin M. Kelly, Chief Executive Officer
                    and
                    President***+10.8
                Management
                    Continuity Agreement - Debra A. DiMaria, Chief Financial Officer
                    and
                    Corporate Secretary***+10.9
                Management
                    Continuity Agreement - Arne Johnson, Senior Vice President for
                    Strategic
                    Planning & Alliances***+10.10
                Management
                    Continuity Agreement - Thomas Bauer, Chief Technology
                    Officer***+10.11
                Management
                    Continuity Agreement - Kevin Bohan, Chief Information
                    Officer***+10.12
                Independent
                    Directors Stock Option Plan, amended and restated as of February
                    21,
                    1995.10.13
                1995
                    Equity Incentive Plan, amended and restated as of December 5,
                    1995.+10.14
                Form
                    of Incentive Stock Option Agreement.+10.16
                Consulting
                    Agreement between the Registrant and Mallory Factor, Inc., dated
                    September
                    22, 1999.10.17
                1997
                    Stock Option Plan, as amended and restated as of November 14,
                    2000+10.18
                2000
                    Stock Option Plan****+14.1
                Code
                    of Business Conduct and Ethics**23
                Consent
                    of BDO Seidman LLP*****31.1
                Rule
                    13a-14(a)/15d-14(a) Certification Section 302 Certification (Chief
                    Executive Officer)*****31.2
                Rule
                    13a-14(a)/15d-14(a) Certification Section 302 Certification (Chief
                    Financial Officer)*****32
                Section
                    1350 Certifications*****
 
 *
                Incorporated
                    by reference to the Company’s Form SB-2 Amendment No. 1 filed with SEC on
                    June 22, 2005**
                Incorporated
                    by reference to the Company’s Form 10-KSB filed with the SEC on September
                    18, 2003***
                Incorporated
                    by reference to the Company’s Form 10-KSB filed with the SEC on September
                    27, 2004****
                Incorporated
                    by reference to the Company’s Proxy Statement dated November 14,
                    2000*****
                Filed
                    herewith+
                Management
                    contract or compensatory plan
 
  
 33
 
 **Item
                  14.**
                **Principal
                    Accountant Fees and
                    Services**
 
 The
          information called for by this item is set forth under the caption “Principal
          Accountant Fees and Services” in the Proxy Statement for the Annual Meeting of
          Stockholders to be held on November 22, 2005 and is incorporated herein
          by
          reference.
 
 
 **SIGNATURES**
 
 In
          accordance with Section 13 or 15(d) of the Exchange Act, the registrant
          has
          caused this report to be signed on its behalf by the undersigned, thereunto
          duly
          authorized.
 
 
 
 PROGINET
                    CORPORATIONBy:
                /s/Kevin
                    M.
                    KellyKevin
                    M. KellyPresident
                    and Chief Executive OfficerDate:
                September
                    27, 2005
 
 In
          accordance with the Exchange Act of 1934, this report has been signed below
          by
          the following persons on behalf of the registrant and in the capacities
          and on
          the dates indicated.
 
 **NAME**
                **TITLE**
                **DATE***/s/*Kevin
                    M.
                    Kelly
                  Kevin
                    M. Kelly
                President,
                    Chief Executive Officer and Director
                September
                    27, 2005*/s/*Debra
                    A.
                    DiMaria
                  Debra
                    A. DiMaria
                Corporate
                    Secretary and Chief Financial and Accounting Officer
                September
                    27, 2005*/s/*John
                    C.
                    Daily
                  John
                    C. Daily
                Chairman
                September
                    27, 2005*/s/*Stephen
                    Sternbach
                  Stephen
                    Sternbach
                Director
                September
                    27, 2005*/s/*Dr.
                    E. Kelly
                    Hyslop
                  Dr.
                    E. Kelly Hyslop
                Director
                September
                    27, 2005*/s/*William
                    Loscalzo
                  William
                    Loscalzo
                Director
                September
                    27, 2005*/s/*George
                    T.
                    Hawes
                  George
                    T. Hawes
                Director
                September
                    27, 2005






34