**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,
                2006





[  
                ]
            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 is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. ___





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 $8,498,067.





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 1 5 ,
      2006
      was approximately $15,855,826. 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 14,414,387 shares of Common Stock outstanding at September 15,
      2006.





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 2006 Annual
      Meeting of Stockholders.





Transitional
      Small Business Disclosure Format:





Yes
      ___
      No _ X __














**TABLE
      OF CONTENTS**





Page**Part
                I**Item
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Property
            8Item
                3.
            Legal
                Proceedings
            8Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            8**Part
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            9Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            10Item
                7.
            Financial
                Statements
            15Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            33Item
                8A.
            Controls
                and Procedures
            33Item
                8B.
            Other
                Information
            33**Part
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act.
            34Item
                10.
            Executive
                Compensation
            34Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            34Item
                12.
            Certain
                Relationships and Related Transactions
            34Item
                13.
            Exhibits
            35Item
                14.
            Principal
                Accountant Fees and Services
            36Signatures
            36








i








**Part
      I**




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




Proginet
      Corporation ("Proginet" or the "the Company") is a security software company
      focused on critical aspects of data security and identity security, addressing
      the security and protection of data while it is both in motion and at rest.
      The
      benefits of Proginet's solutions enable companies to securely automate,
      schedule, and audit the transfer of data between all types of computers, both
      internal and external to the company, and to secure, control, and manage
      enterprise user communities and their access to corporate resources and
      information assets - all while facilitating the corporate requirement to satisfy
      regulatory mandates. 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 North America through
      its
      direct sales force and internationally through a global network of distributors.
      The Company also sells its products through Original Equipment Manufacturer
      (OEM) partners in the United States and Europe.




Proginet's
      global customer base currently spans more than 23 countries and includes many
      Fortune 500 companies. The company is headquartered in Garden City, N.Y., with
      offices in Toronto, Canada, and is publicly traded under the symbol
      (OTCBB:PRGF). For more information, visit www.proginet.com




**General
      Development of the Business**




Proginet
      was incorporated in New York in 1986 as the Teleprocessing Connection, Inc.
      and
      changed its name in 1990 to Proginet Corporation. In 1994, Proginet incorporated
      in Delaware, then became a public company by listing on the Vancouver Stock
      Exchange ( which
      subsequently merged with the Canadian TSX exchange) in 1995.  In
      2002
      the Company delisted from the Canadian TSX exchange and listed on the U.S.
      OTC
      Bulletin Board under the symbol PRGF. While the Company's major product
      offerings are the result of internal development of software, Proginet has
      supplemented its offerings by completing five acquisitions between 1994 and
      2005, including product acquisitions from Novell, Microsoft, KnowledgNet,
      SureFire and Blockade.




**Products**




This
      section provides a brief overview of the principal products marketed by
      Proginet. Proginet has designed its products with an emphasis on security,
      reliability, ease of deployment and use, and strong ROI. Proginet’s goal is to
      provide its customers with the ability to secure and control information assets,
      and achieve corporate objectives, while satisfying regulatory compliance
      mandates and driving corporate efficiency.




*Product
      Category: Data Security & Movement*




Proginet’s
      advanced managed file transfer (MFT) technology allows users to send information
      over extended corporate networks and over the Internet, confident that no one
      other than the intended recipient can read or receive the information.
      Proginet’s advanced MFT software is in use at some of the largest corporations
      in the world. The Company's flagship solution is CyberFusion Integration Suite
      (CFI)TM, which was introduced to the market in July 2005 to satisfy the B2B data
      transfer requirements of global enterprises, in addition to satisfying the
      enterprise data transfer needs already addressed by Proginet's other MFT
      solutions.




Proginet
      believes that CFI positions the company for continued, rapid growth.
      Accelerating market globalization, major advances in technology, and increased
      levels of security risk, have dramatically increased the importance of MFT.
      In
      fact, managed file transfer has become a linchpin to data integration and
      application integration for major enterprises.




The
      enterprise need for more advanced MFT capabilities is compelling and driven
      by
      many factors. The most significant drivers include:




·
            Integration
                Requirements


·
            Security


·
            Regulatory
                Compliance Mandates


·
            Control
                & Management


·
            Open
                Standards


·
            Efficiency










1










CFI
      has
      been developed specifically to address these key issues. The following section
      provides a high-level overview of CFI and its components:




**CyberFusion
      Integration Suite (CFI)** TM:
      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 an
      extended enterprise. A multi-platform solution that serves the mainframe world
      and all major distributed platforms, CFI enables organizations to conduct all
      enterprise 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.




From
      a
      conceptual level, CFI is comprised of three major integrated components, as
      detailed below:







**CFI
      Command Center:** The
      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. -Easily monitoring the incoming and outbound file transfers
      of a company and the company's business partners.





**CFI
      Platform Server:** 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. Furthermore, 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:** Internet
      Server enables organizations to exchange information securely over the Internet
      - with complete control. Internet Server is ideal for integrating with trading
      partners and for building secure trading partner networks; the only requirement
      for trading partners is a standard Web browser (no client software is
      required).








*Product
      Category: Identity & Access Management*




Enterprises
      face many challenges when it comes to managing passwords and the user identity
      lifecycle. The challenges begin right from the start, when a new user requires
      access to an application, and continue through to the end of that lifecycle,
      when the user leaves the organization and needs to be deprovisioned (removed)
      to
      prevent further access.




Proginet’s
      identity and access management solutions secure and protect corporate resources
      and provide centralized management and control of enterprise users.




Proginet
      has been providing password management solutions to major enterprises for more
      than a decade. In early 2005, Proginet further solidified its position in this
      marketplace by acquiring the assets of Blockade Corporation, a Canadian security
      software vendor. The core technologies acquired from Blockade have since been
      incorporated into Proginet's portfolio of security software products and
      rebranded under the names SecurForceTM and SecurAccessTM. Expanding its portfolio
      of security software products has enabled Proginet to offer the following
      enterprise solutions:




·
            Password
                Management


·
            Identity
                Management


·
            Access
                Management


·
            User
                Provisioning


·
            Two-factor
                Authentication





The
      following section provides an overview of Proginet products that fall under
      the
      category of identity and access management:




**SecurPass** ® **:** SecurPass is a security software solution for enterprise password management.
      SecurPass protects data within the enterprise - locking out unauthorized users
      -
      and integrates the enterprise's disparate platforms so that users can access
      all
      of their business applications using a single password. SecurPass comprises
      two
      modules that can be deployed either together or separately in an organization
      to
      achieve password synchronization and/or reset functionality.












2










**SecurPass:Reset:** Proginet's security module for self-service, password reset, SecurPass:Reset
      enables users to reset their own passwords in real time, eliminating expensive
      calls to the organization's help desk. A Web-based, self-service utility,
      SecurPass:Reset prompts users through the reset process - quickly, effortlessly,
      and efficiently.




**SecurPass:Sync:** SecurPass:Sync
      is a security module for synchronizing user passwords across multiple platforms;
      users only have to remember a single password to access all of their critical
      business applications. This minimizes the potential for password exposure and
      mitigates security risk for the organization.









**SecurForce** TM **:** SecurForce, from Proginet, is a comprehensive software suite that provides
      provisioning and user life-cycle management for the large or extended
      enterprise. SecurForce delegates and automates many of the identity management
      processes commonly implemented by large enterprises - and does so across the
      entire user life cycle.




The
      SecurForce Suite is comprised of the SelfServ, SyncServ, and IdentiServ modules.
      The modules work independently for specific usage or can be combined to form
      a
      comprehensive, enterprise-wide identity management system.




**IdentiServ:** This
      role-based provisioning and delegation module allows a system administrator
      to
      delegate the process of authenticating, provisioning and deprovisioning users
      to
      persons within the company who have been authorised to act as user-identity
      authorities for the various internal systems.




**SelfServ:** The
      self-service password reset and registration module automates the password
      reassignment process, enabling users to easily reset their own passwords without
      placing expensive and time consuming calls to the help desk. This slashes
      help-desk costs related to password management and tremendously improves
      operational efficiencies and overall productivity. Users can also register
      accounts, associate accounts, and maintain their own identity
      details.




**SyncServ:** The
      identity and password synchronization module reduces the number of passwords
      a
      user needs to one - regardless of the number of platforms or applications the
      user is authorized to access. User-password changes propagate across all systems
      automatically and systems are securely synchronized in real-time.









**SecurAccess** TM **:** SecurAccess is a single sign-on solution for the enterprise that enables users
      to access corporate resources and applications using a single, secure password.
      A centralized enterprise access control and management solution, SecurAccess
      takes advantage of the power of the IBM z/OS Enterprise Server system to
      effectively solve the organization’s security and access challenges. With
      SecurAccess, users have access to enterprise applications on any server
      authorized to their profile; they can access these applications seamlessly
      and
      in complete compliance with your enterprise security policies.




**SecurAccess** TM **with VASCO** ® **Tokens:** Two-factor authentication is gaining popularity within organizations and has
      been adopted by a number of major consumer-facing financial institutions. Seen
      as a viable, and indeed desirable, method of improving password strength and
      overall security, two-factor authentication combines something you have (a
      physical device) - with something you know (a password). Proginet's SecurAccess
      combines with VASCO Digipass ® tokens
      to deliver true, two-factor authentication, enabling secure user access to
      corporate resources and applications.







*Product
      Category: Legacy Solutions*





Proginet
      maintains a portfolio of legacy products that are used at leading corporations
      worldwide. These products include file transfer and middleware solutions that
      have significant positive impact on Proginet's revenue stream, but are no longer
      actively promoted in the marketplace. Existing customers of these products
      receive technical support from Proginet.










3










**Strategy**




Proginet's
      market success is driven by our client organizations' need for comprehensive
      security, complete control and management, high system availability, strong
      partnership with vendors and business partners, the need to promote more
      services to more customers, and Proginet's ability to satisfy these needs.
      These
      needs are instrumental in shaping Proginet's product and market
      strategies.




Product
      Strategy: Proginet’s product strategy continues to be to develop and market enterprise
      security software solutions that are standards-based, forward-looking and
      interoperable, and capable of meeting or exceeding the market's evolving
      requirements in terms of data security and regulatory compliance. The Company's
      core technologies are integral to an enterprise's overall business
      process  and
      promote secure, controlled data security and movement and identity and access
      management. Proginet implements its strategy by investing in a highly qualified
      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.




Proginet
      provides secure enterprise software to many diversified industries worldwide
      with technology that includes advanced security and management features to
      ensure secure access and control over enterprise systems and data. Proginet’s
      technology provides comprehensive features and capabilities to ensure compliance
      with laws, regulations, and mandates, as well as standards appropriate for
      these
      industries - generating cost effective, efficient, scalable, reliable and secure
      infrastructures to move, manage, protect and secure the typical enterprise's
      most important asset - its data.




The
      driving force behind Proginet’s strategy is the absolute dedication and
      commitment to fully utilize Proginet’s expertise, background, and core
      competencies in the critical area of security related to data movement and
      control. These competencies have resulted in Proginet’s product development
      architecture, which is focused on critical aspects of data security. This
      development architecture is a comprehensive data movement and security model
      introduced to address the instantaneous and always-on connectivity facilitated
      by the World Wide Web. In 2006, the Company continued the implementation of
      this
      architecture with the introduction of CyberFusion Integration Suite (CFI)TM, the
      company's flagship product and a major component of the Company's product
      development strategy.




CFI
      is an
      end-to-end, advanced managed file transfer (MFT) 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 process
      automation, and transfers inside and outside the extended
      enterprise.




An
      enterprise can be 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. 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, businesses and trading partners.




Proginet's
      CFI technology follows a logically designed “road map” and provides a master
      control system to secure and protect access to, and movement of, enterprise
      data
      - anywhere, anytime and anyhow - with industry standards for compliance and
      control.




For
      clients looking to adopt our technology enterprise-wide, Proginet provides
      a
      logical and orderly migration path - an 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.




Identity
      management systems represent a growing market, albeit 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. L arge
      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.




Proginet
      continues to have success in this marketplace with clients that want to achieve
      security, efficiency, and cost savings without the significant overhead
      associated with these major-vendor solutions. Our standalone solutions offer
      measurable ROI and are expected to offer substantial market opportunity for
      the
      next few years, and probably longer; Proginet intends to continue the pursuit
      of
      this market.












4










Proginet's
      principal identity-management offering is SecurForce. SecurForce is a well
      engineered and well architected package which can be sold successfully
      domestically, but may have even greater potential in the European and South
      American marketplace. In addition, there is still a large opportunity for
      SecurForce among companies with large mainframe or iSeries focus.




Market
      Strategy: Proginet's market strategy is dependent on the Company's successful development
      and deployment of the product development architecture. With success in research
      and development ,
      the
      strategy is then driven
      by
      three major components of the strategic plan: are
      s ales, a lliances,
      and a cquisitions.
      A significant aspect of the market strategy recognizes the importance of
      understanding that the needs of the marketplace are fluid and dynamic. The
      emphasis, the order of priority, and the commitment of resources, must be
      adjusted to maximize performance and capitalize on the most significant
      opportunities.




The
      sales
      component emphasizes the need to
      develop more
      aggressive and creative sales and marketing programs .   Every
      aspect of Proginet's sales process has been
      examined and will continue to be improved from the perspective of lead
      generation, lead qualification, product evaluation, and the closing of business.
      The sales strategy is specifically focused on increasing the average size of
      deals and reducing the average length of the sales process .




With
      the s ales
      strategy well advanced, the Company has shifted gears to be more aggressive
      and
      proactive with
      a cquisitions
      and s trategic a lliances.




The a cquisition
      strategy is focused on the acquisition of products and/or companies that satisfy
      Proginet's core acquisition objectives. These include either the acquisition
      of
      a customer and revenue base in Proginet's existing technology market, and/or
      the
      acquisition of complementary technologies that expand Proginet's offerings
      to
      our target markets.




Proginet
      typically evaluates several acquisition possibilities
      on an annual basis. Most often, the candidates come from agents representing
      sellers and Proginet's efforts are primarily reactive with choices being
      limited. Proginet's mergers and acquisitions (M&A) activities are expanded
      to proactively identify strong candidates through
      the use of brokers or agents (representing Proginet as the buyer) to help
      Proginet achieve its product and market strategy on an accelerated basis.  The
      use
      of such brokers will help
      ensure that the goals of the Company's M&A initiatives are achievable.







On
      the a lliance
      side, Proginet has allocated resources and made a commitment to establishing
      domestic alliances with major system integrators. The Company expects to
      leverage existing relationships it has with a few dozen integrators, in addition
      to other integrators with which we would seek to develop
      relationships.





It
      is
      expected that Proginet's a lliance
      initiatives will require substantial effort, as well as long-term commitment,
      in
      order to achieve strategic goals. The task of a small enterprise, such as
      Proginet, establishing alliances with major system integrators is challenging
      and difficult. Consequently, the plan calls for the creation of a dedicated
      group, with substantial support from management to break through the barriers
      and achieve strategic goals.













5





**Sales
      and Marketing**




Proginet’s
      sales strategy is comprised of three sales models: direct sales in North
      America; indirect international sales through distribution partners in over
      23
      countries around the world; and strategic 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, to the
      signing of a software license agreement. Proginet estimates that the “typical”
sales cycle averages about 90 days for smaller sales, and up to 150 days for
      larger sales, and that the company closes the sale in approximately thirty
      five
      (35) 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 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, as well as with industry
      analysts, most notably Gartner, gives Proginet greater visibility, which will
      continue to benefit both the direct and indirect sales model. Such visibility
      is
      often provided via coverage on these companies' Web sites, and in reports
      published by them. In both models, while there is no contractual obligation
      for
      Web site or other coverage, such 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
      and overall value proposition to the marketplace. It is focused on two primary
      categories: targeted vertical marketing, 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.





Marketing
      communications is a comprehensive program to deliver Proginet’s message to
      identified audiences. These methods include developing industry analyst
      relationships, press coverage, trade show attendance, industry conference
      participation, targeted e-mail and direct mail campaigns, and communication
      through our corporate Web site.




Proginet's
      Web site plays a critical role in our sales lead generation program. In early
      2006, the company engaged in a focused search engine optimization (SEO)
      initiative, enhancing the structure, content, and positioning of our corporate
      Web site in line with recognized SEO best practices. These SEO efforts have
      significantly improved both the volume and quality of leads received, and will
      continue to be a key strategic focus in our marketing efforts. In conclusion,
      Proginet is committed to further investment in the performance of our Web site,
      and in its promotion through search engines.




**Customers**




Proginet
      has established a worldwide customer base of companies or organizations in
      more
      than 23 countries. These customers are engaged in financial services, insurance,
      healthcare, telecommunications, government, and many other vertical industries.
      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.







6





**Competition**




The
      enterprise software space in which Proginet operates is highly competitive.
      Many
      of our competitors, including IBM, Computer Associates, Sterling Commerce (an
      AT&T company), Tumbleweed, and Axway, 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 shareholders or other
      parties 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 deep expertise and experience of our company.
      Additionally, Proginet solutions have critical and needed functionality for
      all
      companies required to address the extensive regulatory requirements that have
      been imposed over the past several years, including HIPAA, Sarbanes Oxley,
      and
      GLBA, as well as more recent serious security and privacy concerns.




**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, filed to register, or trademarked the names CyberFusion, CyberFusion
      Integration Suite (CFI), SecurForce, SecurPass, SecurAccess, IND$File, TCS,
      and
      TransAccess in the United States. These trademarks are considered significant
      in
      the protection of the Company's technology. The Company believes that its source
      code and its product designs are best protected by the Company’s Employee
      Confidential Information and Non-Competition Agreements entered into with each
      of its employees.




**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, 2006, Proginet had forty six full-time salaried employees and one
      consultant on retainer. The Company believes its relations with its employees
      are satisfactory.




**Research
      and Development Activities**




Proginet's
      investments in new technology development has and will continue to be a most
      significant factor in the Company's success. Proginet's expenditures for
      development are accounted for as R&D expenses and capitalized software
      development expenditures. A more thorough explanation of capitalized software
      and its financial treatment can be found in the Company's year end financial
      statements and the associated footnotes.





In
      2006,
      the company incurred R&D expense of $101,495 **** and
      incurred capitalized software development expenditures of $876,077. In 2005
      the
      Company incurred $51,507 in R&D expenses and $1,010,926 in capitalized
      software expenditures.








7




**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 may be involved in various claims and legal actions in the ordinary
      course of business. Proginet is currently not a defendant in any such legal
      action. It is the opinion of Management that the outcome of such litigation
      will
      not have a material adverse effect on the Company’s financial condition and
      results of operations.




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




None.































8




**Part
      II**




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




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, 2006
            
            $
            1.25
            
            $
            0.70April
                30, 2006
            
            $
            0.95
            
            $
            0.62January
                31, 2006
            
            $
            0.90
            
            $
            0.33October
                31, 2005
            
            $
            0.50
            
            $
            0.31July
                31, 2005
            
            $
            0.81
            
            $
            0.45April
                30, 2005
            
            $
            1.75
            
            $
            0.69January
                31, 2005
            
            $
            1.65
            
            $
            0.69October
                31, 2004
            
            $
            0.85
            
            $
            0.60







**Hold** **ers**




Proginet’s
      stock is held by approximately one hundred sixty-five 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.




**Securities
      authorized for issuance under equity compensation plan**







**Equity
      Compensation Plan Information**





(a)
            
            (b)
            
            (c)Number
                of securities to be issued upon exercise of outstanding options,
                warrants,
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants, and
                rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflect in column
                (a))Equity
                compensation plans approved by security holders
            
            
            2,690,000
            
            
            $  
                .76
            
            
            21,812Equity
                compensation plans not approved by security holders (1)
            
            
            100,000
            
            
            $  
                .22
            
            
            -Total
            
            
            2,790,000
            
            
            $  
                .74
            
            
            21,812





(1)
      Represents warrants issued to a consultant in fiscal 2000 for strategic
      corporate consulting services. The warrants expire December 2006.








9




**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, information technology spending
      trends may cause 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.








10




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
      15%
      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.

















11




**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, 2006 and July 31, 2005**





Total
      revenues for the year ended July 31, 2006 amounted to $8,498,067, representing
      an increase of $599,249, or 7.6% compared to revenues of $7,898,818 for the
      year
      ended July 31, 2005.





Software
      license revenues for the year ended July 31, 2006 amounted to $2,365,552
      representing a decrease of $419,065, or 15.0%, compared to software license
      revenues of $2,784,617 for the year ended July 31, 2005. 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 $1,665,537, $442,359 and $257,656 for the year ended July 31, 2006 compared
      to $1,552,047, $894,936 and 337,634 for the year ended July 31, 2005. The
      decrease in software license revenues is primarily due to a decrease in
      international distributor sales arising from a decrease in license contracts
      to
      new customers and add-on sales to existing customers in the European market
      principally related to our identity & access management
      products.





Software
      maintenance fees and other increased by $851,183, or 17.7% to $5,666,943
      compared to such fees in fiscal 2005 of $4,815,760. The increase in software
      maintenance fees and other is primarily due to the recognition of the Blockade
      product maintenance (acquired January 2005) for the twelve month period in
      fiscal 2006 which increased by $900,736.





Fees
      for
      professional services for the year ended July 31, 2006 amounted to $465,572
      compared to fees for professional services of $298,441 for the year ended July
      31, 2005, representing an increase of $167,131 or 56%. The increase in
      professional service fees revenue is primarily due to consulting services
      rendered to Blockade Systems Corp. customers amounting to $143,418.





**Operating
      Expenses**





Operating
      expenses decreased to $7,899,160 from $8,367,702 for year ended July 31, 2006
      and July 31, 2005 respectively, a decrease of $468,542 or 5.6%. The decrease
      in
      operating expenses 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, 2006 amounted to $1,817,609, representing
      a
      decrease of $283,793 or 13.5%, compared to cost of software licenses of
      $2,101,402 for the year ended July 31, 2005. The decrease in cost of software
      licenses is primarily due to full amortization of certain capitalized and
      purchased software costs net of additional capitalized projects amounting to
      $364,824 and an impairment charge incurred in fiscal 2005 amounting to $150,098
      offset by an increase in the amortization of the acquired software and customer
      relationship from Blockade Systems Corp acquisition of $239,596.





Cost
      of
      maintenance fees and other (which is principally consist of technical support
      payroll) for the year ended July 31, 2006 amounted to $1,231,034, representing
      an increase of $231,770 or 23.2%, compared to cost of maintenance fees and
      other
      of $999,264 for year ended July 31, 2005. The increase in cost of maintenance
      fees and other is due to an increase in facility and employee related costs
      of
      $165,338 for technical services related to the Blockade Systems Corp.
      acquisition and an increase of $64,407 in payroll and payroll related costs
      from
      an increase in technical support employee headcount required to service the
      Company’s expanding customer base.





Commissions
      amounted to $959,895 for the year ended July 31, 2006 compared to commissions
      of
      $1,064,160 for the year ended July 31, 2005, representing a decrease of $104,265
      or 9.8%. Commission expense decreased due to a reduction in international sales
      by distributors whose commissions rates range from 40% to 50% of the license
      arrangements offset by increase in direct sales commission expense as no
      commission expense was incurred in the prior year sale to an existing customer
      of $540,000.








12




Research
      and development amounted to $101,495 for the year ended July 31, 2006 compared
      to $51,507, representing an increase of $49,998 or 97.1% for the year ended
      July
      31, 2006. The increase in research and development expenses is attributable
      to
      increased resources allocated to the product development and testing activities
      of the Company’s new products.





Selling
      and marketing expense for the year ended July 31, 2006 amounted to $1,496,012
      representing a decrease of $507,634 or 25.3%, compared to selling and marketing
      expense of $2,003,646 for the year ended July 31, 2005. The decrease in selling
      and marketing is primarily due to a decrease in employee and employee related
      costs of $376,704 due to head count reduction in selling and marketing
      departments and cessation of media and industry analyst agreements amounting
      to
      $140,106.




General
      and administrative expense for the year ended July 31, 2006 amounted to
      $2,162,869, representing an increase of $116,827 or 5.7% compared to $2,046,042
      in general and administrative expense for the year ended July 31, 2005. The
      increase in general and administrative expense is primarily due to an 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 $50,688, an increase for Fiscal 2006 Board of Director approved
      employee profit sharing programs of $84,417 and an increase of $33,211 for
      certain management and employee performance training seminars offset by a
      reduction of $62,138 in employee and employee allocable related costs due to
      a
      head count reduction in administrative functions.




The
      Company reported a net income of $584,564 for 2006 compared to a net loss of
      $488,617 for 2005.




**LIQUIDITY
      AND CAPITAL RESOURCES**




At
      July
      31, 2006, the Company had a cash balance of $2,501,520.




Operating
      activities provided cash of $3,034,651 for the fiscal year ended July 31, 2006.
      This resulted primarily from a net income of $584,564 which included non-cash
      charges for depreciation and amortization of $1,862,665 and an increase in
      deferred revenue of $411,183 caused by increase in maintenance billings and
      collections.





Investing
      activities used cash of $965,409 for the fiscal year ended July 31, 2006,
      primarily for costs associated with the development of the Company’s software
      products.





Financing
      activities used cash of $921,038 primarily for the purchase of 222,222 shares
      of
      Proginet common stock amounting to $75,000 and for principal payments on a n ote
      of
      $833,332. 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
      was 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 bore interest
      at
1⁄2% above the Bank’ prime rate per annum and was collateralized by the accounts
      receivable and certain intellectual property of Proginet. The amounts due under
      the Note would have become due and payable immediately upon the occurrence
      of
      customary events of default and also required the Company to maintain a “Minimum
      Debt Service Coverage Ratio”, as defined, on an annual basis. The Company fully
      paid the Note on May 26, 2006.





The
      Company has available a line of credit of $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,
      2007, at which time the Company intends to renew this line of credit. As of
      July
      31, 2006, the Company has not borrowed against this line of credit.





The
      Company believes that its present cash, 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.














13




The
      following table lists the Company’s cash contractual obligations as of July 31,
      2006:





Payments
                Due by PeriodContractual
                Obligations:
            
            Total
            
            Less
                than 1 year
            
            1-3
                years
            
            3-5
                years
            
            More
                than 5 yearsOperating
                Lease Obligations (1)
            
            $
            1,999,000
            
            $
            298,000
            
            $
            553,000
            
            $
            645,000
            
            $
            503,000





(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
      its financial statements as the Company will no longer utilize share based
      payment awards and the fair value of the unvested outstanding awards is
      immaterial to the financial statements. Company does not intend to issue any
      more options.





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of
      FASB
      Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty
      in
      tax positions. This Interpretation requires the Company to recognize in the
      financial statements the impact of a tax position, if that position is more
      likely than not of being sustained on audit, based on the technical merits
      of
      the position. The provisions of FIN 48 are effective as of the beginning of
      fiscal year 2008, with the cumulative effect of the change in accounting
      principle recorded as an adjustment to opening retained earnings. The Company
      is
      currently evaluating the impact of the adoption of FIN 48 on the financial
      statements and does not anticipate a material effect.









































14





**Item
                7.**
            **Financial
                Statements**








PageReport
                of Independent Registered Public Accounting Firm
            16Balance
                Sheets as of July 31, 2006 and 2005
            17Statements
                of Operations for the years ended July 31, 2006 and 2005
            18Statements
                of Stockholders’ Equity for the years ended July 31, 2006 and
                2005
            19Statements
                of Cash Flows for the years ended July 31, 2006 and 2005
            20Notes
                to Financial Statements
            21






































15






**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,
      2006 and 2005, 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,
      2006 and 2005, 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
      7, 2006



































16








PROGINET
      CORPORATION


Balance
      Sheets


July
      31,
      2006





2006
            
            2005**Assets**Current
                assetsCash
            
            $
            2,501,520
            
            $
            1,353,316Trade
                accounts receivable, net
            
            
            599,498
            
            
            612,473Prepaid
                expenses
            
            
            41,052
            
            
            48,162Total
                current assets
            
            
            3,142,070
            
            
            2,013,951Property
                and equipment, net
            
            
            197,276
            
            
            253,933Capitalized
                software development costs, net
            
            
            3,197,811
            
            
            3,474,172Purchased
                software, net
            
            
            1,034,278
            
            
            1,417,022Customer
                relationships, net
            
            
            825,810
            
            
            1,065,630Goodwill
            
            
            123,661
            
            
            65,334Other
                assets
            
            
            32,445
            
            
            32,369$
            8,553,351
            
            $
            8,322,411**Liabilities
                and Stockholders’ Equity**Current
                liabilitiesCurrent
                portion of note payable
            
            $
            -
            
            $
            333,333Accounts
                payable and accrued expenses
            
            
            702,830
            
            
            513,013Deferred
                revenues
            
            
            2,570,977
            
            
            2,148,108Total
                current liabilities
            
            
            3,273,807
            
            
            2,994,454Note
                payable, net of current portion
            
            
            -
            
            
            499,999Deferred
                revenues
            
            
            3,279
            
            
            14,965Deferred
                rent
            
            
            161,784
            
            
            88,3703,438,870
            
            
            3,597,788Stockholders’
                equityPreferred
                stock, $.01 par value, 10,000,000 shares authorized, none
                issued
            
            
            -
            
            
            -Common
                stock, $.001 par value, 40,000,000 shares authorized, 15,739,613
                and
                15,731,613 shares issued in 2006 and 2005, respectively
            
            
            15,740
            
            
            15,732Additional
                paid-in capital
            
            
            12,786,929
            
            
            12,906,643Treasury
                stock 1,325,226 and 1,103,004 shares, at cost, in 2006 and 2005,
                respectively
            
            
            (606,023
            )
            
            (531,023
            )Accumulated
                deficit
            
            
            (7,082,165
            )
            
            (7,666,729
            )Total
                stockholders’ equity
            
            
            5,114,481
            
            
            4,724,623$
            8,553,351
            
            $
            8,322,411





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








17








PROGINET
      CORPORATION


Statements
      of Operations





Year
                ended July 31,2006
            
            2005RevenuesSoftware
                licenses
            
            $
            2,365,552
            
            $
            2,784,617Software
                maintenance fees and other
            
            
            5,666,943
            
            
            4,815,760Professional
                services
            
            
            465,572
            
            
            298,4418,498,067
            
            
            7,898,818Operating
                ExpensesCosts
                of software licenses
            
            
            1,817,609
            
            
            2,101,402Costs
                of maintenance fees and other
            
            
            1,231,034
            
            
            999,264Costs
                of professional services
            
            
            130,246
            
            
            101,681Commissions
            
            
            959,895
            
            
            1,064,160Research
                and development
            
            
            101,495
            
            
            51,507Selling
                and marketing
            
            
            1,496,012
            
            
            2,003,646General
                and administrative
            
            
            2,162,869
            
            
            2,046,0427,899,160
            
            
            8,367,702Income
                (loss) from operations
            
            
            598,907
            
            
            (468,884
            )Other
                income (expense)Interest
                income
            
            
            32,679
            
            
            9,293Interest
                expense
            
            
            (47,022
            )
            
            (29,026
            )(14,343
            )
            
            (19,733
            )Income(loss)
                before income taxes
            
            
            584,564
            
            
            (488,617
            )Income
                tax expense
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            584,564
            
            $
            (488,617
            )Basic
                and diluted income (loss) per common share
            
            $
            .04
            
            $
            (.03
            )Weighted
                average common shares outstanding - basic
            
            
            14,470,436
            
            
            14,073,392Weighted
                average common shares outstanding - diluted
            
            
            14,987,941
            
            
            14,073,392














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








18








PROGINET
      CORPORATION


Statements
      of Stockholders’ Equity


Years
      ended July 31, 2006 and 2005





Common
                stock
            
            Additional
              paid-
                in
            
            Treasury
            
            AccumulatedShares
            
            Amount
            
            capital
            
            stock
            
            deficit
            
            TotalBalance
                - August 1, 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
            
            
            
            
            
            
            
            
            177,600Costs
                associated with private placement common stock issuance
            
            
            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
            )
            
            4,724,623Exercise
                of common stock options
            
            
            8,000
            
            
            8
            
            
            1,352
            
            
            
            
            
            
            
            
            1,360Private
                placement common stock issuance, net
            
            
            
            
            
            
            
            
            (121,066
            )
            
            
            
            
            
            
            
            (121,066
            )Repurchase
                of shares
            
            
            
            
            
            
            
            
            
            
            
            (75,000
            )
            
            
            
            
            (75,000
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            584,564
            
            
            584,564Balance
                - July 31, 2006
            
            
            15,739,613
            
            $
            15,740
            
            $
            12,786,929
            
            $
            (606,023
            )
            $
            (7,082,165
            )
            $
            5,114,481














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

















19








PROGINET
      CORPORATION


Statements
      of Cash Flows





Year
                ended July 31,2006
            
            2005Cash
                flows from operating activitiesNet
                income (loss)
            
            $
            584,564
            
            $
            (488,617
            )Adjustments
                to reconcile net income (loss) to cash provided by operating
                activitiesDepreciation
                and amortization
            
            
            1,862,665
            
            
            1,996,620Impairment
                of capitalized software costs
            
            
            -
            
            
            150,098Deferred
                revenue
            
            
            411,183
            
            
            275,073Deferred
                rent
            
            
            73,414
            
            
            17,686Changes
                in operating assets and liabilitiesTrade
                accounts receivable
            
            
            12,975
            
            
            (210,192
            )Prepaid
                expenses and other assets
            
            
            7,033
            
            
            (11,173
            )Accounts
                payable and accrued expenses
            
            
            82,817
            
            
            156,651Net
                cash provided by operating activities
            
            
            3,034,651
            
            
            1,886,146Cash
                flows from investing activitiesPurchase
                of net assets of Blockade Systems Corp
            
            
            (58,327
            )
            
            (2,319,045
            )Capitalized
                software development costs
            
            
            (876,077
            )
            
            (1,010,926
            )Purchase
                of property and equipment
            
            
            (31,005
            )
            
            (206,315
            )Net
                cash used in investing activities
            
            
            (965,409
            )
            
            (3,536,286
            )Cash
                flows from financing activitiesPrivate
                placement common stock issuance, net
            
            
            (14,066
            )
            
            868,786Purchase
                of treasury stock
            
            
            (75,000
            )Proceeds
                from exercise of common stock options and warrants
            
            
            1,360
            
            
            177,600Proceeds
                from note payable
            
            
            
            
            
            1,000,000Principal
                payments on note payable
            
            
            (833,332
            )
            
            (166,668
            )Principal
                payments under capital lease obligation
            
            
            
            
            
            (6,705
            )Net
                cash (used in) provided by financing activities
            
            
            (921,038
            )
            
            1,873,013Net
                increase in cash and cash equivalents
            
            
            1,148,204
            
            
            222,873Cash
                at beginning of the year
            
            
            1,353,316
            
            
            1,130,443Cash
                at end of the year
            
            $
            2,501,520
            
            $
            1,353,316**Supplemental
                Disclosures of Cash Flow Information**Cash
                paid during the year for:Interest
            
            $
            47,022
            
            $
            29,026Non-cash
                financing activity:Accrued
                private placement costs
            
            $
            107,000
            
            $
            -





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










20






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND** **2005**







**(1)**
            **Nature
                of Business and Summary of Significant Accounting
                Policies**




**Nature
      of Business**


Proginet
      Corporation ("Proginet" or the "the Company") is a security software company
      focused on critical aspects of data security and identity security, addressing
      the security and protection of data while it is both in motion and at rest.
      The
      benefits of Proginet's solutions enable companies to securely automate,
      schedule, and audit the transfer of data between all types of computers, both
      internal and external to the company, and to secure, control, and manage
      enterprise user communities and their access to corporate resources and
      information assets - all while facilitating the corporate requirement to satisfy
      regulatory mandates. 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 North America through
      its
      direct sales force and internationally through a global network of distributors.
      The Company also sells its products through Original Equipment Manufacturer
      (OEM) partners in the United States and Europe. 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.











21








**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**





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 15% 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, 2006 and 2005, there was an
      allowance for doubtful accounts of $16,000. On a periodic basis, the Company
      evaluates its accounts receivable and establishes an allowance for doubtful
      accounts, when deemed necessary, based on its history of past write-offs and
      collections and current credit conditions.




**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.







22






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**





**Fair
      Value of Financial Instruments**


The
      fair
      values of the Company’s financial instruments, consisting of cash, 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.




**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  $1,152, 128 and
      $1,270,361 in fiscal 2006 and 2005, respectively. Capitalized software
      development costs were net of accumulated amortization of $7,487,013 and
      $6,334,885 at July 31, 2006 and 2005, respectively. Estimated amortization
      expense for the succeeding five years is $1,118,806 in fiscal 2007, $863,499
      in
      fiscal 2008, $635,854 in fiscal 2009, $353,158 in fiscal 2010, and $207,363
      in
      fiscal 2011. 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.






















23






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**


**Income
      (loss) Per Share**


Income
      (loss) per common share (“EPS”) is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding and diluted EPS reflects
      the potential dilution that could occur if securities or other contracts to
      issue common stock were exercised or converted into common stock or resulted
      in
      the issuance of common stock.


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





Year
                ended
              July
                31,2006
            
            2005NumeratorNet
                income (loss)
            
            $
            584,564
            
            $
            (488,617
            )DenominatorWeighted
                average number of common shares (basic)
            
            
            14,470,436
            
            
            14,073,392Effect
                of dilutive securities:Stock
                options
            
            
            455,768
            
            
            -Warrants
            
            
            61,737517,505Weighted
                average numberof
                common shares (diluted)
            
            
            14,987,941
            
            
            14,073,392Basic
                and diluted income (loss) per share
            
            $
            .04
            
            $
            (0.03
            )





Potential
      common shares of 1,289,875 and 2,039,750 at July 31, 2006 and 2005,
      respectively, issueable upon exercise of stock options and warrants are excluded
      in computing basic and diluted net income (loss) per share for fiscal 2006
      and
      2005, 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:








2006
            
            2005Net
                income (loss) as reported
            
            $
            584,564
            
            $
            (488,617
            )Deduct:
                Stock-based employee compensation expense determined under fair value
                based method for all options
            
            
            (434,590
            )
            
            (507,387
            )Net
                income (loss) as adjusted
            
            $
            149,974
            
            $
            (996,004
            )Net
                income (loss) per share:Basic
                and diluted-as reported
            
            $
            .04
            
            $
            (.03
            )Basic
                and diluted-as adjusted
            
            $
            .01
            
            $
            (.07
            )





The
      per
      share weighted average fair value of stock options granted during fiscal 2006
      and 2005 was $.62 and $1.13, 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 2006 and 2005; risk free
      interest rate of 3.99% and 3.78% in fiscal 2006 and 2005, respectively, expected
      stock volatility of 116% and 112% (based primarily on the Company’s historical
      stock prices) in 2006 and 2005, 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.







24






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**


**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, 2006 and at July 31, 2005. There were no income
      taxes paid during the years ended July 31, 2006 and 2005.




**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
      its financial statements as the Company will no longer utilize share based
      payment awards and the fair value of the unvested outstanding awards is
      immaterial to the financial statements. Company does not intend to issue any
      more options.





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of
      FASB
      Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty
      in
      tax positions. This Interpretation requires the Company to recognize in the
      financial statements the impact of a tax position, if that position is more
      likely than not of being sustained on audit, based on the technical merits
      of
      the position. The provisions of FIN 48 are effective as of the beginning of
      fiscal year 2008, with the cumulative effect of the change in accounting
      principle recorded as an adjustment to opening retained earnings. The Company
      is
      currently evaluating the impact of the adoption of FIN 48 on the financial
      statements and does not anticipate a material effect.





**Reclassifications**


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




**(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 $2,377,372. 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 $123,661 of the total purchase price to goodwill, which is amortizable
      over fifteen years for income tax purposes. For the year ended July 31, 2006
      the
      Company paid $58,327 in contingent payments to Blockade which were recorded
      as
      additional goodwill.







25






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**





The
      calculation of the total purchase price is as follows:





Cash
            
            $
            2,244,747Acquisition
                expenses
            
            $
            132,625Total
                purchase price
            
            $
            2,377,372





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
            
            
            123,661Deferred
                revenue (b)
            
            
            (476,491
            )Total
                purchase price
            
            $
            2,377,372





(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 years ended July 31, 2006 and 2005 amounted to $239,820
                and $133,448 and $300,360 and $167,136, respectively. Customer
                relationships and purchased software are net of accumulated amortization
                of $373,268 and $467,496 at July 31, 2006 and $133,448 and $167,136
                at
                July 31, 2005, respectively. 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 year ended July 31, 2005, as if the acquisition had taken place at August
      1,
      2004:





Twelve
                Months EndedJuly
                31, 2005Total
                revenues
            
            $
            8,977,559Net
                loss
            
            $
            (1,513,187
            )Net
                loss per common share (basic and diluted)
            
            $
            (.11
            )Weighted
                average number of common shares outstanding (basic)
            
            
            14,073,392Weighted
                average number of common shares outstanding (diluted)
            
            
            14,073,392





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, 2004 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.








26






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**




**(3)**
            **Purchased
                Software**




Purchased
      software includes software purchased in fiscal 2001 for a total of $1,647,946
      and software purchased in connection with the Blockade acquisition for an
      original cost of $1,501,774 and accumulated amortization of $467,496 and
      $167,136 at July 31, 2006 and July 31, 2005, respectively (Note 2). Purchased
      software is being amortized over a period of five years. Amortization expense
      charged to operations was $382,744 and $496,728 for each of the years ended
      July
      31, 2006 and July 31, 2005, respectively. Software purchased in fiscal 2001
      was
      fully amortized in the first quarter of fiscal 2006.





The
      weighted average amortization period of the Company’s purchased software as of
      July 31, 2006 is approximately 41 months. Estimated amortization expense for
      purchased software for the succeeding five years is $300,360 for fiscal 2007,
      2008, 2009, and $133,198 for fiscal 2010, respectively.




**(4)**
            **Property
                and Equipment**




Property
      and equipment consist of the following at July 31:


**2006**
              
              **2005**Computer
                  and other equipment
              
              $
              367,270
              
              $
              340,016Furniture
                  and fixtures
              
              
              154,963
              
              
              154,963Leasehold
                  improvements
              
              
              121,966
              
              
              121,966644,199
              
              
              616,945Less
                  accumulated depreciation and amortization
              
              
              (446,923
              )
              
              (363,012
              )$
              197,276
              
              $
              253,933




Depreciation
      and amortization expense for the years ended July 31, 2006 and 2005 was $87,662
      and $96,390, 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 was 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 bore interest at 1⁄2% above the Bank’s prime rate per annum and
      was collateralized by the accounts receivable and certain intellectual property
      of the Company. The amounts due under the Note would have become due and payable
      immediately upon the occurrence of customary events of default and also required
      the Company to maintain a “Minimum Debt Service Coverage Ratio”, as defined, on
      an annual basis. The
      Company fully paid the Note on May 26, 2006.





**(6)**
            **Credit
                Lines**




The
      Company has available a line of credit of $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,
      2007, at which time the Company intends to renew this line of credit. As of
      July
      31, 2006, the Company has not borrowed against this line of credit.















27






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**




**(7)**
            **Income
                Taxes**




There
      was
      no current or deferred tax expense (benefit) recorded for the year ended July
      31, 2006 and 2005. 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:




**2006**
            
            **2005**Federal
                tax expense (benefit) at statutory rate
            
            $
            200,000
            
            $
            (166,000
            )State
                tax expense (benefit) at statutory rate
            
            
            34,000
            
            
            (26,000
            )Increases
                (reductions) in taxes due to:Nondeductible
                expenses
            
            
            4,000
            
            
            4,000Change
                in valuation allowance
            
            
            (238,000
            )
            
            188,000Income
                tax provision
            
            $
            -
            
            $
            -





At
      July
      31, 2006, the Company had available Federal NOL carry forwards amounting to
      approximately $6,255,000 and research and development tax credit carry forwards
      of approximately $332,000, which expire in fiscal years 2017 through
      202 4 .
      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.




At
      July
      31, 2006, the Company had available federal net operating loss (NOL)
      carryforwards expiring in the following fiscal years:








Year
                ending July 31,
            
            Amount2017
            
            $
            1,369,0002018
            
            
            3,427,0002020
            
            
            645,0002023
            
            
            517,0002024
            
            
            297,000Total
                NOL carryforward
            
            $
            6,255,000


















































28










**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**





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:




**2006**
            
            **2005**Deferred
                tax assetsNet
                operating loss carryforward
            
            $
            2,480,000
            
            $
            3,054,000Accounts
                payable and other
            
            
            -
            
            
            35,000Deferred
                revenue
            
            
            1,024,000
            
            
            861,000Bad
                debt
            
            
            6,000
            
            
            -Purchased
                software
            
            
            572,000
            
            
            636,000Property
                and equipment
            
            
            14,000
            
            
            (2,000
            )Research
                and development carryforward
            
            
            332,000
            
            
            332,000Unbilled
                rent
            
            
            64,000
            
            
            33,000Gross
                deferred tax asset
            
            
            4,492,000
            
            
            4,949,000Valuation
                allowance
            
            
            (3,220,000
            )
            
            (3,458,000
            )Deferred
                tax asset
            
            
            1,272,000
            
            
            1,491,000Deferred
                tax liabilitiesCapitalized
                software development costs
            
            
            1,272,000
            
            
            1,383,000Accounts
                receivable
            
            
            -
            
            
            104,000Prepaid
                expenses
            
            
            -
            
            
            4,000Deferred
                tax liability
            
            
            1,272,000
            
            
            1,491,000Net
                deferred tax asset
            
            $
            -
            
            $
            -







At
      July
      31, 2006 and 2005, 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,
      however it is reasonably possible these estimates may change.

















29






**PROGINET
      CORPORATION**




**Notes
      To Financial Statements**




**July
      31, 2006 and 2005**




**(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. 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, 2006, 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. At the
      Company’s Annual Stockholder’s Meeting on November 22, 2005, the stockholders
      approved a 500,000 share increase in the number of shares reserved under the
      2000 Plan, up to an aggregate of 3,000,000. 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.






















30






**PROGINET
      CORPORATION**




**Notes
      To Financial Statements**




**July
      31, 2006 and 2005**




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, 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
                
                $0.77Granted
                
                602,000
                
                $0.75
                
                $0.75Exercised
                
                (8,000)
                
                $0.17
                
                $0.17Forfeited
                
                (55,000)
                
                $0.37
                    - $1.50
                
                $1.26Outstanding
                    at July 31, 2006
                
                2,690,000
                
                $0.16-$1.85
                
                $0.76










The
      following table summarizes information about employee stock options outstanding
      and exercisable at July 31, 2006:


**Options
                  outstanding**
              
              **Options
                  exercisable**Exercise
                  prices
              
              Number
                  outstanding at July 31, 2006
              
              Weighted
                  - average remaining contractual life (years)
              
              Weighted
                  -average exercise price
              
              Number
                  exercisable at July 31, 2006
              
              Weighted
                  - average exercise price$0.16
                  - $0.37
              
              512,500
              
              6
              
              $     
                  0.25
              
              512,500
              
              $     
                  0.25$0.43
                  - $0.68
              
              611,000
              
              4
              
              0.63
              
              611,000
              
              0.63$0.71
                  - $1.85
              
              1,566,500
              
              8
              
              0.97
              
              1,559,000
              
              0.972,690,000
              
              6
              
              $     
                  0.76
              
              2,682,500
              
              $     
                  0.75




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












31






**PROGINET
      CORPORATION**




**NOTES
      TO FINANCIAL STATEMENTS**




**JULY
      31, 2006 AND 2005**





**(11)**
            **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,
      2006:




Year
                ending July 31,
            
            Operating
                leases2007
            
            $
            298,0002008
            
            
            272,0002009
            
            
            281,0002010
            
            
            291,0002011
            
            
            354,000Thereafter
            
            
            503,000Total
                minimum lease payments
            
            $
            1,999,000







Rental
      expense charged to operations was $268,098 and $230,808 in the fiscal years
      ended July 31, 2006 and 2005, 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.




**(12)**
            **Concentration
                of Risks**




Software
      license revenues for the years ended July 31, 2006 and 2005 included sales
      in
      foreign countries of approximately $1,249,741 and $1,327,675 respectively.
      Included in software license revenues in fiscal 2006 were revenues generated
      under one OEM arrangement aggregating 11% of total software license revenues
      and
      revenues generated from a customer aggregating 16% of total software license
      revenues. Included in software license revenues in fiscal 2005, 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, 2006 and 2005.




At
      July
      31, 2006, one customer amounted for approximately 36% of total trade accounts
      receivable. At July 31, 2005, one customer accounted for approximately 11%
      of
      total trade accounts receivables.




**(13)**
            **Retirement
                Plan**




The
      Company maintains a 401(k) savings plan which covers all full-time employees.
      Employees become eligible for participation in the plan after one year of
      service and attainment of age twenty-one. Under the plan, employees may
      contribute up to 100% of their salary to the plan, subject to the dollar limit
      set by law. 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 $86,784 and $78,795 for the years ended July
      31, 2006 and 2005, respectively.












32






**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
                ininternalcontrolsover financial reporting




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.




















33






**Part
      III**




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




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 21, 2006 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 21, 2006, 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 21, 2006 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 21, 2006 and is incorporated
      herein by reference.



























34






**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 Incorporation3(i)(a)
            Certificate
                of Amendment of Certificate of Incorporation dated December 2,
                19963(ii)
            Amended
                and Restated Bylaws of the Registrant(II)4.3(i)
            Warrant
                Agreement dated October 22, 1999 by the Company and Mallory
                Factor(I)4.3(ii)
            Amendment
                to Warrant Agreement dated October 22, 22, 1999 between Proginet
                Corporation and Mallory Factor Inc(I)4.10
            Form
                of Specimen Stock Certificate(I)10.1
            Form
                of Employee Confidential Information and Non-Competition
                Agreement10.1
            Blockade
                Agreement dated January 10, 2005 (V)10.2
            Form
                of Confidential Information and Non-Competition Agreement For
                Consultants10.3
            Investor
                Relations Agreementwith Mallory Factor Inc. dated September 22, 199910.4
            Form
                of Software License Agreement10.5
            Form
                of Distributor Agreement10.6
            Form
                of OEM Agreement10.7
            Management
                Continuity Agreement - Kevin M. Kelly, Chief Executive Officer and
                President(III)+10.8
            Management
                Continuity Agreement - Debra A. DiMaria, Chief Financial Officer
                and
                Corporate Secretary(III)+10.9
            Management
                Continuity Agreement - Arne Johnson, Senior Vice President for Strategic
                Planning & Alliances(III)+10.10
            Management
                Continuity Agreement - Thomas Bauer, Chief Technology Officer(III)+10.11
            Management
                Continuity Agreement - Kevin Bohan, Chief Information Officer(III)+10.12
            Independent
                Directors Stock Option Plan, amended and restated as of February
                21,
                1995(VI)+10.13
            1995
                Equity Incentive Plan, amended and restated as of December 5, 1995
                (VI)+10.14
            Form
                of Incentive Stock Option Agreement (VI) +10.16
            Consulting
                Agreement between the Registrant and Mallory Factor, Inc., dated
                September
                22, 1999 (VI)10.17
            1997
                Stock Option Plan, as amended and restated as of November 14,
                2000(VI)+10.18
            2000
                Stock Option Plan as amended September 26, 2005(IV)+99.1
            Code
                of Business Conduct and Ethics(III)23
            Consent
                of BDO Seidman LLP(VII)31.1
            Rule
                13a-14(a)/15d-14(a) Certification Section 302 Certification (Chief
                Executive Officer)(VII)31.2
            Rule
                13a-14(a)/15d-14(a) Certification Section 302 Certification (Chief
                Financial Officer)(VII)32.1
            Section
                1350 Clarification of Chief Executive Officer (VII)32.2
            Section
                1350 Clarification of Chief Financial Officer
                (VII)





(I)
            Incorporated
                by reference to the Company’s Form SB-2 Amendment No. 1 filed with SEC on
                June 22, 2005(II)
            Incorporated
                by reference to the Company’s Form 10-KSB filed with the SEC on September
                18, 2002(III)
            Incorporated
                by reference to the Company’s Form 10-KSB filed with the SEC on October 3,
                2003(IV)
            Incorporated
                by reference to the Company’s Proxy Statement dated October 3,
                2005(V)
            Incorporated
                by reference to the Company's form 8-K filed with SEC on January
                14,
                2005(VI)
            Incorporated
                by reference to the Company’s form 10-SB/12(g) filed with the SEC on March
                29, 2000(VII)
            Filed
                herewith+
            Management
                contract or compensatory plan








35






**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 21, 2006 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
                15, 2006





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
                15, 2006*/s/*Debra
                A. DiMaria
              _____________________
              Debra
                A. DiMaria
            
            Corporate
                Secretary and Chief Financial and Accounting Officer
            
            September
                15, 2006*/s/*John
                C. Daily
              _____________________
              John
                C. Daily
            
            Chairman
            
            September
                15, 2006*/s/*Stephen
                Sternbach
              _____________________
              Stephen
                Sternbach
            
            Director
            
            September
                15, 2006*/s/*Dr.
                E. Kelly Hyslop
              _____________________
              Dr.
                E. Kelly Hyslop
            
            Director
            
            September
                15, 2006*/s/*William
                Loscalzo
              _____________________
              William
                Loscalzo
            
            Director
            
            September
                15, 2006*/s/*George
                T. Hawes
              ____________________
              George
                T. Hawes
            
            Director
            
            September
                15, 2006


36