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, 2004

[ ]   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             (I.R.S. Employer Identification No.)
incorporation or organization)

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

Issuer's telephone number   (516) 535-3600

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                   Name of each exchange on which registered
-------------------                   -----------------------------------------
       None                                             None

 Securities registered under Section 12(g) of the Exchange Act:

                                  Common Stock
                                  ------------
                                (Title of class)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.     X
                                ------

The issuer's revenues for its most recent fiscal year were $6,301,818.

The  aggregate  market value of the voting stock (based on the closing  price of
such stock on the OTC Bulletin Board) held by non-affiliates of the issuer as of
September 22, 2004 was approximately  $9,045,265.  All officers and directors of
the  issuer  have  been  deemed,   solely  for  the  purpose  of  the  foregoing
calculation, to be "affiliates" of the issuer.

There were 13,343,054 shares of Common Stock outstanding at September 22, 2004.

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
2004 Annual Meeting of Stockholders.

Transitional Small Business Disclosure Format:

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

<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

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

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

Item 3.      Legal Proceedings.................................................6

Item 4.      Submission of Matters to a Vote of Security Holders...............6

                                     PART II

Item 5.      Market for Common Equity, Related Stockholder Matters
               and Small Business Issuer Purchases of Equity Securities........7

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

Item 7.      Financial Statements.............................................12

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

Item 8A.     Controls and Procedures..........................................28

Item 8B.     Other Information................................................28




                                    PART III

Item 9.      Directors and Executive Officers of the Registrant...............29

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

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

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

Item 13.     Exhibits, Lists and Reports on Form 8-K..........................30

Item 14.     Principal Accountant Fees and Services...........................30

Signatures   .................................................................31





                                       i
<PAGE>


                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

Proginet  Corporation  ("Proginet"  or "the  Company")  is a  global  enterprise
software  company.   Proginet's   software  solutions  allow  our  customers  to
effectively and securely  manage their security  passwords and data within their
information  technology  (IT) systems,  which span most business  sectors of the
economy.  The Company's  products can be used on all major  hardware  platforms,
operating  systems  and  application  development  environments  for  enterprise
computing. The Company maintains a philosophy of internally developing products,
coupled with the acquisition of key technology,  the integration of the two, and
the  establishment  of a network  of  strategic  alliances  with key  technology
partners.  The Company  sells its products in the U.S.  through its direct sales
force and  internationally  through  distributors.  The  Company  also sells its
products through Original  Equipment  Manufacturer  (OEM) partners in the United
States, Europe, South America, Asia and Australia. The Company's stock is traded
on the OTC Bulletin Board under the symbol PRGF.

GENERAL DEVELOPMENT OF THE BUSINESS

Proginet was incorporated in New York in 1986 as the Teleprocessing  Connection,
Inc. (TCI) and changed its name in 1990 to Proginet Corp. In 1994 Proginet Corp.
merged with a Delaware corporation,  was renamed Proginet Corporation and became
a public company by listing on the Vancouver Stock Exchange.  In addition to the
development of software  technology,  Proginet has acquired several technologies
from other companies including the acquisition of Network Navigator and IND$FILE
from Novell Inc. in 1994, the acquisition of TransAccess from Microsoft in 1995,
the acquisition of NetWk software from  KnowledgeNet in 1995 and the acquisition
of TCS from SureFire Inc. in 2000.

PRODUCTS

The  following  is a  brief  description  of the  principal  products  currently
marketed by Proginet.  Proginet  has  designed its products  with an emphasis on
security,  reliability, ease of deployment and use, and strong ROI's. Proginet's
goal is to protect its customers'  investments in numerous  networking  hardware
and  software,  and  to  provide  its  customers  with  flexibility  for  future
investments in standards based technology and Internet technology.

Information Movement Products

Proginet's  enterprise  file  transfer  technology  allows  users to send  their
information over internal networks and the Internet, confident that no one other
than the  intended  recipient  can read or receive the  information.  Proginet's
information  movement  software is  currently  being used by some of the largest
corporations in the world.  Proginet offers seven software  solutions for moving
information between computers.  The Secure Internet File Transfer product (SIFT)
was  introduced  to the market in July 2004,  as a  standards  based web service
technology  to  address  the B2B  data  transfer  requirements  of  hundreds  of
thousands of companies.  Thus, SIFT is designed  specifically  for Internet file
transfer and the other six are designed for internal network file transfers.

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

     o    SIFT, or Secure Internet File Transfer, is a Web Service that provides
          connectivity  with business  partners or consumers needing secure file
          data  exchange  over  the  Internet  using  open  protocols.  As a web
          service,  SIFT supports  HTTPS,  SOAP,  UDDI,  WSDL,  and Struts.  For
          encryption,  SIFT  supports SSL, AES and DES. For  authentication  and
          non-repudiation, SIFT supports X509 Digital Certificates.
     o    CyberFusion provides secure reliable information movement across large
          enterprise  internal  networks.  This  product  includes  some  of the
          strongest encryption available including DES, Triple DES, Blowfish and
          Blowfish  Long,  along  with  extensive  features  to  allow  for  the
          automation of information movement needs.
     o    TransAccess   is  a  data   access   and   middleware   solution   for
          cross-platform  data retrieval,  update,  and transaction  processing.
          TransAccess  enables  enterprise-wide  applications  to be distributed
          across an extensive range of computing platforms.
     o    Network  Navigator  is  a  batch  file  transfer   capability  between
          client/server and MVS environments.
     o    Proginet also provides a version of IND$FILE,  called  IND$FILE  Plus.
          While the Time Sharing Option (TSO) version of IND$FILE,  sold by IBM,
          is already the industry standard for exchanging files between personal
          computers and IBM  mainframes,  Proginet's  VTAM - based IND$FILE Plus
          provides added value and security to all IBM mainframe users.



                                       1
<PAGE>

     o    TCS(TM) is a peer-to-peer  file transfer  solution for the enterprise.
          TCS  allows  end  users  and  Information  Technology  staff to easily
          transfer,  access,  and  manage  data  across an  enterprise  network,
          regardless  of location,  file type or protocol.  TCS file transfer is
          flexible,  secure, centrally managed and scalable, and offers complete
          platform protocol and Application  Program Interface (API) support for
          MVS,  OS/2,  Netware,  UNIX and all  versions  of  Windows.  For those
          customers  who  do not  require  the  fully  automated  file  transfer
          capabilities of  CyberFusion,  TCS is an excellent  alternative,  at a
          lower price point.

Password Management Product

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

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

In 2004,  Proginet  introduced  a new version of the  SecurPass  Reset  product,
providing improved performance capabilities. These improvements reduce both cost
and time delay in accessing systems.

Proginet  believes that enterprises can simplify and consolidate  their security
administration  functions  using  SecurPass  Sync and Reset,  as a first step to
regaining and keeping control over their information technology environments.

STRATEGY

Proginet's strategy continues to be to develop market relevant security software
applications  that are standards based  technology  applications for information
movement and password management.  Proginet implements its strategy by investing
in a highly qualified and motivated research and development team, that produces
and  brings  to market  unique  and  creative  products  geared to the  security
software  requirements of large, medium and most recently small enterprises with
the  introduction  of our SIFT product.  Such technology  includes  security and
management features to assure secure access to systems and reliable transfers.

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

The driving  force behind  Proginet's  strategy is the absolute  dedication  and
commitment  to  fully  utilize  Proginet's  expertise,   background,   and  core
competencies  in the  critical  area of security  related to data  movement  and
control.  These competencies resulted in Proginet's  development of the Security
and Information Exchange  Architecture for the Global Enterprise (SIEA) Model in
2003. This model is a comprehensive  data movement and security model introduced
for the instant access world of the Internet. In 2003, the Company continued the
implementation  of this  model  with the  introduction  of SIFT,  the next major
component of the SIEA strategy. In 2004 the Company continues the development of
this  strategic  model  with  support  for  additional  protocols  for FTP,  the
implementation  of the AS2 and AS3 data  standards and delegated  administrative
capabilities.

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



                                       2
<PAGE>

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

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

Since the advent of the mini-computer,  where  organizations  began distributing
their data processing and their data, the enterprise model has become incredibly
more complex.  Security,  data  integrity,  reliability,  scalability,  disaster
recovery,  and so many other issues have made it increasingly more difficult for
organizations to keep up with their customer demands and regulatory obligations.
Achieving a reasonable  profitability  and return on  investments is a much more
difficult challenge.

Proginet's  SIEA  Model  addresses  all of the major  requirements  of the large
global  enterprises  which  have  worldwide-distributed  information  processing
configurations  and with the  introduction  of SIFT the Company's  technology is
deployable  and beneficial for  dramatically  expanded  marketplace of small and
medium  companies as well. The SIEA Model provides for major  functionality  for
data  movement and  security  through  Proginet  software.  Proginet's  software
architecture also provides for standards  compliance and deployment and provides
for full integration to the extensive  software tools and applications  deployed
or to be  deployed  throughout  the  global  enterprises.  The SIEA  Model as it
continues to be developed is a superior solution for all size enterprises.

SALES AND MARKETING

Proginet's sales strategy is comprised of four sales models: direct sales in the
U.S.; indirect sales in the U.S. through  distributors;  indirect  international
sales through  distribution  partners in over 30 countries around the world; and
alliances  with  partners  who  integrate   Proginet's   technology  with  their
technology  and  sell the  combined  product(s).  This  last  model is  commonly
referred to as OEM.

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

The indirect international sales model is built on the premise that presence and
knowledge  in local  markets is  paramount to  establishing  necessary  business
relationships  and  closing  sales.  Therefore,   distributor  partnerships  are
established  in local  markets  (countries)  and  Proginet  commits  significant
resources to train and support  distributors to sell Proginet  software in their
countries.  The  distributors'  role is to act as agents,  make the  marketplace
aware of Proginet's  technology  and explain how the  technology  can be used in
their business environments.  Proginet supports the distributors with authorized
assistance and support,  customer installations and training whenever necessary.
Distributors are typically  compensated at a commission rate of 25% to 50% based
upon their level of effort, resources assigned, and commitment to closing sales.

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

All of Proginet's  sales are dependent on visibility in the  marketplace and the
market's  acceptance of Proginet's  products.  As such, the  relationships  with
technology partners such as IBM, Microsoft,  HP and others,  which give Proginet
visibility on their  websites,  continue to benefit both the direct and indirect
sales  model.  In both  models,  while there is no  contractual  obligation  for
website coverage,  this visibility  provides leads and references to prospective



                                       3
<PAGE>

customers who could benefit from Proginet's  products and their integration into
our partner's technology.  The Company, however, does not maintain statistics on
the amount of revenues attributable to such leads.

Proginet's marketing strategy is centered on communicating the Company's product
solutions  to the  marketplace.  It is  focused  in  three  primary  categories:
targeted vertical marketing, product management and marketing communications.

Targeted  vertical   marketing   identifies   specific  vertical  markets  where
Proginet's  products  are most  beneficial  to  create  the  greatest  number of
opportunities  and then  develops  positioning,  programs and materials to reach
these customers and support sales activities.

Product  management's  function is to translate  customer  requirements,  market
requirements and competitive differentiators into product development plans, and
to work with the development team through product completion. Product management
is also  responsible  for  training  the  Company  on  product  information  and
strategy.

Marketing  communications  is a  comprehensive  program  to  deliver  Proginet's
message to identified  audiences.  These methods  include trade press  coverage,
trade show attendance,  industry conference  participation,  developing industry
analyst  relationships,  targeted direct mail campaigns and through our internet
website.  Our website is an important part of our sales lead generation program,
and as such,  we  continue  to invest  in  improving  our  website  content  and
promoting the website in search engines and paid online advertising.

CUSTOMERS

Proginet has  established  a worldwide  user base of more than 300  companies in
over 25  countries  engaged in the  financial,  telecommunications,  healthcare,
government,  and other industry sectors. No one customer represented 10% or more
of Proginet's revenues during the past two fiscal years.

SUPPLIERS

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

COMPETITION

The enterprise  management software business is highly competitive.  Many of our
competitors   including  IBM,   Computer   Associates,   Sterling  Commerce  and
Tumbleweed,  as well as large  computer  manufacturers  such as Sun and HP, have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial,  marketing and other resources.  Certain of our
competitors may devote greater resources to marketing and promotional campaigns,
adopt more aggressive  pricing policies and devote  substantially more resources
to web  site  and  systems  development.  If our  competitors  are able to offer
products  and  services  on more  favorable  terms,  we may  experience  reduced
operating  margins,  loss of market share and a diminished brand  franchise.  We
cannot  assure you that we will  compete  successfully  against  our current and
future competitors. Competitive pressures created by any one of our competitors,
or by our competitors collectively,  could have a material adverse effect on our
business, prospects, financial condition and results of operations.

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

PROPRIETARY RIGHTS

Proginet  does not possess any  patents.  Proginet  relies on a  combination  of
trademark,  copyright and trade secret laws to protect its  proprietary  rights.
Proginet has registered the trademarks IND$File, TCS, CyberFusion, SecurPass and
TransAccess in the United States. These trademarks are considered significant in
the protection of the Company's technology. The Company believes that its source
code and its  product  designs  are best  protected  by the  Company's  Employee
Confidential  Information and Non-Competition  Agreements entered into with each
of its employees.  In addition,  Proginet owns most of the Internet domain names
for its products.



                                       4
<PAGE>



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,  2004,  Proginet  had 45  full-time  salaried  employees  and two
consultants on retainer.  The Company  believes its relations with its employees
are satisfactory.

RESEARCH AND DEVELOPMENT ACTIVITIES

During the years  ended July 31,  2004 and 2003,  Proginet  spent  $126,726  and
$151,284, respectively, on research and development activities.





















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<PAGE>


ITEM 2.   DESCRIPTION OF PROPERTY

Proginet  maintains its headquarters at 200 Garden City Plaza,  Garden City, New
York, 11530 where all employees are located. This lease expires May 2013.

ITEM 3.   LEGAL PROCEEDINGS

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

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

None.




















                                       6
<PAGE>


                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
          BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

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

Proginet's  common  stock was also  listed  on the TSX  Venture  Exchange  ("TSX
Venture"),  under the symbol PRF.U, until the Company voluntarily  delisted from
the TSX Venture on April 1, 2003.

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

Quarter Ended                                    High        Low
------------------------------------------------ ----------- --------------
July 31, 2004                                    $0.90       $0.48
April 30, 2004                                   $1.40       $0.35
January 31, 2004                                 $0.70       $0.24
October 31, 2003                                 $0.35       $0.20
July 31, 2003                                    $0.44       $0.20
April 30, 2003                                   $0.25       $0.12
January 31, 2003                                 $0.30       $0.11
October 31, 2002                                 $0.30       $0.11


The following table shows the high and low bid information,  in U.S. dollars, of
Proginet's  common  stock on the TSX  Venture  the  period  from  August 1, 2002
through  April 1,  2003  (when the  Company  voluntarily  delisted  from the TSX
Venture).

Period Ended                                     High        Low
------------------------------------------------ ----------- --------------
April 1, 2003                                    $0.24       $0.15
January 31, 2003                                 $0.24       $0.15
October 31, 2002                                 $0.31       $0.13


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

DIVIDENDS

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

RECENT SALES OF UNREGISTERED SECURITIES AND REPURCHASES

There have been no Company sales of  unregistered  securities  during the fiscal
year ended July 31, 2004.

There have been no repurchases of securities  during the forth quarter of fiscal
2004.





                                       7
<PAGE>




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

GENERAL

You should read the  following  discussion  in  conjunction  with our  financial
statements and the notes thereto included  elsewhere herein.  Certain statements
under the captions  "Description  of  Business",  "Management's  Discussion  and
Analysis  or Plan of  Operation"  and  elsewhere  in this  Form  10-KSB  contain
"forward-looking  statements" within the meaning of the Securities  Exchange Act
of  1934.  Words  such  as  "may",  "should",  "could",   "believe",   "expect",
"anticipate", "estimate", "intend", "strategy", "likely" and similar expressions
are intended to identify  forward-looking  statements about the Company's future
plans,   objectives,    performance,    intentions   and   expectations.    Such
forward-looking  statements  are subject to a number of known and unknown risks,
uncertainties  and other factors which may cause the Company's actual results of
operations  and  future  financial  condition  to differ  materially  from those
expressed or implied in or by any such forward-looking  statements. Such factors
include  factors that may be beyond the  Company's  control and  include,  among
others,  the following:  general economic and business  conditions,  competition
from existing and potential competitors and availability of qualified personnel.

The  Company  cautions  that the  foregoing  list of  important  factors  is not
exclusive.  The  Company  does  not  undertake  to  update  any  forward-looking
statements  contained  herein  or that  may be made  from  time to time by or on
behalf of the Company.

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

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

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

REVENUE RECOGNITION

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

We  consider a  non-cancelable  agreement  signed by us and the  customer  to be
evidence  of  an  arrangement.  Delivery  is  considered  to  occur  when  media
containing  the  licensed  programs  is  provided  to a common  carrier,  or the
customer is given electronic  access to the licensed  software.  Our typical end
user license agreements do not contain acceptance  clauses.  We consider the fee
to be fixed or  determinable  if the fee is not subject to refund or adjustment.



                                       8
<PAGE>

If the fee is not fixed or determinable, we recognize revenue as the amounts are
earned. 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.

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

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

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

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

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

Based on our  interpretation  of SOP  97-2 and SOP  98-9,  we  believe  that our
current  sales  contract  terms and  business  arrangements  have been  properly
reported.  However,  the  American  Institute of  Certified  Public  Accountants
("AICPA")  and its Software  Revenue  Recognition  Task Force  continue to issue
interpretations and guidance for applying the relevant standards to a wide range
of sales  contract  terms and business  arrangements  that are  prevalent in the
software  industry.  Also, the Securities  and Exchange  Commission  ("SEC") has
issued Staff Accounting  Bulletin No. 104, "Revenue  Recognition" 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.



                                       9
<PAGE>

FISCAL PERIODS ENDED JULY 31, 2004 AND JULY 31, 2003

Total  revenues  for the  year  ended  July 31,  2004  amounted  to  $6,301,818,
representing an increase of $914,897,  or 17% compared to revenues of $5,386,921
for the year  ended  July 31,  2003.  Software  license  revenues  increased  by
$790,862,  or 51.7%, to $2,319,702.  The increase in software  license  revenues
compared to the prior year was  primarily due to sales made by our OEM partners,
both domestically and internationally.

Software maintenance fees and other increased by $124,035, or 3.2% to $3,982,116
compared to fiscal 2003 of $3,858,081. The increase in software maintenance fees
and other is primarily due to an increase in recurring maintenance revenues from
an expanded customer base and from maintenance  revenues  generated under an OEM
relationship established in fiscal 2004.

Operating  expenses  increased  $845,743,  or 14.2% to $6,787,409 in fiscal 2004
from  $5,941,666  in fiscal 2003.  This  increase is primarily  attributed  to a
$131,356,  or 20.9%,  increase is cost of maintenance fees and other, a $95,007,
or 11.1%,  increase  in  commissions  and a $581,985,  or 74.3%,  in selling and
marketing.

The increase in cost of maintenance fees and other (which  principally  consists
of technical  support  payroll) is  primarily  due to an increase in payroll and
payroll related  expenses  allocated to support the Company's  customer base and
installed  products.  The  increase  in  commissions  is due to an  increase  in
international  revenue generated through  distributors.  The increase in selling
and marketing is due to an increase in sales and marketing personnel and from an
increase in  marketing  programs  related to the launch of the SIFT  product and
other  corporate  sales  and  marketing   initiatives,   both  domestically  and
internationally,   including  among  other  items,  trade  show   participation,
increased  customer  visitations and the retention of an industry  analyst group
and a public relations firm.

Interest  income  amounted  to  $2,964  and  $4,369  in  fiscal  2004 and  2003,
respectively.  The  $1,405,  or 32.2%,  decrease in  interest  income  earned is
primarily due to a lower rate of return earned on the Company's  investment in a
liquid reserve mutual fund in fiscal 2004.

The Company  reported a net loss of $482,627 for 2004  compared to a net loss of
$550,376 for 2003.

LIQUIDITY AND CAPITAL RESOURCES

At July  31,  2004,  the  Company  had a cash  and cash  equivalent  balance  of
$1,130,443 and a working capital  deficit of $153,675  compared to $1,176,627 of
cash and cash  equivalents  and working  capital  deficit of $62,173 at July 31,
2003. The increase in the working capital deficit is primarily due to the timing
of cash  collections  related to the Company's new license revenues and software
maintenance fees.

Operating  activities provided cash of $1,139,302 for the fiscal year ended July
31,  2004.  This  resulted  primarily  from a net loss of  $482,627,  offset  by
non-cash  charges for  depreciation  and amortization and provision for bad debt
allowance of $1,547,664 and $50,000,  respectively.  Investing  activities  used
cash of $1,188,955 for the fiscal year ended July 31, 2004,  primarily for costs
associated with the development of the Company's  software  products.  Financing
activities  provided net cash of $3,469  which  consisted of $12,380 in proceeds
received  from the  exercise  of  common  stock  options,  offset  by  $8,911 in
principal payments under a capital lease obligation.

On January  12,  2000,  Proginet  established  a line of credit in the amount of
$100,000 with a bank. The interest rate is variable, based on prime plus 1%. The
line of credit expires on September 30, 2005, at which time the Company  intends
to renew this line of credit.  As of July 31, 2004, the Company has not borrowed
against this line of credit.

In May 2001, the Company  established an additional line of credit in the amount
of $350,000 with another  bank. In July 2004,  this line of credit was increased
to $550,000.  The interest rate is variable  based on the bank's prime rate plus
1/2%. The line of credit is collateralized by accounts receivable of the Company
and expires July 31, 2005, at which time the Company  intends to renew this line
of credit.  As of July 31, 2004, the Company has not borrowed  against this line
of credit.

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



                                       10
<PAGE>



The following table lists the Company's cash contractual  obligations as of July
31, 2004:

<TABLE>
<CAPTION>
                                                                    Payments Due by Period
                                              -------------------------------------------------------------------
                                                           Less than 1                              More than 5
Contractual Obligations:                         Total         year       1-3 years     3-5 years      years
--------------------------------------------- ------------ ------------- ------------- ------------ -------------
<S>                                            <C>             <C>           <C>          <C>         <C>
   Capital Lease Obligations                   $    6,705      $  6,705             -            -             -
   Operating Lease Obligations                  2,432,000       250,000      $457,000     $553,000    $1,172,000
      Total                                    $2,438,705      $256,705      $457,000     $553,000    $1,172,000
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 104,  "Revenue  Recognition,"  which codifies,  revises and
rescinds certain sections of SAB No. 101, consistent with current  authoritative
accounting  and  auditing  guidance and SEC rules and  regulations.  The changes
noted  in SAB  No.  104  did  not  have a  material  effect  on our  results  of
operations, financial position or cash flows.

























                                       11
<PAGE>



ITEM 7.       FINANCIAL STATEMENTS

                                                                          Page
Report of Independent Registered Public Accounting Firm                    13
Balance Sheets as of July 31, 2004 and 2003                                14
Statements of Operations for the years ended July 31, 2004 and 2003        15
Statements of Stockholders' Equity for the years ended
  July 31, 2004 and 2003                                                   16
Statements of Cash Flows for the years ended July 31, 2004 and 2003        17
Notes to Financial Statements                                              18





















                                       12
<PAGE>


             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, 2004 and 2003, 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.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Proginet Corporation as of July
31, 2004 and 2003,  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 23, 2004














                                       13
<PAGE>



                              PROGINET CORPORATION
                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                                              July 31,
                  ASSETS                                                              2004                 2003
                                                                                 ---------------        ------------

Current assets
<S>                                                                       <C>                    <C>
          Cash and cash equivalents                                       $           1,130,443  $        1,176,627
          Trade and installment accounts receivable, net                                402,281             543,632
          Prepaid expenses                                                               37,094              31,078
                                                                                 ---------------    ----------------
                               Total current assets                                   1,569,818           1,751,337
                                                                                 ---------------    ----------------

Property and equipment, net                                                             114,659             128,810
Capitalized software development costs, net                                           3,883,398           3,898,364
Purchased software, net                                                                 411,976             741,568
Other assets                                                                             32,262              32,262
                                                                                 ---------------    ----------------
                                                                          $           6,012,113  $        6,552,341
                                                                                 ===============    ================
          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
          Accounts payable and accrued expenses                           $             356,362  $          290,189
          Current portion of obligation under capital lease                               6,705               9,094
          Deferred revenue                                                            1,360,426           1,514,227
                                                                                 ---------------    ----------------
                               Total current liabilities                              1,723,493           1,813,510
                                                                                 ---------------    ----------------

Deferred revenue                                                                         51,083
Deferred rent                                                                            70,683              95,208
Long term obligation under capital lease                                                                      6,522
                                                                                 ---------------    ----------------
                                                                                      1,845,259           1,915,240
                                                                                 ---------------    ----------------
Commitments and Contingencies

Stockholders' equity
          Preferred stock, $.01 par value, 10,000,000 shares authorized,
                none issued                                                                   -                   -
          Common stock, $.001 par value, 40,000,000 shares authorized,
                14,271,058 and 14,251,058 shares issued in 2004 and
                2003, respectively                                                       14,271              14,251
          Additional paid-in capital                                                 11,861,718          11,849,358
          Treasury stock 1,103,004 shares, at cost, in 2004 and
                2003                                                                   (531,023)           (531,023)
          Accumulated deficit                                                        (7,178,112)         (6,695,485)
                                                                                 ---------------    ----------------
                               Total stockholders' equity                             4,166,854           4,637,101
                                                                                 ---------------    ----------------
                                                                          $           6,012,113  $        6,552,341
                                                                                 ===============    ================

</TABLE>
The accompanying notes are an integral part of these financial statements.




                                       14
<PAGE>



                              PROGINET CORPORATION
                            Statements of Operations

<TABLE>
<CAPTION>
                                                                                       Year ended July 31,
                                                                                   2004                    2003
                                                                           ---------------------    -------------------
Revenues
<S>                                                                 <C>                           <C>
        Software licenses                                           $          2,319,702          $          1,528,840
        Software maintenance fees and other                                    3,982,116                     3,858,081
                                                                           --------------                --------------
                                                                               6,301,818                     5,386,921
                                                                           --------------                --------------

Operating expenses
        Costs of software sales and licenses                                   1,486,744                     1,479,431
        Costs of maintenance fees and other                                      759,694                       628,338
        Commissions                                                              952,967                       857,960
        Research and development                                                 126,726                       151,284
        Selling and marketing                                                  1,365,223                       783,238
        General and administrative                                             2,096,055                     2,041,415
                                                                           --------------                --------------
                                                                               6,787,409                     5,941,666
                                                                           --------------                --------------

Loss from operations                                                           (485,591)                     (554,745)

Other income
        Interest income                                                            2,964                         4,369
                                                                           --------------                --------------


Net loss                                                            $          (482,627)          $          (550,376)
                                                                           ==============                ==============


Basic and diluted loss per common share                             $              (.04)          $              (.04)
                                                                           ==============                ==============

Weighted average common shares outstanding - basic and diluted                13,152,972                    13,149,546
                                                                           ==============                ==============

</TABLE>









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




                                       15
<PAGE>



                              PROGINET CORPORATION
                       Statements of Stockholders' Equity
                       Years ended July 31, 2004 and 2003


<TABLE>
<CAPTION>
                                              Common stock           Additional                      Accum-
                                     ------------------------------   paid- in       Treasury        ulated
                                        Shares          Amount        capital          stock         deficit          Total
                                     ------------------------------  ------------   ------------  --------------   ------------

<S>                                   <C>          <C>             <C>            <C>           <C>             <C>
Balance - August 1, 2002               14,251,058   $       14,251  $ 11,849,358   $  (530,038)  $  (6,145,109)  $   5,188,462

Purchase of treasury stock                                                                (985)                          (985)

Net loss                                                                                              (550,376)      (550,376)

                                     -------------   --------------  ------------   ------------  --------------   ------------
Balance - July 31, 2003                14,251,058           14,251    11,849,358      (531,023)     (6,695,485)      4,637,101



Exercise of common stock options           20,000               20        12,360                                        12,380

Net loss                                                                                              (482,627)      (482,627)
                                     -------------   --------------  ------------   ------------  --------------   ------------

Balance - July 31, 2004                14,271,058   $       14,271  $ 11,861,718   $  (531,023)  $  (7,178,112)  $   4,166,854
                                     =============   ==============  ============   ============  ==============   ============

</TABLE>



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












                                       16
<PAGE>



                              PROGINET CORPORATION
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Year ended July 31,
                                                                                2004                2003
                                                                            --------------       ------------

<S>                                                                     <C>                <C>
Cash flows from operating activities
      Net loss                                                          $        (482,627)  $       (550,376)
      Adjustments to reconcile net loss to cash provided by
      operating activities
          Depreciation and amortization                                         1,547,664          1,544,663
          Provision for  (recovery  of) bad debt  allowance,
            net                                                                    50,000             (3,123)
          Deferred maintenance revenue                                          (102,718)            (95,284)
          Deferred rent                                                          (24,525)            (22,243)
          Changes in operating assets and liabilities
               Trade and installment accounts receivable                           91,351            571,221
               Prepaid expenses and other current assets                          (6,016)              9,221
               Other assets                                                                           12,471
               Accounts payable and accrued expenses                               66,173            (86,060)
                                                                            --------------    ---------------

                        Net  cash   provided  by   operating                    1,139,302          1,380,490
               activities

Cash flows from investing activities
          Capitalized software development costs                               (1,142,186)        (1,236,243)
          Purchase of property and equipment                                      (46,769)           (18,901)
                                                                            --------------    ---------------

               Net cash used in investing activities                           (1,188,955)        (1,255,144)

Cash flows from financing activities
          Exercise of common stock options                                         12,380
          Purchase of treasury stock                                                                    (985)
          Principal payments under capital lease obligation                        (8,911)            (7,965)
                                                                            --------------    ---------------

               Net cash provided by (used in) financing activities                  3,469             (8,950)

Net (decrease) increase in cash and cash equivalents                              (46,184)           116,396

Cash and cash equivalents at beginning of the year                              1,176,627          1,060,231
                                                                            --------------    ---------------

Cash and cash equivalents at end of the year                            $       1,130,443  $       1,176,627
                                                                            ==============    ===============
</TABLE>




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












                                       17
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003


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

       NATURE OF BUSINESS
Proginet  Corporation  ("Proginet"  or "the  Company")  is a  global  enterprise
software  company.   Proginet's   software  solutions  allow  its  customers  to
effectively and securely  manage their security  passwords and data within their
information  technology  (IT) systems,  which span most business  sectors of the
economy.  The Company's  products can be used on all major  hardware  platforms,
operating  systems  and  application  development  environments  for  enterprise
computing. The Company maintains a philosophy of internally developing products,
coupled with the acquisition of key technology,  the integration of the two, and
the  establishment  of a network  of  strategic  alliances  with key  technology
partners.  The Company  sells its products in the U.S.  through its direct sales
force and  internationally  through  distributors.  The  Company  also sells its
products through Original  Equipment  Manufacturer  (OEM) partners in the United
States,  Europe, South America, Asia and Australia.  The Company operates and is
managed as one reportable segment.

       GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The  financial  statements  have been  prepared in  accordance  with  accounting
principles generally accepted in the United States of America ("US GAAP").

       REVENUE RECOGNITION
The Company recognizes 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." The Company
recognizes  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,  recognition  of the software
license  revenue is deferred until the criteria are met or the software  license
revenue is recognized on a ratable basis, as required by SOPs 97-2 and 98-9. The
Company generally utilizes written contracts as the means to establish the terms
and conditions by which products, support and services are sold to customers.

A non-cancelable  agreement signed by the Company and the customer is considered
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.  Typical end user
license agreements do not contain acceptance  clauses.  The fee is considered to
be fixed or determinable  if the fee is not subject to refund or adjustment.  If
the fee is not fixed or  determinable,  revenue is recognized as the amounts are
earned.  Probability of collection is based upon an assessment of the customer's
financial condition through review of its current financial statements or credit
reports.  Collection is deemed probable it is expected 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 it is determined that collection is not probable,
revenue is deferred and recognized upon cash collection.

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





                                       18
<PAGE>



                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003


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.

       ACCOUNTS RECEIVABLE
The Company  continually  reviews accounts for collectibility and establishes an
allowance  for  doubtful  accounts.  As of July 31, 2004 and 2003,  there was an
allowance for doubtful accounts of $16,000 and $10,000, respectively.

       PROPERTY AND EQUIPMENT
Property and equipment are stated at cost,  less  accumulated  depreciation  and
amortization.  Depreciation  is provided using a  straight-line  method over the
assets' useful lives, ranging from three to five years.  Leasehold  improvements
are  amortized  over the  lesser of the  economic  life of the  asset,  which is
generally five years, or the lease term.  Property and equipment is retired from
the balance sheet when fully depreciated.

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

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



                                       19
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

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

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

Amortization  of  capitalized  software  development  costs  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 $1,157,152 and $1,149,838 in fiscal 2004 and 2003,  respectively.
Capitalized software  development costs were net of accumulated  amortization of
$5,097,422  and  $3,940,270 at July 31, 2004 and 2003,  respectively.  Estimated
amortization expense for the succeeding five years is $1,240,000 in fiscal 2005,
$1,020,000 in fiscal 2006,  $800,000 in fiscal 2007, $560,000 in fiscal 2008 and
$260,000 in fiscal 2009. Capitalized software development costs are retired from
the balance sheet when fully amortized.

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

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

                                                        Year ended
                                                         July 31,
                                               ------------------------------
                                                  2004               2003
                                               ------------      -------------
Numerator
     Net loss                              $     (482,627)  $       (550,376)
                                               ============     =============
Denominator
     Weighted average number
       of common shares (basic)                13,152,972         13,149,546
                                               ------------     -------------
     Effect of dilutive securities:
        Stock options                                   -                  -
                                               ------------     -------------
     Weighted average number
       of common shares (diluted)              13,152,972         13,149,546
                                               ============     =============
Basic and diluted loss
       per share                           $        (0.04)  $          (0.04)
                                               ============     =============





                                       20
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

Potential  common  shares of 2,256,500  and 2,253,000 at July 31, 2004 and 2003,
respectively, issueable upon exercise of stock options and warrants are excluded
in computing  basic and diluted net loss per share for fiscal 2004 and 2003,  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)  income 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)  income and (loss) income 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:

<TABLE>
<CAPTION>
                                                               2004                        2003
                                                        ------------------         -----------------

<S>                                                     <C>                <C>
         Net loss as reported                           $       (482,627)  $              (550,376)

         Deduct: Total stock-based employee
         compensation expense determined under fair
         value based method for all awards                       (28,239)                  (71,908)
                                                        ------------------         -----------------

         Net loss as adjusted                           $       (510,866)       $         (622,284)
                                                        ------------------         -----------------
         Net loss per share:
               Basic and diluted-as reported            $           (.04)       $             (.04)
               Basic and diluted-as adjusted            $           (.04)       $             (.05)
</TABLE>



The per share weighted average fair value of stock options granted during fiscal
2004 and 2003 was $.26 and $.19,  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 2004 and 2003; risk free
interest  rate of 2.90%  and  3.175%  in  fiscal  2004 and  2003,  respectively,
expected stock volatility of 129% and 116% in 2004 and 2003,  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.


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

       STATEMENT OF CASH FLOWS AND LIQUIDITY
The Company  considers  all highly  liquid debt  instruments  with a maturity of
three  months  or less at the  time of  purchase  to be cash  equivalents.  Cash
equivalents,  amounting  to  $203,819  and  $718,674  at July 31, 2004 and 2003,
respectively,  consisted of a liquid reserve mutual fund.  Interest  payments of
$1,289  and $2,234  were made  during  the years  ended July 31,  2004 and 2003,
respectively.  There were no income  taxes paid  during the years ended July 31,
2004 and 2003.





                                       21
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

       RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 104,  "Revenue  Recognition,"  which codifies,  revises and
rescinds certain sections of SAB No. 101, consistent with current  authoritative
accounting  and  auditing  guidance and SEC rules and  regulations.  The changes
noted in SAB No. 104 did not have a material effect on the Company's  results of
operations, financial position or cash flows.

(2)     PURCHASED SOFTWARE

In a prior period, the Company purchased software from a third party for a total
cost of  $1,647,946,  which was  recorded  as  purchased  software  and is being
amortized over a five-year  period.  Amortization  expense charged to operations
was $329,592 in fiscal 2004 and 2003. Accumulated  amortization at July 31, 2004
and 2003 amounted to $1,235,970 and $906,378, respectively. The weighted average
amortization  period of the Company's  purchased software as of July 31, 2004 is
approximately  15 months.  Amortization  expense for the fiscal years ended July
31, 2005 and 2006 will  approximate  $330,000  and  $82,000,  respectively.  The
purchased software will be fully amortized by July 31, 2006.

(3)     PROPERTY AND EQUIPMENT

Property and equipment consist of the following at July 31:

                                                       2004            2003
                                                   -------------    -----------
              Computer and other equipment        $     408,483  $     376,245
              Furniture and fixtures                      4,798          4,798
              Leasehold improvements                     86,542         77,342
                                                   -------------    -----------
                                                        499,823        458,385
              Less accumulated depreciation
                      and amortization                 (385,164)      (329,575)
                                                   -------------    -----------

                                                  $     114,659  $     128,810
                                                     ===========    ===========

Included in computer  and other  equipment  at July 31, 2004 and 2003 are assets
recorded  under a capitalized  lease  amounting to $25,864,  net of  accumulated
depreciation of $11,638 and $6,465, respectively.

Depreciation and amortization expense for the years ended July 31, 2004 and 2003
was $60,920 and $65,233, respectively.





                                       22
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

(4)     CREDIT LINES

On January  12,  2000,  Proginet  established  a line of credit in the amount of
$100,000 with a bank. The interest rate is variable, based on prime plus 1%. The
line of credit expires on September 30, 2005, at which time the Company  intends
to renew this line of credit.  As of July 31, 2004, the Company has not borrowed
against this line of credit.

In May 2001, the Company  established an additional line of credit in the amount
of $350,000 with another  bank. In July 2004,  this line of credit was increased
to $550,000.  The interest rate is variable  based on the bank's prime rate plus
1/2%. The line of credit is collateralized by accounts receivable of the Company
and expires July 31, 2005, at which time the Company  intends to renew this line
of credit.  As of July 31, 2004, the Company has not borrowed  against this line
of credit.

(5)     INCOME TAXES

There was no current or deferred  tax expense  (benefit)  recorded  for the year
ended July 31,  2004 and 2003.  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:

                                                      2004            2003
                                                   ------------    ------------

     Expense (benefit) at statutory rate         $    (164,000)  $    (187,000)
     Increases (reductions) in taxes due to:
          Nondeductible expenses                         4,000           1,000
          Change in valuation allowance                160,000         186,000
                                                   ------------    ------------
     Income tax provision                        $           -  $            -
                                                   ============    ============

At July 31, 2004, the Company had available Federal NOL carry forwards amounting
to  approximately  $8,606,000  and  research  and  development  tax credit carry
forwards of  approximately  $332,000,  which expire in fiscal years 2007 through
2024.  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.






                                       23
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

For  income tax  purposes  for the year ended July 31,  2003,  the  Company  was
required to change to the accrual method of accounting;  previously, the Company
utilized the cash method of accounting  for revenues and expenses.  The types of
temporary differences, which represent items that are reflected in the financial
statements and the tax return at different times that give rise to a significant
portion of the deferred tax asset (liability), and their approximate tax effects
are as follows:

<TABLE>
<CAPTION>
                                                            2004                2003
                                                       ---------------      --------------

Deferred tax assets
<S>                                                <C>                 <C>
       Net operating loss carryforward             $        3,086,000  $        3,009,000
       Accounts payable and other                              70,000             108,000
       Deferred revenue                                       562,000             620,000
       Deferred contract costs                                  1,000              16,000
       Purchased software                                     601,000             566,000
       Property and equipment                                  15,000              17,000
       Research and development carryforward                  332,000             332,000
       Unbilled rent                                           28,000              40,000
                                                       ---------------      --------------
Gross deferred tax asset                                    4,695,000           4,708,000
Valuation allowance                                        (2,914,000)         (2,754,000)
                                                       ---------------      --------------
                 Deferred tax asset                         1,781,000           1,954,000

Deferred tax liabilities
       Capitalized software development costs               1,545,000           1,596,000
       Accounts receivable                                    228,000             346,000
       Prepaid expenses                                         8,000              12,000
                                                       ---------------      --------------
                 Deferred tax liability                     1,781,000           1,954,000
                                                       ---------------      --------------

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

At July 31,  2004 and 2003,  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.

(6)     TREASURY STOCK

In  September  2002,  the Board of  Directors  authorized  the purchase of up to
1,000,000 shares of Proginet common stock under a stock repurchase program.  The
repurchase  program  commenced on October 9, 2002 and was to continue  until the
earlier  of (i) the date on which  1,000,000  shares of common  stock  have been
acquired or (ii) October 8, 2003.  The purchases  were to be made by the Company
from  time  to  time  on the  TSX  Venture  Exchange  ("TSX")  at the  Company's
discretion and are dependent on market conditions. On April 1, 2003, the Company
voluntarily  delisted from the TSX. This action  terminated the stock repurchase
program  authorized by the Board of Directors in September  2002. For the period
from  October 9, 2002 through  April 1, 2003,  4,500 shares of common stock were
purchased  pursuant  to this stock  repurchase  program.  Immediately  following
delisting from the TSX, the Company commenced  another stock repurchase  program
(the  "Program") for the purchase of up to 1,000,000  shares of Proginet  common
stock.  The  purchases  will be made  from  time  to time on the  OTC-BB  at the
Company's discretion and are dependent on market conditions and SEC regulations.
As of July 31, 2004, no shares of common stock were purchased under the Program.



                                       24
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

(7)     STOCK PURCHASE WARRANTS

In the first  quarter of fiscal 2000,  Proginet  entered into an agreement  with
Mallory Factor Inc. ("MFI") for certain strategic corporate services.  The terms
of the entire agreement were approved by the TSX and 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 MFI  agreement.  The  amendment
required the exchange of the remaining  250,000 unvested warrants (the "original
warrants"), exercisable at $.54 per share for 125,000 fully vested warrants (the
"exchanged  warrants")  exercisable at $.22,  which  represented the fair market
value of the  Company's  common stock on the date of the  amendment.  A non-cash
charge to  operations  amounting  to $25,175  (as  determined  by  Black-Scholes
pricing  model) was  recorded  by the  Company  for the year ended July 31, 2002
relating to the amendment. As of July 31, 2004, 375,000 warrants are outstanding
under the MFI  Agreement,  as amended,  and expire on various  dates  commencing
September  2004  through  December  2006.  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.

(8)     STOCK OPTION PLANS

Under the 1997 Stock  Option  Plan and 1995  Equity  Incentive  Plan (the "prior
Plans"),  as amended,  the Company had reserved an aggregate of 2,000,000 shares
of common stock for grants to  employees,  directors  and  consultants.  In June
2000,  the Board of  Directors  authorized  the increase of the number of shares
reserved  under the 1997 Stock Option Plan to 2,500,000.  In October  2000,  the
Board of  Directors  approved the 2000 Stock Option Plan (the "2000 Plan") which
limits  the  aggregate  number of shares  available  under the 2000 Plan and the
prior Plans to  2,500,000.  At the  Company's  Annual  Stockholders'  Meeting on
November 14, 2000, the  stockholders  approved the 2000 Plan and the increase in
the number of shares  reserved  under the prior  Plans,  up to an  aggregate  of
2,500,000.  Grants  under  the  2000  Plan can be in the  form of  qualified  or
non-qualified  stock  options.  Qualified  stock options  (which are intended to
qualify as incentive  stock  options  under  Section  422A of the United  States
Internal  Revenue Code) may be awarded only to employees of the Company and must
have an  exercise  price of not less than 100% of the fair  market  value of the
Company's common stock on the grant date (110% for qualified  options granted to
any 10% or greater  stockholder  of the Company).  The 2000 Plan provides that a
committee  selected by the Board of Directors of the Company will administer the
2000 Plan and have full authority to determine the identity of the recipients of
the options  and the number of shares  subject to each  option.  The term of any
option may be fixed by the  committee but in no event shall exceed 10 years from
the date of grant.

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

<TABLE>
<CAPTION>
                                                SHARES
                                                SUBJECT             EXERCISE PRICE         WEIGHTED AVERAGE
                                               TO OPTION               PER SHARE            EXERCISE PRICE
                                             ----------------     -------------------     --------------------
<S>                                                <C>              <C>                         <C>
        Outstanding at August 1, 2002              2,028,500        $0.16 - $1.85               $ 0.58
            Granted                                   37,000        $0.17 - $0.25               $ 0.23
            Forfeited                               (187,500)       $0.16 - $0.71               $ 0.40
                                             ----------------
        Outstanding at July 31, 2003               1,878,000        $0.16 - $1.85               $ 0.59
            Granted                                   90,000        $0.27 - $0.33                $0.29
             Exercised                               (20,000)       $0.37 - $0.68                $0.62
            Forfeited                                (66,500)       $0.16 - $1.20                $0.63
                                             ----------------
        Outstanding at July 31, 2004               1,881,500        $0.16 - $1.85                $0.58
                                             ================
</TABLE>



                                       25
<PAGE>

                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

The  following  table  summarizes   information  about  employee  stock  options
outstanding and exercisable at July 31, 2004:

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                         Number             Weighted -            Weighted           Number          Weighted -
                       outstanding      average remaining         -average        exercisable         average
                       at July 31,       contractual life         exercise        at July 31,         exercise
 Exercise prices          2004               (years)               price              2004             price
------------------    --------------    -------------------     -------------     -------------     -------------
<C>                         <C>                 <C>             <C>                    <C>          <C>
$0.16 - $0.37               673,500             8               $    0.25              630,000      $       0.25
$0.43 - $0.68               646,000             6                    0.63              646,000              0.63
$0.71 - $1.85               562,000             5                    0.90              562,000              0.90
                      --------------                                              -------------

                          1,881,500             7               $    0.58            1,838,000      $       0.58
                      ==============                                              =============
</TABLE>

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

(9)     MANAGEMENT AGREEMENTS

The Company has entered into management  continuity  agreements with certain key
employees  whereby if a change of control in the Company occurs,  the agreements
provide for:

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














                                       26
<PAGE>


                              PROGINET CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                             JULY 31, 2004 AND 2003

(10)   COMMITMENTS AND CONTINGENCIES

         LEASES
The Company leases office space under a  noncancelable  operating lease expiring
in fiscal  2013.  The Company also leases  certain  computer  equipment  under a
noncancelable capital lease expiring in fiscal 2005. The following is a schedule
of future  minimum  payments,  by year and in the  aggregate,  under the capital
lease and noncancelable  operating leases with initial or remaining terms of one
year or more at July 31, 2004:

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

              2005                     $           7,057  $            250,000
              2006                                                     194,000
              2007                                                     263,000
              2008                                                     272,000
              2009                                                     281,000
           Thereafter                                                1,172,000
                                         ----------------    ------------------
Total minimum lease payments           $           7,057  $          2,432,000
                                         ----------------    ------------------

Amounts representing interest                        352
                                         ----------------

Present value of net minimum lease
payments                               $           6,705
                                         ================

Rental  expense  charged to  operations  was $169,950 and $166,376 in the fiscal
years ended July 31, 2004 and 2003, respectively.

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

(11)    CONCENTRATION OF RISKS

Software  license  revenues for the years ended July 31, 2004 and 2003  included
sales  in  foreign   countries  of   approximately   $1,019,430   and  $767,992,
respectively.  Included in software  license  revenues 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, 2004 and 2003.

At July 31, 2004, one customer  accounted for  approximately  21% of total trade
and installment accounts receivable. At July 31, 2003, three different customers
accounted  for  approximately  66%  of  total  trade  and  installment  accounts
receivables.

(12)    RETIREMENT PLAN

The  Company  maintains  a  401(k)  savings  plan  which  covers  all  full-time
employees.  Employees  become eligible for  participation  in the plan after one
year of service and attainment of age twenty-one.  Under the plan, employees may
contribute  up to 15% of their  salary to the plan.  The Company may match up to
100%, as determined by the Board of Directors, of the employee's contribution up
to 10% of eligible  compensation.  The Company's  contributions were $64,093 and
$52,559 for the years ended July 31, 2004 and 2003, respectively.








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<PAGE>






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

The management of Proginet with the  participation of Proginet's chief executive
officer  and  chief   financial   officer,   performed  an   evaluation  of  the
effectiveness  of Proginet's  disclosure  controls and procedures (as defined in
Rule  13a-15  under 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,
Proginet's  chief executive  officer and chief financial  officer have concluded
that such disclosure controls and procedures were effective as of the end of the
period  covered by this Annual  Report on Form  10-KSB to ensure  that  material
information relating to Proginet is made known to them,  particularly during the
period for which  periodic  reports of Proginet  including this Annual Report on
Form 10-KSB are being  prepared.  There was no change in the Company's  internal
control over financial  reporting  during the Company's most recently  completed
fiscal quarter that has materially affected, or is reasonably likely to material
affect, the Company's internal control over financial reporting.

ITEM 8B.   OTHER INFORMATION

None.

















                                       28
<PAGE>


                                    PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information  called for by this Item is set forth under the caption "Section
16(a) Beneficial Ownership Reporting  Compliance" in the Proxy Statement for the
Annual  Meeting  of  Stockholders  to be  held  on  November  23,  2004  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 is attached as an
exhibit to this annual  report on Form 10-KSB.  The Company  intends to post 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 23,  2004,  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 23, 2004 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  23,  2004 and is  incorporated
herein by reference.














                                       29
<PAGE>




ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K

  (A) EXHIBITS

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

EXHIBIT NO.    EXHIBIT NAME
-----------    -----------------------------------------------------------------

3(i)           Certificate of Incorporation.
3(i)(a)        Certificate of Amendment of Certificate  of  Incorporation  dated
               December 2, 1996.
3(ii)          Amended and Restated Bylaws of the Registrant.**
10.1           Form of Employee  Confidential  Information  and  Non-Competition
               Agreement.
10.2           Form of Confidential  Information and  Non-Competition  Agreement
               For Consultants.
10.3           Investor Relations Agreement.
10.4           Form of Software License Agreement.
10.5           Form of Distributor Agreement.
10.6           Form of OEM Agreement.
10.7           Management Continuity Agreement - Kevin M. Kelly, Chief Executive
               Officer and President***+
10.8           Management  Continuity  Agreement  -  Debra  A.  DiMaria,   Chief
               Financial Officer and Corporate Secretary***+
10.9           Management  Continuity  Agreement  - Arne  Johnson,  Senior  Vice
               President for Strategic Planning & Alliances***+
10.10          Management  Continuity Agreement - Thomas Bauer, Chief Technology
               Officer***+
10.11          Management  Continuity Agreement - Kevin Bohan, Chief Information
               Officer***+
10.12          Independent  Directors Stock Option Plan, amended and restated as
               of February 21, 1995.
10.13          1995 Equity  Incentive Plan,  amended and restated as of December
               5, 1995.+
10.14          Form of Incentive Stock Option Agreement.+
10.16          Consulting  Agreement  between the Registrant and Mallory Factor,
               Inc., dated September 22, 1999.
10.17          1997 Stock  Option  Plan,  as amended and restated as of November
               14, 2000+
10.18          2000 Stock Option Plan*+
14.1           Code of Business Conduct and Ethics**
23             Consent of BDO Seidman LLP***
31.1           Rule 13a-14(a)/15d-14(a)  Certification Section 302 Certification
               (Chief Executive Officer)***
31.2           Rule 13a-14(a)/15d-14(a)  Certification Section 302 Certification
               (Chief Financial Officer)***
32             Section 1350 Certifications***
-----------------------
*    Incorporated  by reference to the Company's  Proxy Statement dated November
     14, 2000

**   Incorporated  by reference to the Company's  Form 10-KSB filed with the SEC
     on September 18, 2003

***  Filed herewith

+    Management contract or compensatory plan

  (B) REPORTS ON FORM 8-K

 The Registrant filed a Report on Form 8-K dated June 1, 2004 to report an event
under Items 7 and 12.

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  23,  2004 and is  incorporated
herein by reference.




                                       30
<PAGE>

                                   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 CORPORATION


                                     By:   /s/ Kevin M. Kelly
                                           -------------------------------------
                                           Kevin M. Kelly
                                           President and Chief Executive Officer
                                     Date: September 27, 2004

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
----------------------      President, Chief Executive        September 27, 2004
Kevin M. Kelly              Officer and Director


/s/Debra A. DiMaria         Corporate Secretary and Chief     September 27, 2004
----------------------      Financial and Accounting
Debra A. DiMaria            Officer



/s/John C. Daily            Chairman                          September 27, 2004
---------------------
John C. Daily



/s/ Stephen Sternbach       Director                          September 27, 2004
---------------------
Stephen Sternbach


/s/Dr. E. Kelly Hyslop      Director                          September 27, 2004
---------------------
Dr. E. Kelly Hyslop


/s/ William Loscalzo        Director                          September 27, 2004
---------------------
William Loscalzo


/s/George T. Hawes          Director                          September 27, 2004
--------------------
George T. Hawes






                                       31