prgf10q20100430.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

PART I. FINANCIAL STATEMENTS

Item 1.	Financial Statements

	Balance Sheets as of April 30, 2010 (Unaudited)
	and July 31, 2009	3

	Statements of Operations for the Three and Nine
	Months ended April 30, 2010 and 2009 (Unaudited)	4

	Statement of Stockholders' Equity for the
	Nine Months ended April 30, 2010 (Unaudited)	5

	Statements of Cash Flows for the Nine
	Months Ended April 30, 2010 and 2009 (Unaudited)	6

	Notes to Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	14

Item 3	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4T.	Controls and Procedures	17


PART II. OTHER INFORMATION

Item 1A	Risk Factors	18

Item 6.	Exhibits	18

SIGNATURES		19

	April 30, 2010 (Unaudited)			July 31, 2009
Assets
Current assets
Cash	$	1,433,233		$	1,106,349
Trade accounts receivable, net		1,979,208			2,366,174
Prepaid expenses		189,458			207,050
Total current assets		3,601,899			3,679,573

Property and equipment, net		245,234			323,478
Capitalized software development costs, net		4,049,960			4,080,434
Purchased software, net		606,030			133,198
Customer relationships, net		-			106,350
Goodwill		135,932			135,932
Other assets		35,870			35,870
	$	8,674,925		$	8,494,835

Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable	$	268,850		$	395,835
Accrued expense		690,424			865,819
Deferred revenues		2,658,857			2,804,438
Deferred rent		31,491			23,900
Total current liabilities		3,649,622			4,089,992


Deferred revenues		82,725			64,919
Deferred rent		99,887			123,938
		3,832,234			4,278,849
Stockholders’ equity
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued		-			-
Common stock, $.001 par value, 40,000,000 shares authorized,
18,410,674 shares issued at April 30, 2010 and 17,847,508 at July 31, 2009		18,411			17,848
Additional paid-in capital		14,172,530			13,799,030
Treasury stock 1,325,226, at cost, at April 30, 2010 and July 31, 2009		(606,023	)		(606,023	)
Accumulated deficit		(8,742,227	)		(8,994,869	)
		4,842,691			4,215,986

	$	8,674,925		$	8,494,835

	Three months ended					Nine months ended
	April 30,					April 30,
	2010		2009			2010		2009

Revenues
Software licenses	$	652,536	$	554,913		$	2,252,165	$	2,944,204
Software maintenance fees and other		1,388,721		1,201,222			4,293,893		3,554,899
Professional services		11,200		14,000			152,976		114,139
		2,052,457		1,770,135			6,699,034		6,613,242

Operating expense
Cost of software licenses		326,542		380,461			1,130,446		1,233,257
Cost of maintenance fees and other		323,995		266,328			978,817		805,967
Cost of professional services		3,212		6,537			81,678		32,208
Commissions		291,309		145,449			583,578		523,316
Research and development		35,233		23,463			147,672		155,653
Selling and marketing		499,203		501,246			1,398,985		1,933,397
General and administrative		569,998		797,826			2,129,144		2,789,021
		2,049,492		2,121,310			6,450,320		7,472,819

Income (loss) from operations		2,965		(351,175	)		248,714		(859,577	)

Interest income		1,424		612			3,928		9,675

Income (loss) before income taxes		4,389		(350,563	)		252,642		(849,902	)

Income tax expense		-		-			-		-

Net income (loss)	$	4,389	$	(350,563	)	$	252,642	$	(849,902	)

Basic and diluted loss per common share	$	.00	$	(.02	)	$	.01	$	(.06	)

Weighted average common shares outstanding - basic		17,085,448		14,849,055			16,916,301		14,835,227

Weighted average common shares outstanding - diluted		17,669,472		14,849,055			17,421,887		14,835,227

	Common Stock				Additional paid-in capital		Treasury Stock			Accumulated deficit			Total
	Shares		Amount

Balance – August 1, 2009		17,847,508	$	17,848	$	13,799,030	$	(606,023	)	$	(8,994,869	)	$	4,215,986

Exercise of common stock options		167,500		168		48,082								48,250

Stock option expense						135,188								135,188

Private placement, net		161,291		161		49,839								50,000

Stock issuance related to asset purchase		234,375		234		140,391								140,625

Net income											252,642			252,642

Balance – April 30, 2010		18,410,674	$	18,411	$	14,172,530	$	(606,023	)	$	(8,742,227	)	$	4,842,691

	Nine months ended
	April 30,
	2010			2009

Cash flows from operating activities
Net income (loss)	$	252,642		$	(849,902	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities
Depreciation and amortization		1,216,204			1,285,878
Stock based compensation		135,188			192,399
Deferred revenue		(127,775	)		(1,143,852	)
Deferred rent		(16,460	)		(9,126	)
Changes in operating assets and liabilities
Trade accounts receivable		386,966			243,179
Prepaid expenses and other assets		(65,112	)		28,439
Accounts payable and accrued expenses		(302,380	)		95,535

Net cash provided by (used in) operating activities		1,479,273			(157,450	)

Cash flows from investing activities
Capitalized software development costs		(813,300	)		(1,181,067	)
Purchase of Rocketstream assets		(429,539	)		-
Purchases of property and equipment		(7,800	)		(251,043	)

Net cash used in investing activities		(1,250,639	)		(1,432,110	)

Cash flows from financing activities
Proceeds from private placement, net		50,000			-
Exercise of common stock options		48,250			63,700

Net cash provided by financing activities		98,250			63,700

Net increase (decrease) in cash		326,884			(1,525,860	)

Cash at beginning of period		1,106,349			2,338,335

Cash at end of period	$	1,433,233		$	812,475

The accompanying unaudited financial statements have been prepared by Proginet Corporation in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Unless the context otherwise requires, “we,” “our,” “us” and similar expressions refer to Proginet Corporation. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. These financial statements should be read in conjunction with the financial statements and notes related thereto, included in the Annual Report on Form 10-K for year ended July 31, 2009.

These results for the period ended April 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of the 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.

We recognize revenue in accordance with FASB Accounting Standards Codification (ASC) 985-605. We recognize software license revenues when all of the following criteria are met: persuasive evidence of an arrangement exists, the fee is fixed or determinable, collectability is probable, delivery of the product has occurred and the customer has accepted the product (including the expiration of an acceptance period) if the terms of the contract include an acceptance requirement. In instances when any of the criteria are not met, we will either defer recognition of the software license revenue until the criteria are met or we will recognize the software license revenue on a ratable basis, as required by ASC 985-605. We generally utilize written contracts as the means to establish the terms and conditions by which our products support and services are sold to our customers. Our revenues are derived from our direct sales force and channel partnerships (value-added resellers (VARs), Original Equipment Manufacturers (OEMs), and distributors). Revenues from sales through distributors are recorded at the gross amount charged based on the economic risks and ongoing product support responsibilities we assume.

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

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. 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 ASC 985-605. 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 selling price amount is recognized as revenue and the PCS is recognized ratable over the PCS term, which is typically 12 months.

Deferred revenues include amounts received from customers for which revenue has not yet been recognized that generally results from agreements where all necessary revenue recognition requirements have not been met, deferred maintenance, consulting or training services not yet rendered and license revenue deferred until all requirements under ASC 985-605 are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under ASC 985-605 are satisfied.

Commission expense is recorded at the time of sale. Commission rates to direct salespeople are based on a graduating scale, ranging from 2% to 15% of the sale, dependent upon the revenue volume generated by the sales executive. Distributors are typically compensated at a commission rate of 40% to 50% and VARs are compensated at a commission rate of 25% to 40% of the license revenue generated. The rates vary based upon their level of effort, resources assigned and products sold. The OEM arrangements include a commission structure similar to distributors and also may include specific fixed pricing for the number of “users” the product is licensed for.

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 $293,514 and $843,766 for the three and nine months ended April 30, 2010. Amortization expense charged to operations was $245,332 and $799,323 for the three and nine months ended April 30, 2009. This expense is recorded under “Cost of software licenses” on the Statement of Operations. Capitalized software development costs are net of accumulated amortization of $2,523,692 and $4,748,271 at April 30, 2010 and July 31, 2009, respectively. Capitalized software development costs are retired from the balance sheet when fully amortized. As of April 30, 2010, $8,801,054 of capitalized software development cost was retired from the balance sheet.

On October 31, 2008, we entered into an Asset Exchange Agreement (the “Asset Exchange Agreement”), with Beta Systems Software of North America, Inc., a Delaware corporation ("Beta America"), and Beta Systems Software of Canada Ltd., a Canadian body corporate ("Beta Canada"), effective as of October 1, 2008. Under the Asset Exchange Agreement, we (i) have transferred to Beta Canada all of our intellectual property rights, and books and records, relating to our Secur-Pass products, and (ii) have assigned to Beta America its customer, maintenance and service agreements relating to our Secur-Pass products, in exchange for Beta Canada’s transfer to us of all of its intellectual property rights, and Beta America’s transfer to us of its customer, maintenance and service agreements, each relating to the Harbor NSM and Harbor HFT products. Such agreements were transferred on the effective date. However, because Beta Canada retained the maintenance and service obligations associated with the Harbor NSM and HFT products pursuant to the Services Agreement and Master Distributor Agreement described below, no liability for these agreements was recorded by us. The revenue associated with the customer, maintenance and service agreements of the Secur-Pass products was applied by Beta America as consideration for the Secur-Line License Agreement, discussed below. The Asset Exchange Agreement contains customary representations and warranties and indemnities of the parties. The Asset Exchange Agreement was accounted for as a non-monetary exchange of assets in accordance with ASC 845, “Non-Monetary Transactions”.

We also entered into a Support Services Agreement (the “Services Agreement”), with Beta Canada on October 31, 2008, under which Beta Canada provides to us certain maintenance and support services for our CFI Suite and the Harbor NSM and Harbor HFT products. The Services Agreement was effective October 1, 2008 and will continue in effect for two years with automatic one year renewal terms thereafter, subject to certain non-renewal and termination rights. We have agreed to compensate Beta Canada a percentage of the gross maintenance revenue received by us in respect of the support services provided by Beta Canada under the Services Agreement.

On October 31, 2008, we entered into a Secur-Line Products License Agreement (the “Secur-Line License Agreement”), with Beta America under which we have licensed to Beta America, on a non-exclusive basis, intellectual property rights relating to our Secur-Line products, effective October 1, 2008. The consideration for the license is certain retained customer payments and receivables generated under various contracts assigned to Beta America.

We have assigned to Beta America, under the Asset Exchange Agreement, its customer, maintenance and service agreements relating to the Secur-Line intellectual property and technology rights licensed under the Secur-Line License Agreement. The Secur-Line associated agreements have been assigned in consideration of certain royalty fees, payable by Beta America to us, based on gross revenue received by Beta America during the license term under such agreements which is recorded at the gross amount received under the customer, maintenance and service agreements in “Maintenance fee and other” in the accompanying Statement of Operations. We have agreed, in turn, to pay to Beta America commissions equal to a percentage of such gross revenue which is recorded in “Costs of maintenance fees and other” in the accompanying Statement of Operations. The term of the Secur-Line License Agreement expires on October 1, 2028, at which point the underlying license grant will continue but be deemed to be fully-paid and royalty-free. All requirements to make royalty and commission payments will continue until October 1, 2028. The primary purpose of the license grant is to permit Beta America to provide support services under the Secur-Line associated agreements assigned under the Asset Exchange Agreement and to further license the relevant intellectual property.

Under a Master Distributor Agreement (the “Master Distributor Agreement”), entered into on October 31, 2008 between Beta Systems Software AG, a German corporation (“Beta Germany”), and ourselves, Beta Germany or any of its distributors, subsidiaries or associated companies, has become the exclusive distributor, subject to certain exceptions, for our CFI Suite and the Harbor NSM and Harbor HFT products (our file transfer product suite) in Europe and certain other countries specified therein. Beta has also agreed to provide certain maintenance and support services to certain eligible customers under the Master Distributor Agreement. The term of the Master Distributor Agreement is from October 1, 2008 through July 31, 2011, subject to earlier termination by either party for cause. Under the Master Distributor Agreement, We have agreed to compensate Beta Germany a percentage of gross annual license and maintenance and support services revenue collected by Beta Germany under the Master Distributor Agreement. Beta Germany has guaranteed certain revenue minimums which it will be obligated to pay us annually.

On December 21, 2009, we entered into a Subscription Agreement with various parties to purchase certain assets related to Rocketstream software. The agreement called for a cash payment, issuance of Proginet stock as well as a potential royalty earn out on Rocketstream software sales up to December 20, 2011, which will be recorded as a royalty expense as incurred. We recorded $652,868, which includes legal and other transaction fees, as purchased software and are amortizing over a five year period. As of April 30, 2010 accumulated amortization was $46,838.

In a prior year the Company acquired Blockade which resulted in the recording of purchased software and customer relationships with an original cost of $1,501,774 and $1,199,078, respectively. Purchased software from this acquisition is net of accumulated amortization of $1,501,774 and $1,368,576 at April 30, 2010 and July 31, 2009, respectively. Customer relationships are net of accumulated amortization of $1,199,078 and $1,092,728 at April 30, 2010 and July 31, 2009, respectively.

Purchased software and customer relationships were being amortized over a period of five years and are fully amortized as of April 30, 2010. Amortization expense charged to operations for purchased software is $32,743 and $180,036 for the three and nine months ended April 30, 2010. Amortization expense charged to operations for customer relationships is $0 and 106,350 for the three and nine months ended April 30, 2010.

Basic income (loss) per common share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options and warrants using the “treasury stock” method. During periods of net loss diluted net loss per share does not differ from basic net loss per share since potential shares of common stock from stock options and warrants are anti-dilutive and therefore are excluded from the calculation.

		Three months ended							Nine months ended
		April 30,							April 30,
		2010			2009				2010			2009
Numerator:
Net income (loss)	$	4,389		$	(350,563		)	$	252,642		$	(849,902		)

Denominator:
Weighted average number
of common shares (basic)			17,085,448			14,849,055				16,916,301			14,835,227

Effect of dilutive securities:
Stock Options			584,024			-				505,586			-

Weighted average number
of common shares (diluted)			17,669,472			14,849,055				17,421,887			14,835,227

Basic and diluted
Income (loss) per share	$		.00	$		(.02	)	$		.01	$		(.06	)

We follow the provisions of FASB ASC Subtopic 718-10, requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). The impact on our results of operations of recording share-based compensation expense for the three and nine months ended April 30, 2010 were $49,491 and $135,188, respectively. The impact on our results of operations of recording share-based compensation expense for both the three and nine months ended April 30, 2009 were $72,260 and $192,399. This expense was recorded to “General and administrative” on the Statement of Operations.

	Number of options			Weighted average exercise price		Weighted average remaining contracted term (years)		Aggregate intrinsic value
Outstanding at August 1, 2009		3,931,235		$	.73		-		-
Granted		340,000			.65		-		-
Exercised		(167,500	)		.29		-		57,850
Forfeited		(730,059	)		.81		-		-
Options outstanding at April 30, 2010		3,373,676		$	.72		6.72	$	762,710
Options exercisable at April 30, 2010		2,268,174		$	.76		6.54	$	464,500

Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value.

Unless the context otherwise requires, “we,” “our,” “us” and similar expressions refer to Proginet Corporation. You should read the following discussion in conjunction with our financial statements and the notes thereto included elsewhere herein. Certain statements under the captions “Business”, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q 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 our 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 our 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 our control and include, among others, the risks described in our latest Form 10-K for the year ended July 31, 2009. We caution that the foregoing list of important factors is not exclusive. We do not undertake to update any forward-looking statements contained herein or that may be made from time to time by us or on our behalf.

Total revenues for the quarter ended April 30, 2010 amounted to $2,052,457, representing an increase of $282,322, or 16% compared to revenues of $1,770,135 for the quarter ended April 30, 2009. Total revenues for the nine months ended April 30, 2010 amounted to $6,699,034, representing an increase of $85,792, or 1% compared to revenues of $6,613,242 for the nine months ended April 30, 2009. This three and nine month increase is due to the factors described below.

Software license revenues for the quarter ended April 30, 2010 amounted to $652,536 representing an increase of $97,623 or 18%, compared to software license revenues of $554,913 for the quarter ended April 30, 2009. Software license revenues for the nine months ended April 30, 2010 amounted to $2,252,165 representing a decrease of $692,039 or 24%, compared to software license revenues of $2,944,204 for the nine months ended April 30, 2009. Software license revenue is sold directly through domestic salespeople and indirectly through international distributors and OEM partners. The decrease in software license revenue for the nine month period is primarily attributable to last year’s Secur-Line License Agreement with Beta America, more fully described in Note 5 of the accompanying financial statements, under which certain deferred maintenance revenue was recognized as license revenue in October 2008, and is now being recognized as maintenance revenue.

Software maintenance fees and other increased by $187,499, or 16% to $1,388,721 compared to such fees for the quarter ended April 30, 2009 of $1,201,222. Software maintenance fees and other increased by $738,994, or 21% to $4,293,893 compared to such fees for the nine months ended April 30, 2009 of $3,554,899. The increase in software maintenance fees and other is primarily due to last year’s recognition of deferred maintenance revenue as a result of the Secur-Line License Agreement with Beta America more fully described in Note 5 of the accompanying financial statements. As described in this Note, per this agreement certain deferred maintenance revenue was recognized as license revenue in October 2008, and is now being recognized as maintenance revenue.

Revenue for professional services for the quarter ended April 30, 2010 amounted to $11,200 a decrease of $2,800, or 20%, compared to fees for professional services of $14,000 for the quarter ended April 30, 2009. Fees for professional services for the nine months ended April 30, 2010 amounted to $152,976 an increase of $38,837, or 34%, compared to fees for professional services of $114,139 for the nine months ended April 30, 2009. Such revenue is related to ad-hoc consulting services that are typically provided in response to requests for support from existing customers. Consequently, consulting revenue can vary considerably from period to period.

Operating expenses decreased to $2,049,492 for the quarter ended April 30, 2010 from $2,121,310 for the quarter ended April 30, 2009, a decrease of $71,818 or 3%. Operating expenses decreased to $6,450,320 for the nine months ended April 30, 2010 from $7,472,819 for the nine months ended April 30, 2009, a decrease of $1,022,499 or 14%. The decrease in operating expenses for the three and nine months ended April 30, 2010 is primarily a combined result of the following factors:

Cost of software licenses (which primarily includes amortization of capitalized software costs) for the quarter ended April 30, 2010 amounted to $326,542, representing a decrease of $53,919 or 14%, compared to cost of software licenses of $380,461, for the quarter ended April 30, 2009. Cost of software licenses for the nine months ended April 30, 2010 amounted to $1,130,446, representing a decrease of $102,811 or 8%, compared to cost of software licenses of $1,233,257, for the nine months ended April 30, 2009. The decrease in cost of software sales and licenses for the three and nine months ended April 30, 2010 is due to the decrease in amortization expense for purchased software and customer relationships which became fully amortized on January 31, 2010.

Cost of maintenance fees and other (which principally consists of technical support payroll) for the quarter ended April 30, 2010 amounted to $323,995, representing an increase of $57,667 or 22%, compared to cost of maintenance fees and other of $266,328 for the quarter ended April 30, 2009. Cost of maintenance fees and other for the nine months ended April 30, 2010 amounted to $978,817, representing an increase of $172,850 or 21%, compared to cost of maintenance fees and other of $805,967 for the nine months ended April 30, 2009. The increase in cost of maintenance fees and other for the six and nine months ended April 30, 2010 is primarily due to the implementation of the Services Agreement with Beta Canada more fully described in Note 5 of the accompanying financial statements, offset by a decrease in the employee headcount and payroll allocated costs associated with the technical services rendered directly by us.

Commissions amounted to $291,309 for the quarter ended April 30, 2010 representing an increase of $145,860 or 100% compared to $145,449 for the quarter ended April 30, 2009. Commissions amounted to $583,578 for the nine months ended April 30, 2010 representing an increase of $60,262 or 12% compared to $523,316 for the nine months ended April 30, 2009. The increase in commission expense for the three and nine months ended April 30, 2010 is primarily due to the settlement of a previously disputed commission and higher software license sales.

Selling and marketing expense for the quarter ended April 30, 2010 amounted to $499,203 representing a decrease of $2,043 or 0.4%, compared to selling and marketing expense of $501,246 for the quarter ended April 30, 2009. Selling and marketing expense for the nine months ended April 30, 2010 amounted to $1,398,985 representing a decrease of $534,412 or 28%, compared to selling and marketing expense of $1,933,397 for the nine months ended April 30, 2009. The decrease in selling and marketing for the nine months ended April 30, 2010 is primarily due to a decrease in employee payroll and employee related expenses, decreases to public relations expense and decreases in sales related travel.

General and administrative expense for the quarter ended April 30, 2010 amounted to $569,998, representing a decrease of $227,828 or 29% compared to $797,826 in general and administrative expense for the quarter ended April 30, 2009. General and administrative expense for the nine months ended April 30, 2010 amounted to $2,129,144, representing a decrease of $659,877 or 24% compared to $2,789,021 in general and administrative expense for the quarter ended April 30, 2009. The decrease in general and administrative expenses for the three and nine months is primarily due to a decrease in consulting fees, a reduction in payroll and a decrease in professional fees.

Operating activities provided cash of $1,479,273 for the nine months ended April 30, 2010. This resulted primarily from a decrease to trade accounts receivable of $386,966, non-cash charges for depreciation and amortization of $1,216,204, offset by a decrease in deferred revenue of $127,775 and a decrease in accounts payable and accrued expenses of $302,380 based on the timing of cash disbursements.

On September 25, 2009, we entered into an asset based credit facility (the “Credit Agreement”) with Bridge Bank, N.A (the “Lender”). The Credit Agreement provides for advances of up to $800,000 against 80% of eligible accounts receivable. The finance charge, which is assessed against the amount of receivables financed from time to time, is equal to the greater of 4.00% per annum or Lender’s Prime Rate, as announced, plus 0.64%. We are also required to pay the Lender a monthly maintenance fee equal to between 0.2% and 0.3% of the receivables financed. The credit facility is secured by a general pledge of our assets. Under the terms of the Credit Agreement, the obligors on the accounts receivable are to pay Lender directly through a lock box arrangement. If the amount advanced is not paid by the obligors within 90 days of the earlier of the advance or invoice date, we are required to pay the amount.

The Credit Agreement includes usual and customary events of default for facilities of this nature and provides that, upon the occurrence of an event of default, all amounts payable under the Credit Agreement may be accelerated. The Credit Agreement also restricts our ability to incur other indebtedness, other than payables in the ordinary course of business. Either party can terminate the Credit Agreement at any time, with a required payment of $10,000 if terminated by us in the first year after the date of execution. We were also required to pay a variety of fees aggregating approximately $35,000 in connection with entering into the facility. We have not yet used the Credit Agreement as of the date of this filing.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the times periods specified in the Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Delaware	11-3264929
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

Supplemental Disclosures of Cash Flow Information

Non-cash financing and investing activity:
Stock issuance related to Rocketstream asset purchase	$	140,625	$	-
Settlement of a preexisting Rocketstream relationship	$	82,704	$	-
Private placement fee waiver	$	-	$	150,000

	April 30, 2010		July 31, 2009
Salaries, commissions, and benefits	$	307,080	$	227,624
Severance		-		148,261
Distributor payable		286,287		304,914
Private placement costs		-		19,055
Professional fees		64,000		91,945
Other		33,057		74,020
Total Accrued Expense	$	690,424	$	865,819

	PROGINET CORPORATION
	(Registrant)



Date May 20, 2010	/s/ Sandison Weil
	Sandison Weil, President and
	Chief Executive Officer



Date May 20, 2010	/s/ Joseph Christel
	Joseph Christel
	Chief Financial Officer