10KSB/A 1 v101160_10ksba3.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-KSB/A

Amendment No. 3

x  Annual Report Under Section 13 or 15( d ) of the Securities Exchange Act of 1934.
 
For the Fiscal Year Ended December 31, 2006
 
 or
 
 o  Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
 
Commission File Number: 000-30781
 
MANGOSOFT, INC.
(Exact name of small business issuer as specified in its charter)
 
Nevada
87-0543565
(State or other jurisdiction
(IRS Employer Identification No.)
of incorporation or organization)
 
 
 
29 Riverside Street, Suite A, MS A-8
 
Nashua, NH
03062
(Address of principal executive offices)
(Zip code)
   
Issuer’s telephone number: (603) 324-0400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value

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 o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the 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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act).   Yes o  No x

State issuer’s revenues for the most recent fiscal year: $275,100

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and ask price of such common equity, as of a specified date within the past 60 days: $2,320,866. This amount reflects the average bid and ask price of the Company’s common stock on the OTCBB on March 29, 2007.

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
 
Common Stock
3,413,038 Shares
$0.001 Par Value
(Outstanding on March 30, 2007)
 
Transitional Small Business Disclosure Format (check one):
 
Yes: o    No: x


MANGOSOFT, INC.

INDEX TO FORM 10-KSB
 
 
 
Page
PART I
 
ITEM 1—
Description of Business
3
ITEM 2—
Description of Property
10
ITEM 3—
Legal Proceedings
10
ITEM 4—
Submission of Matters to a Vote of the Security Holders
11
 
 
 
PART II
 
 
 
 
ITEM 5—
Market for Common Equity and Related Stockholder Matters
12
ITEM 6—
Management’s Discussion and Analysis of Financial Condition and Results of
 
 
Operations
13
ITEM 7—
Financial Statements
17
ITEM 8—
Changes in and Disagreements With Accountants on Accounting and Financial
 
 
Disclosure
17
ITEM 8A—
Controls and Procedures
17
ITEM 8B—
Other Information
18
PART III
 
 
 
 
ITEM 9—
Directors and Executive Officers of the Registrant
19
ITEM 10—
Executive Compensation
20
ITEM 11—
Security Ownership of Certain Beneficial Owners and Management
 
 
And Related Stockholder Matters
23
ITEM 12—
Certain Relationships and Related Transactions
24
ITEM 13—
Exhibits and Reports on Form 8-K
25
ITEM 14—
Principal Accountant Fees and Services
27
 
 
 
Signature
28
 
FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company’s prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-KSB also contains certain forward-looking statements within the meaning of the Federal Securities Laws. The Company’s future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors.

Readers should pay particular attention to the considerations described in the section of this report entitled “Risk Factors” beginning on page 8 of this report. Readers should also carefully review the risk factors described in the other documents the Company files from time to time with the Securities and Exchange Commission.

2

PART I
 
ITEM 1. DESCRIPTION OF BUSINESS

(A) BUSINESS DEVELOPMENT

MangoSoft, Inc. (“MangoSoft”) was incorporated as First American Clock Co. (“First American”) under the laws of the State of Nevada on May 17, 1995. In connection with the organization of First American, its president and founders contributed $8,000 cash as initial capital. To raise funds with which to commence business operations, First American registered a public offering of its securities on Form SB-2, Commission File No. 33-93994, which became effective on October 25, 1995. Pursuant thereto, First American sold 187,800 shares of its common stock (as adjusted for stock splits) to the public at approximately $0.29 per share and raised gross proceeds of $54,150. However, First American did not generate any significant revenues from its operations and ceased such operations at the end of 1998.

Pursuant to an Agreement and Plan of Merger by and among MangoSoft Corporation, MangoMerger Corp. and First American, dated August 27, 1999 (the “Merger Agreement”), MangoSoft Corporation, a Delaware corporation engaged in software development, merged with MangoMerger Corp., a wholly-owned subsidiary of First American, which changed its name to MangoSoft, Inc., so that MangoSoft Corporation became a wholly-owned subsidiary of MangoSoft, Inc., the registrant (such transactions collectively referred to as the “Merger”).

Pursuant to the terms of the Merger Agreement, all of the outstanding capital stock of MangoSoft Corporation was converted into common stock of MangoSoft, Inc., par value $0.001 per share (the “Common Stock”), in accordance with the conversion rates specified in the Merger Agreement. In connection with the Merger, MangoSoft, Inc. issued 555,889 shares of Common Stock to security holders and certain debt holders of MangoSoft Corporation. As part of the Merger, we completed a private placement of 111,112 shares of common stock for net proceeds of approximately $3.1 million. We also issued 11,112 shares of common stock to the placement agent in respect of such private placement. Because First American was a non-operating entity and the closing of such private placement was contingent upon the closing of the Merger, the Merger was accounted for as a capital transaction and treated as a reverse acquisition, so that MangoSoft Corporation was deemed to have acquired First American. Accordingly, unless otherwise specified, historical references to our operations are references to the operations of MangoSoft Corporation.

Effective March 7, 2003, MangoSoft completed a 1-for-27 reverse stock split of its common stock. As a result of this reverse stock split, our authorized shares of common stock decreased from 100,000,000 to 3,703,703.

On March 11, 2003, MangoSoft declared a dividend distribution of one right (a “Right”) to purchase one-tenth of a share of common stock, $0.001 par value, for each share of MangoSoft common stock, payable to stockholders of record on March 18, 2003. MangoSoft also authorized and directed the issuance of one Right with respect to each common share issued thereafter until the distribution date (as defined in the Rights Agreement) and, in certain circumstances, with respect to common shares issued after the distribution date. Except as set forth in the Rights Agreement, each Right, when it becomes exercisable, entitles the registered holder to purchase from MangoSoft one-tenth of a common share at a price of $250.00 per whole common share, subject to adjustment, as amended. The description and terms of the Rights are set forth in a Rights Agreement between the Company and Interwest Transfer Co., Inc., as Rights Agent, dated as of March 14, 2003, as amended.

On January 10, 2007, the Company announced the sale of an aggregate of 2,400,000 shares of common stock, par value $.001 per share to a group of investors led by current stockholders. Through the private placement of its common stock, the Company raised aggregate gross proceeds of $1,200,000. One of the investors in the offering provided bridge financing to the Company on September 20, 2006 in the principal amount of $250,000, and which the bridge financing was automatically converted into a subscription for Common Stock pursuant to the offering. The Company intends to utilize the net proceeds of the private placement to pay past due expenses and to fund its various patent litigations
 
3

(B) BUSINESS OF MANGOSOFT

GENERAL

We market, sell and support Internet business software and services that improve the utility and effectiveness of Internet-based business applications. Our software solutions address the networking needs of small businesses, workgroups and large enterprises. We have leveraged our patented technology known as “Pooling” to develop our suite of software solutions. Pooling is a peer-to-peer clustering technology that utilizes the network and resources of client personal computers (“PCs”) and workstations to deliver easy-to-use advanced software services. MangoSoft helps businesses gain a competitive advantage by improving collaboration with customers, partners and colleagues through smarter, faster Internet communications.

BUSINESS STRATEGY

We no longer develop new software products or services. We continue to market, sell and support our software services. Our strategy also includes seeking strategic business partnerships and distribution channels to leverage our patented technology. All of our business operations are overseen by our sole officer and director, who utilizes third party contractors, as required, to implement the Company’s business strategy.

COMPETITION

We compete primarily with general technology suppliers such as Microsoft Corporation, Oracle Corporation, EMC Corporation and Novell, Inc., as well as emerging Internet collaboration companies such as Groove Networks, Inc. We anticipate that we will encounter substantial competition from these companies as well as others entering the Internet storage and collaboration markets.
 
PRODUCTS 

Our core technology includes our patented, peer-to-peer clustering technology, originally marketed as Pooling. This technology combines memory and disk resources of multiple systems on a network into a coherent shared resource, featuring an efficient distributed directory, dynamic data movement and data replication. We have applied for ten patents on our technology, five of which have been granted.

MangoSoft’s software and services make the Internet a better place for business. Our customers use Mangomind SM to easily and securely connect with remote colleagues, clients and partners around the world. In doing so, Mangomind enables its users to make smarter and faster business decisions. Mangomind provides the secure file sharing benefits of a virtual private network (“VPN”) without additional hardware and configuration complexities.

Mangomind is an adaptation of our patented Pooling technology that delivers an easy-to-use virtual file service for the Internet. Mangomind combines the familiarity of Windows applications with the power of the Internet to deliver a secure means for multiple users to access, share and store important business files. Mangomind is sold as both a service and a standalone software product. The Mangomind service provides the security of a VPN without the additional hardware and configuration complexities. This virtual file service is hosted by a leading provider of complex Internet services and provides the familiar interface of a shared network drive. The Mangomind product is sold as a software license and the typical sale includes installation, training and extended support services. The Mangomind product is intended for the enterprise customer.
 
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Mangomind facilitates business-to-business communications using the following features:

·  
Simultaneous, multi-user file access. Mangomind is an Internet file-sharing system that allows multiple users in any location to simultaneously access and share files.
 
 
·  
Online workgroup collaboration. Mangomind allows multiple users to collaborate online using Windows database applications commonly used in accounting, contact management, calendars, appointment scheduling and project management software packages.
 
 
·  
Robust, safe and secure. Mangomind allows users to set access permissions for files and folders on a Mangomind drive. Data encryption (128-bit) at the client (user) level ensures that all files are securely transmitted and stored. Service level agreements ensure that a user’s files are available and protected.
 
 
·  
Business level security through encryption. Access to shared files is restricted to clients authenticated by using public/private keys; each Mangomind user is authenticated using state-of-the-art private key encryption. Data is stored in encrypted form to prevent unauthorized access.
 
 
·  
File access permissions . The Mangomind file system allows users to define access permissions for users or groups of users on individual drives, files and folders. Permission settings are easily specified using the same familiar Microsoft Windows procedures.
 
 
·  
Familiar Windows interface. Mangomind looks and operates just like a local drive and is completely integrated with Windows. No user training is required; applications run as if on a local drive.
 
 
·  
Access anytime, even when offline. When disconnected from the Internet, users can continue to work on their files offline because Mangomind caches the latest version of a file into a system’s local memory. Mangomind automatically synchronizes the files when the user reconnects to the Internet.
 
·  
High availability service . The Mangomind service provides automatic backup and restore functions, full-time customer support and service, and service level agreements to ensure high availability of the service. The Mangomind service is hosted and managed by leading service providers.
 
fileTRUST SM is an online data storage service we purchased from Bank of America (formerly FleetBoston) in February 2002. fileTRUST SM users can access their stored files from any Internet-connected system. The fileTRUST SM service complements our Mangomind service by providing our customers with a lower cost online storage system. In conjunction with our purchase of fileTRUST SM , we executed a two-year enterprise license agreement with Bank of America (formerly FleetBoston) for the internal use of fileTRUST SM by Bank of America (formerly FleetBoston), which expired in February 2004. The terms and conditions of this agreement provide for automatic renewals on a month-to-month basis. Bank of America (formerly FleetBoston) terminated its license agreement with us in September 2004. The loss of Bank of America (formerly FleetBoston) as a customer has had a material adverse affect on our business.

5

MARKETING AND SALES

Our marketing and sales strategy is focused on small to medium size companies as well as enterprise accounts. We market our products and services primarily through a reseller channel. Effective September 30, 2002, we executed an Information Management Service Agreement (the “Outsourced Services Agreement”) with Built Right Networks, LLC (“Built Right Networks”). Under the terms of the Outsourced Services Agreement, Built Right Networks now provides reseller channel management in addition to information systems and technical end-user support for our products and services. We continue to seek strategic relationships with business partners capable of rapidly expanding the distribution of our products and services in targeted industry segments.
 
The success of our marketing and sales activities is dependent, among other things, on our ability to retain and attract qualified resellers and original equipment manufacturers (“OEMs”) as well as the overall market perception of our products and services.
 
Mangomind

In January 2001, we commercially released our Mangomind service (version 1.5) to the business community. Since its original commercial release, the Mangomind service has been enhanced several times and is currently on version 3.1.1. In May 2002, we released Mangomind as an enterprise product to the business community. Since its release the product has been enhanced and is currently on version 3.0.

We have identified small and medium sized business in the financial services, consulting, manufacturing, healthcare, real estate and architecture industries as key vertical markets to focus our marketing of the Mangomind service. These industries are characterized by a high degree of interaction with workgroups outside their organization and a need for an efficient and secure means of file sharing and project collaboration. Our recruitment of resellers is targeted toward those resellers that have existing penetration within these targeted vertical markets. We offer 15-day risk-free trials to participants responding to our resellers’ marketing programs. These participants have become valuable prospects for our direct sales efforts.
 
The introduction of our Mangomind product has allowed our reseller channel to increase its focus on the enterprise customer. Enterprise sales are lead-driven and generally require on-site product demonstrations. An enterprise customer will then enter into a pilot implementation and ultimately a full-scale deployment. Enterprise sales are a lengthy process and may take three to six months to close.

 fileTRUST

In connection with our purchase of fileTRUST from Bank of America (formerly FleetBoston) in February 2002, we executed a two-year enterprise license agreement with Bank of America (formerly FleetBoston) for their internal use of fileTRUST. This initial term of this agreement concluded in February 2004. The terms of this agreement provide for automatic renewals on a month-to-month basis. Bank of America (formerly FleetBoston) terminated its license agreement with us in September 2004. Bank of America (formerly FleetBoston) was our largest customer. We continue to seek organizations similar to Bank of America (formerly FleetBoston) to whom to market and sell fileTRUST.

6

PRODUCT SUPPORT

Built Right Networks provides our end-users and reselling channel with product support under the terms of the Outsourced Services Agreement. Technical support is primarily provided through Internet communication, electronic mail and a traditional telephone support line. We depend on Built Right Networks to provide end-user support and troubleshooting. We maintain a specific reseller site on our web page that includes a frequently asked questions page and regularly updated support information for our reselling channel. Analysis of support calls is used to improve and enhance both the product and the web site content.

Our Mangomind and fileTRUST customers are provided with twenty-four hour customer support. Direct customer support is available through a dedicated telephone line or e-mail and is managed by Built Right Networks. In addition, we maintain certain customer support information on our web site.

CONCENTRATIONS

We generate the majority of our revenues from the sale of our products and services in North America. All of our 2006 and 2005 revenues were generated from sales to North American customers.
 
Two customers accounted for approximately 10% of our 2006 net revenues. One customer accounted for approximately 12% of our 2005 net revenues.

INTELLECTUAL PROPERTY

To date, we have been granted five patents as follows: (i) System and Method for Providing Highly Available Data Storage Using Globally Addressable Memory (June 1, 1999); (ii) Structured Data Storage Using Globally Addressable Memory (June 29, 1999); (iii) Remote Access and Geographically Distributed Computers in a Globally Addressable Storage Environment (November 16, 1999); (iv) Shared client-side Web Caching Using Globally Addressable Memory (February 15, 2000); and (v) Shared Memory Computer Networks (November 14, 2000). We have applied for five additional U.S. patents which applications are still pending. Our patents cover aspects of our peer-to-peer clustering technology, Cachelink and Mangomind. We have also filed patent applications outside of the U.S. that are counterparts to the issued patents and pending applications. We also own trademarks on “Cachelink,” “Medley,” “Mango,” and “MangoSoft.” In addition, we also own service marks on “Mangomind,” “fileTRUST” and “the Business Internet File Service.”
 
We consider elements of our software and peer-to-peer clustering technology to be proprietary. We rely on a combination of trade secrets, copyright and trademark law, contractual provisions, confidentiality agreements, and certain technology and security measures to protect our intellectual property, proprietary technology and know-how. Our future results of operations are highly dependent on the proprietary technology that we have developed internally. Consequently, we have taken actions to secure our proprietary technology in the form of patent protection. If we are denied our patent requests, either individually or as a group, we believe that there would be a material adverse impact on our business.

On November 22, 2002, we filed a complaint in United States District Court, District of New Hampshire against Oracle Corporation (“Oracle”) for infringement of two of our patents; 1) Structured Data Storage Using Globally Addressable Memory (June 29, 1999) and 2) Shared Memory Computer Networks (November 14, 2000). On July 2, 2003, we filed a similar complaint in United Stated District Court, Northern District of California, against Oracle, Sun Microsystems, Inc., Dell Computer Corp. and Electronic Arts, Inc. for infringement of these two patents. On May 15, 2003, Oracle filed a complaint against us alleging that various software we have developed, including Mangomind, infringes on a patent held by Oracle.
 
7

On March 14, 2006, the U,S., District Court in New Hampshire ruled in favor of Oracle’s motion for summary judgment that it did not infringe U.S. Patent No. 6,148,377 held by Mangosoft, Inc. Mangosoft had sued Oracle in 2002, claiming infringement of its patent on shared memory technology as described above.

On September 22, 2006, the Company through its subsidiary Mangosoft Intellectual Property, Inc., filed a civil action in the United States District Court for the Eastern District of Texas alleging patent infringement against eBay, Inc. of San Jose and its subsidiaries Skype Technologies SA and Skype Software Sarl of Luxembourg. The Complaint alleges that each of the defendants have infringed, and continue to infringe, U.S. Patent No. 6,647,393 entitled "Dynamic Directory Service" in violation of one or more provisions of 35 U.S.C. section 271. The complaint seeks damages for willful infringement as well as injunctive relief.

On October 26, 2006 Mangosoft Inc. was successful in its motion for summary judgment of non-infringement of United States Patent No. 6,371,790 in an action brought by Oracle International Corp. Oracle's motion for summary adjudication of patent validity, along with Mangosoft's motion to amend its final contentions of patent invalidity, and Oracle's motion to preclude Mangosoft from asserting a defense of inequitable conduct were denied by the United States District Chief Judge.
 
We license encryption software from a leading e-security software provider. This encryption software allows multiple users to more securely transmit, share and store files via the Mangomind service. All files shared, stored and transmitted over the Internet using the Mangomind service are protected with 128-bit encryption. We are required to make royalty payments to the software provider based on the volume of our sales.

EMPLOYEES

As of December 31, 2006 we had 1 full-time employee. Our success is highly dependent on our ability to attract and retain qualified resellers and to retain qualified outsourced information system management. To date, we believe we have been successful in our efforts, but there is no assurance that we will continue to be as successful in the future. Our employee is not subject to a collective bargaining agreement.

RISK FACTORS

We Have a Limited Operating History and Substantial Cumulative Operating Losses.

We have a history of substantial operating losses and an accumulated deficit of $88,944,248 as of December 31, 2006. For the years ended December 31, 2006 and 2005, our losses from operations, excluding the net effects of stock-based compensation, were $555,806, and $363,961, respectively. We have historically experienced cash flow difficulties primarily because our expenses have exceeded our revenues. We expect to incur additional operating losses. These factors, among others, raise significant doubt about our ability to continue as a going concern. If we are unable to generate sufficient revenue from our operations to pay expenses or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially and adversely affected.

We Will Need Additional Financing.

We may require additional capital to finance our future operations. We can provide no assurance that we will obtain additional financing sufficient to meet our future needs on commercially reasonable terms or otherwise.,

8

Our Success Depends on Our Outsourced Services Agreement.

Effective September 30, 2002, we outsourced the management of our internal information systems, billable services infrastructure, software code base, customer support and reseller channel management to Built Right Networks under our September 30, 2002 Information Management Services Agreement (the “Outsourced Services Agreement”). The principals of Built Right Networks are all former MangoSoft employees. We can provide no assurance that Built Right Networks will remain solvent or can retain their key personnel. Built Right Network’s inability to retain key personnel or to remain solvent would have a material and adverse effect on our business, financial condition and results of operations.

Our Performance Depends on Market Acceptance of Our Products.
 
We expect to derive a substantial portion of our future revenues from the sales of Mangomind SM and fileTRUST SM . Due to our small size and need to conserve capital, our selling and marketing activities for these products and services is limited. If markets for our products fail to develop, develop more slowly than expected, are subject to substantial competition or react negatively to Bank of America’s (formerly FleetBoston) termination of its February 2002 enterprise license agreement with us, our business, financial condition and results of operations may be adversely affected.

We Depend on Strategic Marketing Relationships.  
 
We expect our future marketing efforts will focus in part on developing business relationships with technology companies that seek to augment their businesses by offering our products to their customers. Our inability to enter into and retain strategic relationships, or the inability of such technology companies to effectively market our products, could materially and adversely affect our business, operating results and financial condition.

There May Be Limited Liquidity in Our Common Stock and Its Price May Be Subject to Fluctuation.
 
Our common stock is currently traded on the OTC Bulletin Board and there is only a limited market for our common stock. We can provide no assurances that we will be able to have our common stock listed on an exchange or quoted on NASDAQ or that it will continue to be quoted on the OTC Bulletin Board. If there is no trading market for our common stock, the market price of our common stock will be materially and adversely affected.

SEC Rules Concerning Sales of Low-Priced Securities May Hinder Re-Sales of Our Common Stock
 
Because our common stock has a market price that is less than five dollars per share, our common stock is not listed on an exchange or quoted on NASDAQ and is traded on the OTC Bulletin Board. Brokers and dealers who handle trades in our common stock are subject to certain SEC disclosure rules when effecting trades in our common stock, including disclosure of the following: the bid and offer prices of our common stock, the compensation of the brokerage firm and the salesperson handling a trade and legal remedies available to the buyer. These requirements may hinder re-sales of our common stock and may adversely affect the market price of our common stock.

Rapidly Changing Technology and Substantial Competition May Adversely Affect Our Business.
 
Our business is subject to rapid changes in technology. We can provide no assurances that research and development by competitors will not render our technology obsolete or uncompetitive. We compete with a number of computer hardware and software design companies that have technologies and products similar to those offered by us and have greater resources, including more extensive research and development, marketing and capital than us. We can provide no assurances that we will be successful in marketing our existing products and developing and marketing new products in such a manner as to be effective against our competition. If our technology is rendered obsolete or we are unable to compete effectively, our business, operating results and financial condition will be materially and adversely affected.
 
9

Litigation Concerning Intellectual Property Could Adversely Affect Our Business.
 
We rely on a combination of trade secrets, copyright and trademark law, contractual provisions, confidentiality agreements and certain technology and security measures to protect our trademarks, patents, proprietary technology and know-how. However, we can provide no assurance that our rights in our intellectual property will not be infringed upon by competitors or that competitors will not similarly make claims against us for infringement. If we are required to be involved in litigation involving intellectual property rights, our business, operating results and financial condition will be materially and adversely affected

Defects in Our Software Products May Adversely Affect Our Business.
 
Complex software such as the software developed by MangoSoft may contain defects when introduced and also when updates and new versions are released. Our introduction of software with defects or quality problems may result in adverse publicity, product returns, reduced orders, uncollectible or delayed accounts receivable, product redevelopment costs, loss of or delay in market acceptance of our products or claims by customers or others against us. Such problems or claims may have a material and adverse effect on our business, financial condition and results of operations.

We Have Limitations On The Effectiveness Of Our Internal Controls.

We have one full-time employee. This employee is engaged in general and administrative capacities. A complete set of internal controls is not possible in an organization of this size. Management does not expect that its disclosure controls or its internal controls will prevent all errors and intentional misrepresentations. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the organization have been detected.
 
ITEM 2. DESCRIPTION OF PROPERTY

In 2006 and 2005, the Company did not have any rent commitments or expense.
 
ITEM 3. LEGAL PROCEEDINGS

On November 22, 2002, the Company filed a complaint in the United States District Court of New Hampshire, against Oracle Corporation for infringement of U.S. Patent No. 6,148,377 and U.S. Patent No. 5,918,229. The complaint seeks unspecified monetary damages and injunctive relief and awards for interest, costs and attorneys’ fees.

On May 15, 2003, Oracle Corporation filed a complaint in the United States District Court, Northern District of California, against the Company and Built Right Networks for infringement of a patent held by Oracle Corporation. The complaint seeks unspecified monetary damages and injunctive relief and awards for interest, costs and attorneys’ fees.
 
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ITEM 3. LEGAL PROCEEDINGS (continued)

On July 2, 2003, the Company filed a complaint in the United States District Court, Northern District of California, against Oracle Corporation, Sun Microsystems, Inc., Dell Computer Corporation and Electronic Arts, Inc. for infringement of U.S. Patent No. 6,148,377 and U.S. Patent No. 5,918,229. The complaint seeks unspecified monetary damages and injunctive relief and awards for interest, costs and attorneys’ fees.
 
On March 14, 2006, the U,S., District Court in New Hampshire ruled in favor of Oracle’s motion for summary judgment that did it did not infringe U.S. Patent No. 6,148,377 held by Mangosoft, Inc. Mangosoft had sued Oracle in 2002, claiming infringement of its patent on shared memory technology as described above.

On September 22, 2006, the Company through its subsidiary Mangosoft Intellectual Property, Inc., filed a civil action in the United States District Court for the Eastern District of Texas alleging patent infringement against eBay, Inc. of San Jose and its subsidiaries Skype Technologies SA and Skype Software Sarl of Luxembourg. The Complaint alleges that each of the defendants have infringed, and continue to infringe, U.S. Patent No. 6,647,393 entitled "Dynamic Directory Service" in violation of one or more provisions of 35 U.S.C. section 271. The complaint seeks damages for willful infringement as well as injunctive relief.

On October 26, 2006 Mangosoft Inc. was successful in its motion for summary judgment of non-infringement of United States Patent No. 6,371,790 in an action brought by Oracle International Corp. Oracle's motion for summary adjudication of patent validity, along with Mangosoft's motion to amend its final contentions of patent invalidity, and Oracle's motion to preclude Mangosoft from asserting a defense of inequitable conduct were denied by the United States District Chief Judge.

On March 29, 2007 the Company filed a Notice of Appeal in the United States District Court for the District of New Hampshire in the case of Mangosoft, Inc., et al. v. Oracle Corporation , C.A. No. 02-545-M. By filing the Notice of Appeal, Mangosoft has commenced an appeal in the United States Court of Appeals for the Federal Circuit challenging, among other things, the District Court’s claim construction Order of September 21, 2004, the District Court’s order granting defendant Oracle Corporation’s motion for summary judgment of non-infringement entered on March 14, 2006, and the District Court’s entry of final judgment entered on March 29, 2007.

Other than the matters listed above, there are no material pending legal proceedings, other than the routine litigation occurring in the normal course of operations, to which we are party or of which any of our properties are subject.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

No matters were submitted during the fourth quarter of the year ended December 31, 2006 to a vote of our security holders, through the solicitation of proxies or otherwise.

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PART II
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(A) Market Information

Our common stock, $0.001 par value, began trading in October 1999 on the Over-The-Counter Bulletin Board Market (“OTCBB”) under the symbol “MGNX.” Effective March 7, 2003, our common stock began trading under the symbol “MGOF.” Our symbol change is attributable to our March 7, 2003 1-for-27 reverse stock split.

The following sets forth the high and low bid price quotations for each calendar quarter in which trading occurred during the last two fiscal years, adjusted to reflect the effects of the March 7, 2003 reverse stock split. Such quotations reflect interdealer prices, without retail markup, markdown or commission, and may not represent actual transactions:
2006
 
High
 
Low
 
First Quarter
 
$
7.70
 
$
0.60
 
Second Quarter
   
1.01
   
0.35
 
Third Quarter
   
1.00
   
0.47
 
Fourth Quarter
   
1.76
   
0.56
 
 
2005
 
High
 
Low
 
First Quarter
 
$
10.00
 
$
4.25
 
Second Quarter
   
11.35
   
4.25
 
Third Quarter
   
6.40
   
3.00
 
Fourth Quarter
   
4.75
   
3.30
 

On January 18, 2007, the last reported sale price of our common stock on the OTCBB was $.70 per share.

(B) Holders

As of December 31, 2006, there were approximately 385 holders of record of our common stock. This number does not include stockholders for whom shares were held in a “nominee” or “street name.”

(C) Dividends

We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying cash dividends on our common stock in the foreseeable future. It is the present intention of management to utilize all available funds for future operations.

The only restrictions that limit the ability to pay dividends on the common stock are those imposed by corporate law. Under Nevada corporate law, no dividends or other distributions may be made which would render us insolvent or reduce assets to less than the sum of our liabilities plus the amount needed to satisfy any liquidation preference.
 
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(D) Securities Authorized for Issuance Under Equity Compensation Plans

The following sets forth information surrounding compensation plans in which we have authorized the future issuance of our common stock:
 
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
 
 
(a)
 
(b)
 
(c)
 
Equity compensation plans approved by security holders
   
75,000
       
$
1.73
   
179,652
 
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-KSB contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Annual Report that are not statements of historical facts are forward-looking statements, which involve risks and uncertainties. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from those indicated in the forward-looking statements as a result of the factors set forth elsewhere in this Annual Report on Form 10-KSB, including under “Risk Factors.” You should read the following discussion and analysis together with our condensed consolidated financial statements for the periods specified and the related notes included herein. Further reference should be made to our Annual Report on Form 10-KSB for the period ended December 31, 2006 filed with the Securities and Exchange Commission.

OVERVIEW

We market, sell and support Internet business software and services that improve the utility and effectiveness of Internet-based business applications. Our software solutions address the networking needs of small businesses, workgroups and large enterprises. Our products and services enhance the performance of PC networks and deliver improved service utilizing existing equipment. We no longer develop new software products or services.
 
Mangomind SM  is a multi-user, business-oriented, peer-to-peer file sharing system, allowing individual users to collaborate over the Internet across organizational boundaries in a safe and secure manner. The architecture is a blend of the manageability of client/server with the autonomy, clustering, and caching optimizations of peer-to-peer. The user experience is one of easy file sharing with colleagues through what looks like an ordinary LAN shared drive. Mangomind SM provides the secure file sharing benefits of a VPN without additional hardware and configuration complexities. Mangomind SM is sold as both a service and a standalone software product

fileTRUST SM is an online data storage service we purchased from Bank of America (formerly FleetBoston) in February 2002 for approximately $427,000, of which $175,000 was paid in cash and the balance in our common stock and warrants to purchase our common stock at $14.31 per share. fileTRUST SM users can access their stored files from any Internet-connected system. The fileTRUST SM service compliments our Mangomind SM service by providing customers with a lower cost online storage system. In conjunction with our purchase of fileTRUST SM , we executed a two-year enterprise license agreement with Bank of America (formerly FleetBoston) for the internal use of fileTRUST SM by Bank of America (formerly FleetBoston), which expired in February 2004. The terms and conditions of this agreement provided for automatic renewals on a month-to-month basis.
 
13

CRITICAL ACCOUNTING POLICIES

Our accounting policies are fully described in Note 2 to our consolidated financial statements. The following describes the application of accounting principles that have significant impact on our consolidated financial statements:

Going Concern Assumption - The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. If the consolidated financial statements were prepared on liquidation basis, the carrying value of our assets and liabilities would be adjusted to net realizable amounts. In addition, the classification of the assets and liabilities would be adjusted to reflect the liquidation basis of accounting.

Revenue Recognition - We recognize revenue generated from product sales when persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery has occurred and collection is probable. We recognize revenue generated from the sale of the Mangomind SM and fileTRUST SM services as the service is provided. We recognize revenue generated from the sale of the Mangomind SM product over the period of the first year’s maintenance agreement when persuasive evidence of the arrangement exists, the price is fixed and determinable, delivery and any required installation has been completed and collection is probable.

Investments - At December 31, 2006, the Company did not have any investments.

Stock-based Compensation - As part of our compensation programs offered to our employees, we grant stock options. In addition, we have engaged third-party consultants and advisors and have compensated them in the form of stock options. Compensation for stock options issued to employees is generally measured as the difference between the exercise price of the options granted and the fair value of our common stock on the date of grant. Compensation for stock options issued to third-party consultants and advisors is measured at the fair value on the date of grant, determined using the Black-Scholes valuation model. Because of the cashless exercise feature of the stock options granted in 1999 and the repricing of options granted in 2000 and 2003, we are required to remeasure the compensation related to these awards at each reporting date. As the quoted market price of our common stock fluctuates, our reported operating expenses will continue to fluctuate. These fluctuations can be significant.

Deferred Taxation - Because of the significant operating losses incurred and projected future operating losses, we have provided a full valuation allowance against the deferred tax assets created by our net operating loss carryforwards.

Costs and Expenses

Cost of services - Cost of services consist solely of the expenses we incur to administer and service the Mangomind SM and fileTRUST SM services. These expenses consist primarily of salaries and related personnel costs, the cost of our outsourced data center, the license royalties we pay to our e-security software provider for the encryption used in the Mangomind SM service and the fees we pay to Built Right Networks to manage our billable services infrastructure.
 
14

Costs and Expenses

Cost of services - Cost of services consist solely of the expenses we incur to administer and service the Mangomind SM and fileTRUST SM services. These expenses consist primarily of salaries and related personnel costs, the cost of our outsourced data center, the license royalties we pay to our e-security software provider for the encryption used in the Mangomind SM service and the fees we pay to Built Right Networks to manage our billable services infrastructure.

Engineering and Development Expenses - Engineering and development expenses consist primarily of costs related to the design, development, testing, deployment and enhancement of our products and services. We have expensed our engineering and development costs as incurred. At December 31, 2006, there were no full time employees performing engineering or development on our products and services. We have outsourced the maintenance of our billable services infrastructure as well as product and customer support to Built Right Networks.

Other Operating Expenses - Selling and marketing expenses consist primarily of costs incurred to market our products and services such as the costs of attending and presenting at trade shows. General and administrative expenses consist primarily of salaries and related personnel costs and other general corporate costs such as facility costs, commercial and general liability insurance, accounting and legal expenses and other costs typical of a publicly held corporation. At December 31, 2006, there were no full time employees performing selling and marketing activities. Our remaining employee is performing general and administrative activities.

Reduction in Force - We have reduced our work force on four occasions since April 23, 2001 due to adverse economic conditions and our need to conserve capital. At December 31, 2005, we had one employee, working in a general and administrative capacity.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2006 AND 2005

Revenues for year ended December 31, 2006 decreased $61,424 or 18% to $275,100 from $336,524 for the comparable year in 2005. No customer accounted for more than 10% of our revenues for either period.

We recognized $260,399 from the sale of our Mangomind SM service and $14,701 from the sale of our fileTRUST SM service during the year ended December 31, 2006. During the year 2005, we recognized $310,777 from the sale of the Mangomind SM service and $25,747 from the sale of our fileTRUST SM service.
 
Cost of services for year ended December 31, 2006 decreased $5,179 or 2% to $262,903 compared to $268,082 for the comparable year in 2005. The decrease in the cost of delivering our services was primarily a result of our continued reductions and our switch to a lower cost data center. In response to our loss of Bank of America (formerly FleetBoston) as a customer, we have instituted cost reductions to lessen the adverse effects of the loss of the Bank of America (formerly FleetBoston) revenues, including restructuring our business relationships with key vendors such as Built Right Networks.

There was no engineering and development expense for the years ended December 31, 2006 and 2005. During the years ended December 31, 2006 and 2005, we had no employees performing engineering or development activities

For the year ended December 31, 2006, other operating expenses including selling and marketing and general and administrative expenses increased $135,600 or 31% to $568,003 compared with $432,403 for the comparable period in 2005. The increase in other operating expenses was due primarily to legal costs incurred in pursuit of patents and in defense of our patents combined with a reduction of public relations, legal and other corporate consultants and facility rent in addition to reductions in our marketing, selling and general and administrative personnel associated with our work force reductions. During the year ended December 31, 2006 and 2005, our one (1) full-time employee was working in a general and administrative capacity.
 
15

There was no stock-based compensation recorded for the year ended December 31, 2006 compared to $428 for the comparable year in 2005.The decrease in this expense was primarily attributable to the decrease in the number of outstanding employee stock options subject to compensation expense. The expense represents the ratable recognition of stock-based compensation for stock option awards granted in 2000 at exercise prices that were less than the fair value at the time of grant. See Note 8 to the consolidated financial statements.

Our loss from operations increased $191,417 to $555,806 for the year ended December 31, 2006 compared with a loss from operations of $364,389 for the comparable year in 2005 as a result of the above factors.

Interest income decreased $7,261 to $10,243 for the year ended December 31, 2006 compared to $17,504 for the year ended December 31, 2005. Our cash balances available for investment have decreased period over period.

We settled an outstanding account payable to a law firm during 2006 that resulted in the recognition of other income in the amount of $677,777. No similar income items were recognized in 2005.
 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We were formed in June 1995 and, since our formation, have raised approximately $74,500,000 in financing from private placements of debt and equity securities. In addition to the financing we received through the sale of our securities, we have, at times, depended upon loans from stockholders and directors and credit from suppliers to meet interim financing needs. Borrowings from stockholders and directors have generally been refinanced with new debt instruments or converted into additional equity. At December 31, 2006, approximately $114,000 in additional financing was provided through accounts payable, accrued expenses and other trade credit, a significant portion of which is past due.
 
At December 31, 2006, we had a cash balance of approximately $125,000 and a working capital deficit of approximately $218,000. We do not have any commercial commitments or off balance sheet financing. Our commitments under our operating leases are described in Note 10 to our consolidated financial statements.

During 2006 two corporate notes receivable totaling approximately $3,000 matured from Unicrown Partners LLC, a privately held company in which Selig Zises and Jay Zises are members. Selig Zises and Jay Zises are stockholders of MangoSoft, Inc. Selig Zises was the former co-chairman of our Board of Directors. Investments in high-yield securities pose higher risks than investments in lower-yield securities, including the risk of total loss.

We did not make any capital expenditures during the fiscal year 2006.

We have significantly modified our operations and reduced our work force on four separate occasions since April 2001. We currently have one (1) employee, working in a general and administrative capacity. We outsource the management of our billable services infrastructure, software code base, customer support and reseller channel management to Built Right Networks for approximately $21,000 per month, under an agreement, which can be cancelled with a ninety (90) day notice.
 
16

Unless we can generate significant on-going revenue, we will need additional sources of equity or debt financing. Although we have been successful in raising past financing, there can be no assurances that additional financing will be available to us on commercially reasonable terms, or at all.

As shown in the audited consolidated financial statements, during the years ended December 31, 2006 and 2005, we incurred net income (loss) of $125,751 and ($347,088), respectively. Cash used in operations during the years ended December 31, 2006 and 2005 was $608,852 and $320,340, respectively. The factors, among others, raise significant doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow and meet our obligations on a timely basis and ultimately attain profitability.

PLAN OF OPERATION

We believe that we may be required to raise additional funds in order to meet our cash requirements. In the event that our revenues from the current marketing, sales and support of our business software and services are insufficient, we may need to seek alternative sources of capital over the next twelve (12) months. While we do not anticipate any capital expenditures, product research and development or significant increase in employees over the next twelve (12) months, we continue to have additional cash needs related to our ongoing operations in general and our various ongoing intellectual property litigations in particular. In the event that cash flow from operations is insufficient for us to meet our obligations on a timely basis, we will be required to raise additional capital from stockholders, of which there can be no assurances. In July, 2007 the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (which was subsequently amended in September of 2007, and currently remains pending) with respect to a proposed rights offering pursuant to which the Company would propose to offer to its stockholders an aggregate of 2,400,000 shares of its common stock at a per share purchase price of $.50 per share, which, if effected in full, would result in gross proceeds to the Company of $1,200,000.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any commercial commitments or off balance sheet financing. Our commitments under our operating leases are described in Note 10 to our consolidated financial statements.
 
ITEM 7. FINANCIAL STATEMENTS

Our consolidated financial statements and related notes, which are attached to this Annual Report on Form 10-KSB beginning on page 29, are incorporated by reference.
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.
 
ITEM 8A. CONTROLS AND PROCEDURES

  We have significantly reduced our work force on several occasions during 2001 and 2002. At December 31, 2006 and 2005, we had one (1) employee, Mr. Dale Vincent, our President, Chief Executive Officer and sole director. A complete set of internal controls including segregation of duties is not possible in an organization of this size. However, we have implemented control procedures surrounding the maintenance of our accounting and financial systems and the safeguarding of our assets. Further, all transactions entered into outside the normal course of our day-to-day operations must be approved by Mr. Vincent.

Our principal executive and financial officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report on Form 10-KSB. Based on such evaluation, our principal executive and financial officer has concluded that as of such date, our disclosure controls and procedures were designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms and were effective.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

17

ITEM 8B. OTHER INFORMATION

None.
 
18

PART III
 
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Dale Vincent, age 60, is our President, Chief Executive Officer and sole director. Mr. Vincent provides his services on a full-time basis. Mr. Vincent was appointed President, Chief Executive Officer and elected a Director in September 1999. Previously, he served as the Chief Executive Officer of MangoSoft Corporation since May 1999, as its Chief Financial Officer from September 1998 to May 1999, and as a Director of MangoSoft Corporation since July 1995. Mr. Vincent has over 25 years of senior financial and business management experience, with the last 16 years developing and funding companies in the software industry. Since April 1990, Mr. Vincent has served as a Managing Director of ACAP, a private investment company, the general partner of Associated Capital L.P., a private investment company, and consults with Associated Capital L.P with respect to its investment and marketing activities. He has also served as a Director of MaMaMedia, Inc. since 1996.
 
Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act and the rules thereunder require our directors and officers and persons who own more than 10% of our outstanding common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). Our personnel generally prepare these reports on the basis of information obtained from each director and officer, and greater than 10% stockholders are required by the Commission to furnish the Company with copies of all reports filed. To the best of our knowledge, all reports required by Section 16(a) of the Exchange Act to be filed by our directors, officers and 10% or greater stockholders during our fiscal year ended December 31, 2006 were filed on time.

Audit Committee

We do not have an Audit Committee comprised of independent directors. Dale Vincent is our President, Chief Executive Officer and sole director. In that capacity, Mr. Vincent performs the functions of a typical Audit Committee. Mr. Vincent has been determined to be a financial expert.

Code of Ethics

The Company has adopted a Code of Ethics that applies to the Company’s employees who may be hired from time to time, including its President and Chief Executive Officer and its accounting personnel. The Company will provide, without charge, a copy of the Code of Ethics on the written request of any person, addressed to the Company’s Chief Executive Officer at MangoSoft, Inc., 12 Technology Way, Nashua, New Hampshire. A copy of this code of ethics is attached to this Annual Report on Form 10-KSB as exhibit 14. The Company will post a copy of this code of ethics on its corporate website - www.mangosoft.com.

19

ITEM 10. EXECUTIVE COMPENSATION
 
Executive Compensation
 
Compensation Discussion and Analysis
 
Overview
 
The sole director is responsible for establishing, implementing and continually monitoring adherence with our compensation philosophy. The director seeks to ensure that the total compensation is fair and reasonable. Currently, we have one (1) executive officer.
 
This section describes our compensation program for our executive officer. The discussion focuses on our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. We address why we believe our compensation program is appropriate for us and our stockholders, and we explain how executive compensation is determined.
 
Compensation Philosophy and Design
 
 
As a result of our history of operating losses, our cash compensation plans have been designed to balance our salary expenses against cash flows and available cash and our need to retain key members of management (currently our chief executive officer). Our executive compensation packages have not included a variable cash compensation element.
 
Objectives of Our Compensation Program for Executive Officers
 
The fundamental objective of our executive compensation and benefits program is to maximize stockholder value over time.
 
As noted above, our compensation decisions to date have been based largely on our budget and operating results and on our need to preserve cash.
 
 
Our compensation program consists of a base salary and a long-term compensation awarded in equity, consisting of equity-based incentives such as stock options.
 
In recent periods, there have been no discretionary bonuses for our chief executive officer. Our chief executive officer is currently not entitled under the terms of his employment to any cash severance or similar benefits in connection with a termination of employment or change of control.
 
20

Currently all of our cash compensation is paid out within one year. We do not have any deferred compensation cash plans. Our equity-based incentives are long-term incentives that are based on the parameters described below under "Equity-Based Incentives."
 
Allocation of Compensation Among Principal Elements
 
 
Base Salary
 
Historically, we have paid base salaries that we believe are below the market median for officers performing comparable jobs  at comparable public companies. The annual salary for Dale Vincent, our president and chief executive officer, decreased by 3% from  $209,000 in 2005 to $202,000 in 2006.
 
             Equity-Based Incentives
 
          We grant equity-based incentives to our chief executive officer, in order to create a corporate culture that aligns employee interests with stockholder interests. We have not adopted any specific stock ownership guidelines. At present, our long-term  compensation consists solely of stock options. Our board of directors grants options to our executive officer to enable him to  participate in any long-term appreciation in our stockholder value.
 
No equity based compensation was granted in 2006.
 
 
         We have not adopted any formal cash bonus plans.
 
Benefits
 
We provide no benefits to our executive officer.
 
 
The following table presents information concerning the total compensation of our chief executive officer for services rendered to us in all capacities for the fiscal years ended December 31, 2006, 2005 and 2004. Our Executive Officer received no other compensation required to be disclosed by law or in excess of $10,000 annually.
 
Name and Principal Position
 
Year
 
Salary
($)
 
Discretionary
Non-Plan
Based Bonus
($)
 
Option
Awards
($)
 
Non-Equity
Incentive
Plan
Compensation
($)
 
All Other
Compensation
($)
 
Total
($)
 
Dale Vincent
President and Chief
Executive Officer
   
2006
2005
2004
  
 
 
$  
202,488
208,667
204,046
  $
   
$  
 
$
 
$
  
202,488
208,667
204,046
 
 
21

GRANTS OF PLAN-BASED AWARDS
 
The following table presents information concerning grants of plan-based awards to each of the Named Executive Officer during the fiscal year ended December 31, 2006.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grant
Date
Fair
Value of
Stock
and
Option
Awards 
 
 
 
 
Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards
 
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
 
Exercise
or Base
Price of
Option
Awards
($/Sh)
Name
 
Grant
Date
 
Threshold
($)
 
Target
($)
 
Maximum
($)
Mr. Dale Vincent
       
   
   
 
   
   
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
The following table presents certain information concerning equity awards held by our chief executive officer at the end of the fiscal year ended December 31, 2006.
 
 
 
Option Awards
Name
 
 
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
 
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
 
Option
Exercise
Price ($) 
 
Option
Expiration
Date
Mr. Dale Vincent
President and Chief
Executive Officer
 
75,000
 
 
   
1.73
 
 
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END
 
The following table presents certain information concerning the exercise of options by chief executive officer during the fiscal year ended December 31, 2006, as well as information regarding stock awards that vested during the fiscal year.
 
 
 
Option Awards
 
Stock Awards
Name of Executive Officer
 
Number of
Shares
Acquired on
Exercise (#)
 
Value Realized
on Exercise
($)
 
Number of
Shares
Acquired on
Vesting (#)
 
Value Realized
on Vesting ($)
Mr. Dale Vincent
 
 
 
 
 
Legal Proceedings
 
We are not aware of any legal proceedings which name our sole officer and director as a defendant or co-defendant and therefore have no obligation to indemnify him for legal costs related to such litigation
 
Compensation of Directors

There were no outside directors in 2006. Accordingly, with the exception of the compensation we paid to Mr. Vincent for his services as our president and chief executive officer, no other compensation was paid to any director in 2006.
 
22

Employment Contracts

None.

Report on Repricing of Options/SARs

On July 24, 2003, the Company amended its outstanding and vested stock options granted to its Chief Executive Officer. Vested and outstanding options to purchase 22,222 and 14,815 shares of the Company’s common stock at $27.81 and $33.75 per share, respectively, were cancelled. The Company granted its Chief Executive Officer options to purchase 37,037 shares of its common stock at an exercise price of $1.00 per share. The newly granted options are completely vested.
 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of March 1, 2007 with respect to beneficial ownership of our common stock by (i) each person we know to own beneficially more than 5% of our outstanding common stock; (ii) each director and named executive officer; and (iii) all directors and named executive officers as a group. The percentages in the last column are based on 3,413,038 shares of common stock outstanding on March 1, 2007. In each case, except as otherwise indicated in the footnotes to the table, the shares shown in the second column are owned directly by the individual or members of the group named in the first column and such individual or group members have sole voting and dispositive power with respect to the shares shown. For the purposes of this table, beneficial ownership is determined in accordance with the federal securities laws and regulations; inclusion in the table of shares not owned directly by the named director or executive officer does not constitute an admission that such shares are beneficially owned by the director or officer for any other purpose.
 
Beneficial owners:
 
Number of Shares of Common Stock Owned
 
Percent of Outstanding Common Stock Owned
 
 
 
 
 
 
 
Selig Zises (1)(6)
   
909,548
       
26.6
%
Southpaw Asset Management LP (2)
   
870,202
         
25.5
%
Jay Zises (3)(4)
   
407,011
       
11.9
%
Knoll Capital Fund II Master Fund (4)
   
250,000
         
7.3
%
Europa International Inc. (4)
   
250,000
         
7.3
%
Directors and officers:
             
Dale Vincent (5)
   
76,116
       
2.2
%
 
             
All Directors and officers as a group
   
76,116
       
2.2
%
 
(1)
Total shares of common stock beneficially owned by the former co-chairman of our Board of Directors Selig Zises include the following: 902,803 shares owned by Selig Zises; 4,196 shares owned by Guarantee & Trust Co. TEE FBO Selig Zises R-IRA DTD 5-20-96 (a self-directed IRA); and 2,549 shares owned by his daughter Lynn Zises. Selig Zises is the brother of Jay Zises, both of whom are principal stockholders of the MangoSoft. Other than the Zises family relationships references in this table and the related footnotes, there are no affiliations between Selig Zises and any other persons or entities identified in such table or footnotes. Selig Zises address is 988 Fifth Avenue, New York, New York 10021.
 
(2)
This Information is based solely on Schedule 13D filed with the Securities and Exchange Commission on January 12, 2007 by (i) Southpaw Credit Opportunity Master Fund LP (“Fund”), a Cayman Islands limited partnership, as the holder of the shares of Common Stock, (ii) Southpaw Asset Management LP (“Southpaw Management”), a Delaware limited partnership, as the investment manager to Fund, (iii) Southpaw Holdings LLC (“Southpaw Holdings”), a Delaware limited liability company, as the general partner of Southpaw Management, (iv) Kevin Wyman, a principal of Southpaw Holdings LLC, and (v) Howard Golden, a principal of Southpaw Holdings LLC (the persons mentioned in (i), (ii), (iii), (iv) and (v) immediately preceding are collectively referred to as “Southpaw”). Southpaw has the power to vote and dispose of all 870,202 shares of the Company’s Common Stock.
 
(3)
Total shares of common stock beneficially owned by Jay Zises, the brother of the former co-chairman of our Board of Directors Selig Zises, include the following: 2,481 shares owned by Jay Zises; 301,641 shares owned by Delaware Guarantee & Trust TTEE FBO Jay Zises IRA (a self-directed IRA); 701 shares owned by Nancy Zises as custodian for Meryl Shane Zises; and 139 shares owned by Jay Zises as custodian for Justin Zises. Nancy Zises is the wife of Jay Zises. Other than the Zises family relationships referenced in this table and the related footnotes, there are no affiliations between Jay Zises and any other persons or entities identified in such table or footnotes. Jay Zises address is 965 Fifth Avenue, Apt. 10B, New York, New York 10021.
 
(4)
This information is based solely on the Company’s stock transfer records. The address of each of Knoll Capital Fund II Master Fund and Europa International Inc. is 666 Fifth Avenue, Suite 3702, New York, NY 10103
 
(5)
Includes 75,000 shares of common stock Mr. Vincent has the right to acquire through the exercise of stock options. Mr. Vincent’s address is c/o MangoSoft, Inc., 29 Riverside Street, Suite A, MS A-8, Nashua, New Hampshire 03062.
 
(6)
Beneficially owned shares for Jay Zises and Selig Zises exclude 10,000 shares of the Series B Convertible Preferred Stock owned by each Jay Zises and Selig Zises which were issued on July 23, 2003. Each share of Preferred stock is convertible into one share of common stock at the option of the holder. In addition to its convertible features, the holders of the Preferred Stock are entitled to twenty-five votes per share of Preferred Stock on any matter brought to the vote of shareholders.
 
23

Securities Authorized for Issuance Under Equity Compensation Plans

See information provided under the Section titled “Securities Authorized for Issuance Under Equity Compensation Plans” under Part II, Item 5 above.
 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
(A)  
TRANSACTIONS WITH DIRECTORS AND OFFICERS
  
At December 31, 2006, two corporate notes receivable totaling approximately $3,000 matured from Unicrown Partners LLC, a privately held company in which Selig Zises and Jay Zises are members. Selig Zises and Jay Zises are stockholders of MangoSoft, Inc. Selig Zises was the former co-chairman of our Board of Directors. Investments in high-yield securities pose higher risks than investments in lower-yield securities, including the risk of total loss.

In July 2003, Jay Zises and Selig Zises each purchased 10,000 shares of Series B Convertible Preferred Stock for $50,000. Each share of preferred stock is convertible into one share of common stock at the option of the holder. In addition to the convertible features of this private placement, the holders of the preferred stock are entitled to twenty-five votes per share of preferred stock on any matter brought to the vote of shareholders.

On September 26, 2006, Selig Zises provided bridge financing to Mangosoft Corporation in the principal amount of $250,000. At the closing of the Mangosoft Corporation offer and sale of 2,400,000 shares of common stock on January 10, 2007, the bridge financing shall automatically be converted into a subscription of common stock. of 500,000 shares.

On January 10, 2007, in connection with the sale of 2,400,000 of common stock, Jay Zises purchased 300,000 shares for $150,000 in cash.
 
24

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  
Exhibits:
 
 
Exhibit
Number
 
 
Description of Exhibit
 
2.1
 
 
Agreement and Plan of Merger by and among First American Clock Co., MangoSoft Corporation and MangoMerger Corp., dated as of August 27, 1999. (1)
 
 
 
3.1
 
Articles of Incorporation, as amended. (2)
 
 
 
3.2
 
By-laws. (2)
 
 
 
4.1
 
Rights Plan. (6)
 
 
 
10
 
Lease of Westborough Office Park, Building Five, dated November 10, 1995. (3)
 
 
 
14
 
Code of Ethics. (7)
 
 
 
21
 
Subsidiary of the Registrant. (2)
 
 
 
23.1
 
Consent of Registered Public Accounting Firm*
     
31.1
 
Certification of Principal Executive Officer required by Rule 13a 14(a) or Rule 15-d14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
99.1
 
1999 Incentive Compensation Plan, as amended and restated on May 1, 2000. (1)
 
 
 
99.2
 
Form of Subscription Agreement for purchase of common stock, dated as of March 20, 2000. (1)
 
 
 
99.3
 
Form of Warrant Agreement. (1)
 
 
 
99.4
 
Asset Purchase Agreement, dated February 11, 2002, between MangoSoft, Inc. and Fleet National Bank. (4)
 
 
 
99.5
 
Warrant Agreement, dated February 11, 2002, between MangoSoft, Inc. and Fleet National Bank. (4)
 
 
 
99.6
 
Information Management Services Agreement, dated September 30, 2002, between MangoSoft, Inc. and Built Right Networks LLC. (5)
 
 
 
99.7
 
Rights Agreement, dated March 14, 2003 and amended on July 25, 2003, between MangoSoft, Inc. and Interwest Transfer Co., Inc. (6)
 
(1)  
Filed as an exhibit to our Current Report on Form 8-K for an event dated September 7, 1999 and hereby incorporated by reference thereto.
 
 
(2)  
Filed as an exhibit to our Registration Statement on Form 10-SB, filed June 9, 2000, and hereby incorporated by reference thereto.
 
 
(3)  
Filed as an exhibit to our Quarterly Report filed November 9, 1999 for the quarter ended September 30, 1999 and hereby incorporated by reference thereto.
 
 
(4)  
Filed as an exhibit to our Quarterly Report filed August 14, 2002 for the quarter ended June 30, 2002 and hereby incorporated by reference thereto.
 
 
(5)  
Filed as an exhibit to our Current Report on Form 8-K for an event dated September 30, 2002 and hereby incorporated by reference thereto.
 
25

 
(6)  
Filed as an exhibit to our Current Report on Form 8-K for an event dated March 21, 2003, as amended on July 25, 2003, and hereby incorporated by reference thereto.
 
 
(7)  
Filed as an exhibit to our Annual Report on Form 10-KSB  filed on March 30, 2007 for the years ended December 31, 2006 and hereby incorporated by reference thereto.
   
*    
Filed herewith.

(b)  
Reports on Form 8-K:

There were no notifications filed on Form 8-K during the year ended December 31, 2006. There was a Form 8-K filed January 17, 2007 indicating the private placement of its common stock, par value $.001 per share, raising aggregate gross proceeds of $1,200,000 through the sale of 2,400,000 shares of Common Stock.
 
26

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Fees billed by Stowe & Degon for the audit of our annual financial statements for the fiscal years ended December 31, 2006 and 2005 and the review of our quarterly financial statements included in our quarterly reports on Form 10-QSB were approximately $31,000 and $35,000, respectively.

Audit-Related Fees   

There were no other fees billed by Stowe & Degon during the last three fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company’s financial statements and not reported under “Audit Fees” above.
 
Audit Committee Pre-Approval

Mr. Vincent is the sole director of MangoSoft. As such, he has the authority to approve 100% of audit, accounting and tax services and none of the fees were approved by an independent audit committee.

27

SIGNATURES

In accordance with the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
February 1, 2008
   
 
MANGOSOFT, INC.
 
 
 
 
 
 
February 1, 2008
By:   /s/ Dale Vincent
 
Dale Vincent
  President, Chief Executive Officer and
  Chairman of the Board of Directors
 
(Principal Financial and Accounting Officer)
 
28

MANGOSOFT, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

 
Page
Report of Independent Registered Public Accounting Firm
27
 
 
Consolidated Balance Sheet as of December 31, 2006
28
 
 
Consolidated Statements of Operations For The Years Ended December 31, 2006 and 2005
29
 
 
Consolidated Statements of Stockholders’ Equity For The Years Ended
 
December 31, 2006 and 2005
30
 
 
Consolidated Statements of Cash Flows For The Years Ended December 31, 2006 and 2005
31
 
 
Notes to Consolidated Financial Statements
32
 
29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of MangoSoft, Inc.:

We have audited the accompanying consolidated balance sheet of MangoSoft, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of MangoSoft, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years ended December 31, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1, the Company’s recurring losses from operations and its dependency on financing raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Stowe & Degon

Worcester, MA
March 30, 2007

30

MANGOSOFT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2006

ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
 
$
125,348
 
Accounts receivable
   
20,900
 
Total current assets
 
$
146,248
 
 
     
LIABILITIES AND STOCKHOLDERS’ DEFICIT
     
Current Liabilities:
     
Accounts payable
 
$
51,738
 
Accrued compensation
   
7,788
 
Other accrued expenses and current liabilities
   
54,243
 
 
     
Total current liabilities
   
113,769
 
 
     
Long Term Liabilities:
     
Note payable
   
250,000
 
 
     
Total Liabilities
   
363,769
 
 
     
Commitments and Contingencies (Note 11)
     
 
     
Stockholders’ Deficit:
     
Preferred stock - $0.001 par value; authorized, 5,000,000  shares; issued and outstanding, 20,000 shares
   
20
 
Common stock - $0.001 par value, authorized, 3,703,704 shares, issued and outstanding 1,013,038 shares
   
1,013
 
Additional paid-in-capital
   
88,725,694
 
 
     
Accumulated deficit
   
(88,944,248
)
Total stockholders’ deficit
   
(217,521
)
Total
 
$
146,248
 

See notes to the consolidated financial statements.
 
31

MANGOSOFT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 
 
Year Ended December 31,
 
 
 
2006
 
2005
 
 
 
 
 
 
 
Service revenues
 
$
275,100
 
$
336,524
 
 
         
 
         
Costs and expenses:
         
Cost of services (1)
   
262,903
   
268,082
 
 
         
General and administrative (1)
   
568,003
   
432,403
 
 
         
Stock-based compensation expense
   
-
   
428
 
Loss from operations
   
(555,806
)
 
(364,389
)
Interest income
   
10,243
   
17,504
 
Interest expense
   
(6,463
)
 
-
 
Income from settlement of accrued legal fees
   
677,777
   
-
 
Other expense
   
-
   
(203
)
Net income (loss)
 
$
125,751
 
$
(347,088
)
 
         
Net income (loss) per share - basic
 
$
0.12
 
$
(0.34
)
Net income (loss) per share - diluted
 
$
0.12
 
$
(0.34
)
 
         
Weighted average shares outstanding - basic
   
1,013,038
   
1,013,038
 
Weighted average shares outstanding - diluted
   
1,088,038
   
1,013,038
 

(1) Excludes stock-based compensation expense as follows:
 
General and administrative
   
-
   
428
 
 
  $ -  
$
428
 
 
See notes to the consolidated financial statements.

32

MANGOSOFT, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 
 
Convertible Preferred Stock
 
Common Stock
 
Additional Paid-in
 
Deferred
 
Accumulated
 
 
 
   
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Compensation
 
Deficit
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2005
   
20,000
 
$
20
   
1,013,038
 
$
1,013
 
$
88,725,694
       
$
(428
)
$
(88,722,911
)
$
3,388
 
Stock-based compensation
   
-
   
-
   
-
   
-
   
-
       
428
   
-
   
428
 
Net loss
   
-
   
-
   
-
   
-
   
-
       
-
   
(347,088
)
 
(347,088
)
Balance, December 31, 2005
   
20,000
   
20
   
1,013,038
   
1,013
   
88,725,694
       
-
   
(89,069,999
)
 
(343,272
)
Net income
   
-
   
-
   
-
   
-
   
-
       
-
   
125,751
   
125,751
 
Balance, December 31, 2006
                                     
 
   
20,000
 
$
20
   
1,013,038
 
$
1,013
 
$
88,725,694
       
$
-
 
$
(88,944,248
)
$
(217,521
)

See notes to the consolidated financial statements.
 
33

MANGOSOFT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
 
Year Ended December 31,
 
 
 
2006
 
2005
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net income (loss)
 
$
125,751
 
$
(347,088
)
Adjustments to reconcile net loss to net cash used in operating activities:
         
Income from settlement of accrued legal expenses
   
(677,777
)
 
-
 
Stock-based compensation
   
-
   
428
 
 
         
Increase (decrease) in cash from the change in:
         
Accounts receivable
   
(3,493
)
 
(4,895
)
Accounts payable
   
(6,522
)
 
4,187
 
Accrued compensation
   
-
   
(2,285
)
Other accrued expenses and current liabilities
   
(46,811
)
 
49,780
 
Deferred revenue
   
-
   
(20,467
)
Net cash used in operating activities
   
(608,852
)
 
(320,340
)
 
         
CASH FLOWS FROM INVESTING ACTIVITIES:
         
Investment maturities
   
3,538
   
321,446
 
Interest receivable
   
-
   
21,524
 
 
         
Net cash provided by investing activities
   
3,538
   
342,970
 
 
         
CASH FLOWS FROM FINANCING ACTIVITIES:
         
Proceeds from note payable
   
250,000
   
-
 
Net cash provided by financing activities
   
250,000
   
-
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(355,314
)
 
22,630
 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
   
480,662
   
458,032
 
CASH AND CASH EQUIVALENTS, END OF YEAR
 
$
125,348
 
$
480,662
 
 
See notes to the consolidated financial statements.
 
34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Operations

 The Company
 
MangoSoft, Inc. and subsidiaries (the "Company") markets, sells and supports Internet business software and services that improve the utility and effectiveness of Internet-based business applications. The Company’s software solutions address the networking needs of small businesses, workgroups and large enterprises. The Company is engaged in a single operating segment of the computer software industry.
 
As shown in the consolidated financial statements, during each of the two years in the period ended December 31, 2006, the Company incurred losses from operations of $555,806 and $364,889 respectively. Cash used in operations during each of the two years in the period ended December 31, 2006 was $608,852 and $320,340, respectively. These factors, among others, raise significant doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon   its ability to generate   sufficient cash flow and meet its obligations on a timely basis and ultimately attain profitability.
 
The Company has reduced its work force on four separate occasions since April 23, 2001 due to adverse economic conditions and the Company’s need to conserve capital. At December 31, 2006 and 2005, the Company had one (1) and two (2) employees, respectively, working in a general and administrative capacity.

On July 27, 2006, in order to optimize the Company's flexibility in undertaking new business opportunities, the Company decided to manage its patent portfolio and intellectual property assets through a new wholly-owned subsidiary Mangosoft Intellectual Property, Inc. The new Company is authorized to issue up to 1,000 shares of $.01 par value common stock. Mangosoft Intellectual Property, Inc. issued 100 of these shares of stock to Mangosoft Corp. None of the remaining 900 authorized shares have been issued at December 31, 2006.

On September 11, 2006, Mangosoft Corp. assigned the ownership and legal titles of twelve of its patents and applications with no recorded value to Mangosoft Intellectual Property, Inc., (a wholly owned subsidiary). Pursuant to the agreement, Mangosoft Corp. assigned the entire right, title, and interest in and to the following applications to Mangosoft Intellectual Property, Inc.:
Title
 
Application No./Patent No.
 
Filing Date/Issue Date
System For Tracking Data
 
08/848,970
 
05/02/97
 
 
 
 
 
Method For Scheduling Thread Execution On A
Limited Number Operating System
 
 
09/069,352
 
 
04/29/98
 
 
 
 
 
Internet-Based Shared File Service With Native PC
Client Access And Semantics And Distributed
Access Control
 
 
09/704,050
 
 
11/01/00
 
 
 
 
 
Internet-Based Shared File Service With Native PC
Client Access And Semantics
 
 
09/704,262
 
 
11/01/00
 
35

Title
 
Application No./Patent No.
 
Filing Date/Issue Date
Dynamic Directory Service
 
10/704,327
 
11/07/03
 
 
 
 
 
Internet-Based Shared File Service With Native PC
Client Access And Semantics And Distributed
Version Control
 
 
11/285,423
 
 
11/21/05
 
 
 
 
 
System and Method For Providing Highly Available
Data Storage Using Globally Addressable Memory
 
 
5,909,540
 
 
06/01/99
 
 
 
 
 
Remote Access And Geographically Distributed
Computers In A Globally Addressable Storage
Environment
 
 
5,987,506
 
 
11/16/99
 
 
 
 
 
Shared Client-Side Web Caching Using Globally
Addressable Memory
 
 
6,026,474
 
 
02/15/00
         
Dynamic Directory Service
 
6,647,393
 
11/11/03
 
 
 
 
 
Distributed Virtual Web Cache Implemented
Entirely in Software
 
6,760,756
 
07/06/04
 
 
 
 
 
Internet-Based Shared File Service With Native PC
Client Access And Semantics
 
 
7,058,696
 
 
06/06/06
 
36

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies
 
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all significant intercompany balances.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 balance sheet dates. Actual results could differ from those estimates.

Cash and Equivalents - Cash and equivalents include cash on hand, cash deposited with banks and highly liquid debt securities with remaining maturities of ninety days or less when purchased.

Investments - Investments in which the Company has the ability and positive intent to hold to maturity are carried at amortized cost. Investments and maturities of less than one year are classified as short-term investments.

Concentration of Credit Risk - The Company maintains deposits in financial institutions, which occasionally exceed federally insured limits. Senior management continually reviews the financial stability of these institutions.

The Company purchases all of its outsourced data center services from one vendor. Management believes an alternate vendor could be secured in the event the current vendor discontinued services in its current capacity.
 
Intangible Assets - Intangible assets consist of acquired technology, customer relationships and service marks (see Note 3).

Revenue Recognition - Software revenue is recognized upon delivery if persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery has occurred and collection is probable. Revenue from sales to distributors is recognized upon sales to end users. Service revenue is recognized as services are performed.

Software Development Costs - Costs incurred prior to technological feasibility of the Company’s software products are expensed as research and development costs. Certain costs incurred after technological feasibility has been established are capitalized. To date, the time period between the establishment of technological feasibility and completion of software development has been short and no significant development costs have been incurred during that period. Accordingly, the Company has not capitalized any software development costs to date.

Stock-Based Compensation - The Company accounts for stock-based employee compensation arrangements according to Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” effective January 1, 2006. Prior to adopting SFAS No. 123R the Company accounted for stock-based compensation under the intrinsic value method in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and complied with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.
 
37

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2. Summary of Significant Accounting Policies (continued)
 
Equity instruments issued to non-employees are accounted for in accordance with the provisions of SFAS No. 123R and Emerging Issues Task Force (“EITF”) Abstract No. 96-18, “Accounting for Equity Instruments That Are Issued To Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

The Company’s 1999 Incentive Compensation Plan, as amended, provides for the issuance of up to 296,297 shares of common stock to employees, officers, directors and consultants in the form of nonqualified and incentive stock options, restricted stock grants and other stock-based awards, including stock appreciation rights. Employee options typically vest over three or four year periods. An option’s maximum term is ten years.

The following table provides the reported and pro forma net loss and loss per share amounts for the year ended December 31, 2005 had compensation expense for the Company’s stock-based compensation plans been determined based on the fair market value on the grant dates for awards under those plans consistent with the method of SFAS 123 :
 
 
2005
 
Net loss applicable to common stockholders, as reported
 
$
(347,088
)
Add back: stock-based compensation costs included in the determination of net loss applicable to common shareholders, as reported
   
428
 
Less: Stock-based compensation had all options been recorded at fair value
   
(428
)
 
     
Adjusted net loss
 
$
(347,088
)
 
     
Weighted average shares outstanding, basic and diluted
   
1,013,038
 
 
     
Net loss per share, basic and diluted, as reported
 
$
(0. 34
)
Adjusted net loss per share, basic and diluted
 
$
(0. 34
)

Income Taxes - Deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of existing assets and liabilities, using enacted tax rates. Valuation allowances are established when necessary to reduce the deferred tax assets to those amounts expected to be realized.

Comprehensive Loss - Comprehensive loss was equal to net loss for each year presented.

Net Loss Per Common Share - Basic net income (loss) per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share reflects, in addition to the weighted average number of common shares, the potential dilution if common stock options were exercised into common stock, unless the effects of such exercises would have been antidilitive.
 
38

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (continued)

Basic and diluted loss per common share are the same for 2005 as potentially dilutive stock options totaling 75,000 in 2006 and 2005 have not been included in the 2005 calculation of diluted net loss per common share available to common stockholders, as their inclusion would have been antidilutive.  

 Supplemental Cash Flow Information - The following table sets forth certain supplemental cash flow information for the years ended December 31, 2006, and 2005:
 
 
 
Years Ended December 31,
 
 
 
2006
 
2005
 
Cash paid for interest
 
$
-
 
$
-
 
Cash paid for income taxes
 
$
-
 
$
-
 
 
 Recently Issued Accounting Pronouncements 
 
   In February 2006, the FASB issued Statement No. 155, “ Accounting for Certain Hybrid Financial Instruments - An amendment to FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 simplifies the accounting for certain hybrid financial instruments containing embedded derivatives. SFAS 155 allows fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS 133. In addition, it amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to beneficial interest other than another derivative financial instrument. The new standard is effective to new or modified financial instruments in fiscal years beginning after September 15, 2006. The implementation of SFAS 155 is not expected to have material impact on the Company’s consolidated financial statements.

   In March 2006, the FASB issued Statement No. 156, “ Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140” (“SFAS 156”).  This statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. This standard clarifies when servicing rights should be separately accounted for, requires companies to account for separately recognized servicing rights initially at fair value, and gives companies the option of subsequently accounting for those servicing rights at either fair value or under the amortization method. SFAS 156 is effective for fiscal years beginning after September 15, 2006. The implementation of SFAS 156 is not expected to have a material impact on the Company’s consolidated financial statements.

   In July 2006, the FASB issued Interpretation No. 48 “ Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109.” (“FIN 48”),   FIN 48 prescribes a recognition threshold and measurement attribute for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 will require that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. FIN 48 is effective for annual periods beginning after December 15, 2006. The implementation of FIN 48 is not expected to have a material impact on the Company’s consolidated financial statements.

39

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (continued)

In September 2006, the FASB issued Statement No. 157, “ Fair Value Measurements” (“SFAS 157”). This standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The new FASB rule does not supersede all applications of fair value in other pronouncements, but creates a fair value hierarchy and prioritizes the inputs to valuation techniques for use in most pronouncements.  It requires companies to assess the significance of an input to the fair value measurement in its entirety. SFAS 157 also requires companies to disclose information to enable users of financial statements to assess the inputs used to develop the fair value measurements.  SFAS 157 is effective for fiscal periods beginning after November 15, 2007.  The Company is currently evaluating the impact on its consolidated financial statements.

In September 2006, the FASB issued Statement No. 158, “ Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - An amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”).  This standard enhances disclosure regarding the funded status of an employers’ defined benefit postretirement plan by (a) requiring companies to include the funding status in comprehensive income and (b) recognize transactions and events that affect the funded status in the financial statements in the year in which they occur (c) at a measurement date of the employer’s fiscal year-end.  SFAS 158 is not expected to apply to the Company.

In February 2007, the FASB issued Statement No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115” (“SFAS 159”).  This standard amends FASB Statement No. 115, “ Accounting for Certain Investment in Debt and Equity Securities ,” with respect to accounting for a transfer to the trading category for all entities with available-for-sale and trading securities electing the fair value option.  This standard allows companies to elect fair value accounting for many financial instruments and other items that currently are not required to be accounted as such, allows different applications for electing the option for a single item or groups of items, and requires disclosures to facilitate comparisons of similar assets and liabilities that are accounted for differently in relation to the fair value option.  SFAS 159 is effective for fiscal years beginning after November 15, 2007. If elected, the implementation of FAS 159 is not expected to have a material impact on the Company’s consolidated financial statements.

40

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Investments

During 2006, the Company collected its remaining corporate notes aggregating $3,538. The secured corporate notes had been executed between the Company and several privately-held companies, each of which are related parties (see Note 11). The notes were secured by certain collateral pursuant to each note agreement and certain guarantees by the respective corporations. The 12% corporate notes with varying maturity dates were carried at cost due to the uncertainty of their interest payment. The principal on these notes was collateralized by the debtor’s receivables.

4. Note Payable

On September 20, 2006, the Company borrowed $250,000 from one of its stockholders, Selig Zises, which was subsequently converted to 500,000 shares of common stock on January 10, 2007 when 2,400,000 shares of common stock were sold through a private placement for aggregate proceeds of $1,200,000, including the conversion of this note. The note calls for interest to be paid at maturity or conversion, whichever occurs first, at prime plus 1% (9.25% at December 31, 2006). Accrued liabilities at December 31, 2006 includes accrued and unpaid interest on this note in the amount of $6,463.
 
5. Income Taxes

The Company has federal and state tax net operating loss carryforwards available for future periods of approximately $71,901,000. The federal tax net operating loss carryforwards expire beginning in 2010, and state tax net operating loss carryforwards began expiring in 2000. As a result of the changes in the ownership of the Company, there may be limitations on the amounts of net operating loss carryforwards that may be utilized in any one year. The Company also has research and development credits for federal tax purposes of approximately $518,000, which expire beginning in 2011.

The tax effect of significant items comprising the Company’s deferred tax assets at December 31, 2006 is as follows:
 
 
 
2006
 
 
 
 
 
Deferred tax assets:
 
 
 
Net operating loss carryforwards
 
$
24,446,000
 
Research and development credits
   
518,000
 
 
   
24,964,000
 
Valuation allowance
   
(24,964,000
)
Net deferred tax assets
 
$
-
 
 
41

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Income Taxes (continued)

The Company believes that uncertainty exists with respect to future realization of the deferred tax assets and has established a valuation allowance for the full amount as of December 31, 2006 and 2005.

A reconciliation between the amount of income tax determined by applying the applicable U.S. statutory tax rate to the pre-tax loss is as follows:
 
 
2006
 
2005
 
 
 
 
 
 
 
Federal statutory rate
   
34
%
 
34
%
State tax, net of federal impact
   
6
   
6
 
Provision for valuation allowance on deferred tax assets
   
(40
)
 
(40
)
Effective tax rate
   
-
%
 
-
%
 
6. Stockholders’ Equity

 Preferred stock -The Preferred Stock has no stated dividend rate. Each share of Preferred Stock is convertible into one share of common stock at the option of the holder. In addition to the conversion feature, the holders of the Preferred Stock are entitled to twenty-five votes per share of Preferred Stock on any matter brought to a vote of stockholders.
 
    On March 11, 2003, the Board of Directors of MangoSoft, Inc. declared a dividend distribution of one right (a “Right”) to purchase one-tenth of a share of common stock, $0.001 par value, of the Company for each share of common stock, payable to stockholders of record on March 18, 2003. The Board of Directors also authorized and directed the issuance of one Right with respect to each common share issued thereafter until the distribution date (as defined in the Rights Agreement) and, in certain circumstances, with respect to common shares issued after the distribution date. Except as set forth in the Rights Agreement, each Right, when it becomes exercisable, entitles the registered holder to purchase from the Company one-tenth of a common share at a price of $250 per whole common share, subject to adjustment, as amended. The description and terms of the Rights   are set forth in a Rights Agreement between the Company and Interwest Transfer Co., Inc., as Rights Agent, dated as of March 14, 2003, as amended.

7. Stock Option Plan

The Company’s 1999 Incentive Compensation Plan (the “Plan”) as amended, provides for the issuance of up to 296,297 shares of common stock to employees, officers, directors and consultants in the form of nonqualified and incentive stock options, restricted stock grants or other stock-based awards, including stock appreciation rights. The stock options are exercisable as specified at the date of grant and expire no later than ten years from the date of grant. As of December 31, 2006, there were 179,652 remaining options available for grant under the Plan.

42

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
7. Stock Option Plan (continued)

Stock-based compensation of $428 is included in the Company’s 2005 results of operations in connection with these grants issued prior to 2005 at exercise prices below the fair value of the Company’s common stock at the grant date. No such compensation expense was recognized in 2006.
 
There were no option grants made in 2006 and 2005.

Stock option activity, including options granted under the predecessor 1995 Stock Option Plan, was as follows:
 
 
Number of
Options
 
Weighted
Exercise Price
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2004
   
110,245
   
12.99
 
Granted
   
-
   
-
 
Exercised
   
-
   
-
 
Forfeited
   
(35,245
)
 
35.22
 
Outstanding at December 31, 2005
   
75,000
   
1.73
 
Granted
   
-
   
-
 
Exercised
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at December 31, 2006
   
75,000
 
$
1.73
 
 
         
Exercisable at December 31, 2006 and 2005
   
75,000
     

 
Options Exercisable
 
 Number of Options
 
 
Range of Exercise Prices
 
Weighted Average Remaining Life (in years)
 
 
Weighted Average Exercise Price
 
Number Currently Exercisable
 
 
 
 
 
 
 
 
 
 
 
 
 
37,037
 
$
1.00
 
 
5.5
 
$
1.00
 
 
37,037
 
  
37,963
 
$
4.05
 
 
8.5
 
$
4.04
 
 
37,963
 
  
75,000
 
 
 
 
 
 
 
 
 
 
 
75,000
 
 
8. Retirement Savings Plan

The Company adopted a savings plan for its employees pursuant to Section 401(k) of the Internal Revenue Code. All employees are eligible to participate and the plan allows a deferral ranging from a minimum 1% to the maximum percentage of compensation permitted by law. The Company may, at the discretion of the Board of Directors, make contributions on behalf of its employees under this plan. Such contributions, if any, become fully vested after five years of continuous service. The Company did not make any contribution in 2006 or 2005.
 
43

MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
9. Commitments and Contingencies

The Company has entered into contingency fee arrangements with three firms providing legal services on behalf of the Company. Unless the firms are dismissed, no payment is to be made to these firms unless the outcome of certain litigations are successful.

On November 22, 2006 the Company entered into an agreement with a law firm with which it had incurred approximately $727,000 in fees that were included in accounts payable. Under the agreement the Company settled this outstanding payable with a cash payment to the firm of $50,000. The Company also agreed to pay the firm 5% of the first $10,000,000 arising from certain patent litigation as defined in the agreement.

The Company has been, and expects to continue to be, subject to legal proceedings and claims that arise in the ordinary course of business. Management currently believes the resolution of these matters will not have a material adverse impact on the Company’s financial position, results of operations or its cash flows.

10. Related Party Transactions

Investments - During 2003 the Company issued approximately $414,000 in several secured corporate notes receivable accruing interest at 12.0% to 15.0% per annum to companies who are beneficially owned by two stockholders. The notes were repaid in full to the Company in 2005.

11. Geographic Sales Information and Major Customers

The Company generates the majority of its revenues from the sale of its products and services in North America. All of the Company’s 2006 and 2005 revenues were generated from sales to North American customers.
 
12. Subsequent Event
 
On March 29, 2007 the Company filed a Notice of Appeal in the United States District Court for the District of New Hampshire in the case of Mangosoft, Inc., et al. v. Oracle Corporation , C.A. No. 02-545-M. By filing the Notice of Appeal, Mangosoft has commenced an appeal in the United States Court of Appeals for the Federal Circuit challenging, among other things, the District Court’s claim construction Order of September 21, 2004, the District Court’s order granting defendant Oracle Corporation’s motion for summary judgment of non-infringement entered on March 14, 2006, and the District Court’s entry of final judgment entered on March 29, 2007.
 
On January 10, 2007, the Company issued 2,400,000 shares of $0.001 par value common stock to a group of investors including current stockholders, for aggregate gross proceeds of $1,200,000. Total proceeds include the conversion of a note payable to a stockholder issued in September 2006 in the principal amount of $250,000. The Company intends to utilize the net proceeds of the private placement to pay past due expenses and to fund its various patent litigations
 
44