<PAGE>

                   U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC 20549

                                  FORM 10-QSB

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                 Act of 1934.

                 For the Quarterly Period Ended June 30, 2001

                                      or

[_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
                          Exchange Act of 1934.
                 For the Transition Period From        To

                        Commission File Number: 0-30781


                                MANGOSOFT, INC.
       (Exact name of small business issuer as specified in its charter)




            Nevada
  (State or other jurisdiction                              87-0543565
of incorporation or organization)              (IRS Employer Identification No.)



    1500 West Park Drive, Suite 190
           Westborough, MA                                     01581
(Address of principal executive offices)                    (Zip code)

                   Issuer's telephone number: (508) 871-7300

     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
[_]

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
            Common Stock                                 26,965,001 Shares
          $0.001 Par Value                       (Outstanding on August 2, 2001)
<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

                             INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
                                                                                                                 Page
<S>                                                                                                              <C>
PART I.  FINANCIAL INFORMATION

ITEM 1 - Financial Statements:
Condensed Consolidated Statements of Operations For The Three Months Ended
  June 30, 2001 and 2000.......................................................................................   3
Condensed Consolidated Statements of Operations For The Six Months Ended
  June 30, 2001 and 2000 and Cumulative For The Period From June 15, 1995 (Inception)
  to June 30, 2001.............................................................................................   4
Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................................   5
Condensed Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2001
  and 2000 and Cumulative For The Period From June 15, 1995 (Inception) To June 30, 2001.......................   6
Notes to the Condensed Consolidated Financial Statements.......................................................   7

ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................  11

PART II  OTHER INFORMATION

ITEM 6 - Exhibits and Reports on Form 8-K......................................................................  17

Signatures.....................................................................................................  18
</TABLE>

                                       2
<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months Ended June 30,
                                                                   --------------------------
                                                                   2001                  2000
                                                                   ----                  ----
<S>                                                            <C>                   <C>
Software license revenues....................................  $    55,080           $     2,234
Service revenues.............................................        4,890                    --
                                                               -----------           -----------
   Total revenues............................................       59,970                 2,234
Costs and expenses:
  Cost of software license revenues..........................        9,844                    --
  Cost of services (1).......................................      294,327                    --
  Engineering and development (1)............................      920,658             1,347,442
  Selling and marketing (1)..................................      525,159               431,927
  General and administrative (1).............................    1,327,614             1,183,953
  Stock-based compensation expense (benefit).................      264,614            (9,661,760)
  Consulting fees paid to related parties....................           --                19,000
                                                               -----------           -----------
   (Loss) income from operations.............................   (3,282,246)            6,681,672
Interest income..............................................      141,048               385,710
                                                               -----------           -----------
Net (loss) income............................................   (3,141,198)            7,067,382
Accretion of preferred stock.................................           --                    --
                                                               -----------           -----------
Net (loss) income applicable to common stockholders..........   (3,141,198)            7,067,382
                                                               ===========           ===========

Net (loss) income per share applicable to common
  shareholders :
   Basic.....................................................  $     (0.12)          $      0.27
   Diluted...................................................  $     (0.12)          $      0.24
Weighted average shares outstanding:
   Basic.....................................................   26,957,142            26,142,501
   Diluted...................................................   26,957,142            29,479,898


(1) Excludes stock-based compensation expense (benefit)
     as follows:
      Cost of services.......................................  $    16,775           $        --
      Engineering and development............................       53,305            (6,161,463)
      Selling and marketing..................................       17,117              (578,789)
      General and administrative.............................      177,417            (2,921,508)
</TABLE>

         See notes to the condensed consolidated financial statements.

                                       3
<PAGE>

                         MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                                           Cumulative From
                                                                            Six Months Ended June 30,       June 15, 1995
                                                                            -------------------------      (Inception) to

                                                                            2001                2000        June 30, 2001
                                                                            ----                ----        -------------
<S>                                                                     <C>                 <C>            <C>
Software license revenues............................................   $   182,350         $      3,569     $    525,501
Service revenues.....................................................        16,250                   --           16,250
                                                                        -----------         ------------     ------------
    Total revenues...................................................       198,600                3,569          541,751
Costs and expenses:
 Cost of software license revenues...................................        25,844                   --          126,691
 Cost of services (1)................................................       672,142                   --          672,142
 Engineering and development (1).....................................     2,050,677            2,489,223       30,675,615
 Selling and marketing (1)...........................................     1,293,081              711,710       14,338,865
 General and administrative (1)......................................     2,691,557            1,844,069       18,070,043
 Stock-based compensation expense....................................       765,887           12,504,249        6,402,232
 Consulting fees paid to related parties.............................            --               19,000          747,971
                                                                        -----------         ------------     ------------
    (Loss) from operations...........................................    (7,300,588)         (17,564,682)     (70,491,808)
Interest income......................................................       365,053              398,935        2,046,545
Interest expense.....................................................            --                9,954        5,308,114
                                                                        -----------         ------------     ------------
Net (loss)...........................................................    (6,935,535)         (17,175,701)     (73,753,377)
Accretion of preferred stock.........................................            --            9,627,147       16,231,171
                                                                        -----------         ------------     ------------
Net (loss) applicable to common stockholders.........................   $(6,935,535)        $(26,802,848)    $(89,984,548)
                                                                        ===========         ============     ============

Net (loss) per share applicable to common shareholders -
   basic and diluted.................................................   $     (0.26)        $      (1.16)
Weighted average shares outstanding - basic and diluted..............    26,957,115           23,153,033

(1) Excludes stock-based compensation expense as follows:
    Cost of services.................................................   $    39,892         $         --     $     39,892
    Engineering and development......................................       207,716            4,957,803        1,142,754
    Selling and marketing............................................       179,751              902,070          876,510
    General and administrative.......................................       338,528            6,644,376        4,343,076
</TABLE>

         See notes to the condensed consolidated financial statements.

                                       4
<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                      June 30,           December 31,
                                                                    ---------------------------------
                                                                        2001                 2000
                                                                        ----                 ----
<S>                                                                 <C>                  <C>
                            ASSETS
Current Assets:
  Cash and cash equivalents......................................   $ 10,944,522         $ 17,354,025
  Accounts receivable............................................          5,986               10,639
  Prepaid expenses and other current assets......................        159,641              155,445
                                                                    ------------         ------------
   Total current assets..........................................     11,110,149           17,520,109
Property and Equipment - Net.....................................      1,043,825            1,164,916
Other Assets.....................................................          2,400                2,400
                                                                    ------------         ------------
     Total.......................................................   $ 12,156,374         $ 18,687,425
                                                                    ============         ============

              LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable...............................................   $    937,218         $  1,285,614
  Accrued compensation...........................................        332,929              286,552
  Other accrued expenses and current liabilities.................        234,196              293,955
                                                                    ------------         ------------
   Total current liabilities.....................................      1,504,343            1,866,121
                                                                    ------------         ------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock...................................................         26,957               26,957
  Additional paid-in-capital.....................................     89,780,534           90,431,502
  Deferred compensation..........................................     (2,318,639)          (3,735,869)
  Deficit accumulated during the development stage...............    (76,836,821)         (69,901,286)
                                                                    ------------         ------------
   Total stockholders' equity....................................     10,652,031           16,821,304
                                                                    ------------         ------------
     Total.......................................................   $ 12,156,374         $ 18,687,425
                                                                    ============         ============
</TABLE>

         See notes to the condensed consolidated financial statements.

                                       5
<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                                 Cumulative From
                                                                                                  June 15, 1995
                                                               Six Months Ended June 30,         (Inception) to
                                                               -------------------------
                                                                  2001              2000          June 30, 2001
                                                                  ----              ----          -------------
<S>                                                           <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................    $(6,935,535)      $(17,175,701)     $(73,753,377)
Adjustments to reconcile net loss to net cash used
 for operating activities:
  Depreciation and amortization...........................        267,730            230,235         2,676,007
  Stock-based compensation................................        765,887         12,504,249         6,402,232
  Beneficial conversion feature of 12% convertible notes..             --                 --         4,860,000
  Accrued interest converted into paid-in-capital in
   connection with the conversion of the 12%
   convertible notes......................................             --                 --           377,409
  Increase (decrease) in cash from the change in:
   Accounts receivable....................................          4,653             (1,185)           (5,986)
   Prepaid expenses and other current assets..............         (4,196)            32,177           (23,553)
   Accounts payable.......................................       (348,396)           170,951         1,192,581
   Accrued compensation...................................         46,377             15,642           332,929
   Accrued expenses to related parties....................         (4,500)          (693,683)            5,500
   Other accrued expenses and current liabilities.........        (55,259)          (309,750)          303,350
                                                              -----------       ------------      ------------
    Net cash used for operating activities................     (6,263,239)        (5,227,065)      (57,632,908)
                                                              -----------       ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.....................       (146,639)          (891,780)       (3,719,832)
Increase in other long-term assets........................             --                 --            (2,400)
Payment of merger costs...................................             --            (77,893)         (276,173)
                                                              -----------       ------------      ------------
    Net cash used for investing activities................       (146,639)          (969,673)       (3,998,405)
                                                              -----------       ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes to related parties....             --                 --         4,232,500
Proceeds from other debt financings.......................             --                 --         2,750,000
Repayments of notes issued to related parties.............             --           (232,500)         (232,500)
Repayments of other debt financings.......................             --            (92,904)         (886,088)
Net proceeds from the issuance of common and
  preferred stock.........................................            375         32,145,381        66,811,923
Purchase of common stock from related party...............             --                 --          (100,000)
                                                              -----------       ------------      ------------
    Net cash provided by financing activities.............            375         31,819,977        72,575,835
                                                              -----------       ------------      ------------
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS.............................................     (6,409,503)        25,623,239        10,944,522
CASH AND CASH EQUIVALENTS, BEGINNING OF
  PERIOD..................................................     17,354,025             29,959                --
                                                              -----------       ------------      ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................    $10,944,522       $ 25,653,198      $ 10,944,522
                                                              ===========       ============      ============
</TABLE>

         See notes to the condensed consolidated financial statements.

                                       6
<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS

     MangoSoft, Inc. and subsidiary (a development stage company) (the
"Company") develops advanced software technology to simplify, expand and
integrate networking and pooled use of computer resources. The Company organizes
itself as one segment reporting to the chief operating decision-maker.

     The Company is considered to be a development stage company since it has
not generated significant revenues from products or services that have been
developed-to-date. The Company is subject to a number of risks similar to those
of other companies in an early stage of development. Principal among these risks
are dependencies on key individuals, competition from other substitute products
and larger companies, the successful development and marketing of its products
and the need to obtain adequate additional financing necessary to fund future
operations. See "Risk Factors."

     As shown in the condensed consolidated financial statements, during the six
months ended June 30, 2001 and 2000 and cumulative for the period from June 15,
1995 (inception) to June 30, 2001, the Company incurred net losses of
$6,731,813, $17,175,701 and $73,549,655, respectively. Excluding the effect of
stock-based compensation charge, the net loss for the six-month periods ended
June 30, 2001 and 2000 and cumulative for the period from June 15, 1995
(inception) to June 30, 2001 would have been $6,169,648, $4,671,452 and
$67,351,145. However, in 2000, the Company raised significant capital; capital
which management believes will be sufficient to fund its operations for the next
twelve months. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded 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 to meet
its obligations on a timely basis and ultimately to attain profitability.

2.   PRESENTATION OF INTERIM FINANCIAL STATEMENTS

     The accompanying unaudited condensed consolidated financial statements have
been prepared on the same basis as the annual financial statements. In the
opinion of management, all significant adjustments, which are normal, recurring
in nature and necessary for a fair presentation of the financial position, cash
flows and results of the operations of the Company, have been consistently
recorded. The operating results for the interim periods presented are not
necessarily indicative of expected performance for the entire year.

     The unaudited information should be read in conjunction with the audited
financial statements of the Company and the notes thereto for the year ended
December 31, 2000 included in the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission.

     Revenue Recognition - Software license revenue is recognized when
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 customers. Service revenue
is recognized as services are provided.

     Comprehensive Income - Comprehensive loss was equal to net loss for each
period.

     Reclassifications - Certain reclassifications have been made to the interim
2000 and cumulative since inception amounts to conform to the 2001 presentation.

                                       7
<PAGE>

     Supplemental Cash Flow Information - The following table sets forth certain
supplemental cash flow information for the six months ended June 30, 2001 and
2000, and cumulative for the period from June 15, 1995 (inception) to June 30,
2001:

<TABLE>
<CAPTION>
                                                                Six Months Ended June 30,       Cumulative
                                                                -------------------------
                                                                 2001        2000              Since Inception
                                                                 ----        ----              ---------------
<S>                                                            <C>         <C>                 <C>
Cash paid for interest...................................      $   --      $   9,954               $  98,151

Non Cash Financing Activities:
  Fair value of warrants issued in connection with the
   sale of the convertible preferred stock, Series A.....          --        711,229                 711,229
  Conversion of accounts payable into common stock.......          --        100,000                 420,000
</TABLE>

3.   RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 is effective
immediately and SFAS No. 142 will be effective January 2002. The new standards
are not expected to have a significant impact on the Company's consolidated
financial statements.

4.   STOCKHOLDERS' EQUITY

     In March 2000, the Company completed the sale of 2.5 million shares of a
new issuance of Convertible Preferred Stock, Series A, (the "Preferred Stock")
to accredited investors at $4.00 per share. The Preferred Stock was convertible
into common stock (initially at a ratio of one to one) and had a liquidation
preference of $10.0 million. The Preferred Stock would automatically convert to
common stock upon the subsequent sale of an additional $10.0 million of the
Company's securities.

     In accordance with Emerging Issues Task Force Abstract No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the net proceeds from the Series A
financing were allocated between the conversion feature and the preferred stock;
because the fair value of the common stock was significantly in excess of the
conversion price implicit in the Series A stock, the net proceeds were allocated
to the conversion feature. Since the Preferred Stock was immediately convertible
into common stock, an immediate dividend or accretion of $9,050,371 was recorded
from common stockholders' equity to the carrying value of the Preferred Stock.

     In March 2000, the Company completed the sale of approximately 4.2 million
shares of common stock to accredited investors at $5.00 per share. Upon
completion of the sale of common stock, the Preferred Stock automatically
converted, in accordance with its terms, into 2.5 million shares of common
stock. The Company completed the sale of approximately 0.3 million additional
shares of common stock at prices ranging from $4.00 to $5.00 per share in May
2000.

     Costs incurred in connection with the sale of the common and Preferred
Stock were $947,129, including $711,229 representing the fair value of warrants
issued to the placement agent to purchase 58,975 shares of the common stock at
$4.00 per share. The fair value of the warrants was calculated using the Black-
Scholes option-pricing model, with a risk-free interest rate of 6%, an expected
life of two years, no dividends and a volatility of 150%. Because the Preferred
Stock was immediately convertible into common stock, an immediate dividend or
accretion of $576,776, representing the difference between the quoted market
price of the common stock and the exercise price of the warrants was recorded
from common stockholders equity relating to the warrants.

                                       8
<PAGE>

5.   STOCK-BASED COMPENSATION

     The Company accounts for stock options granted to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees." Under APB No. 25, stock options that include stock
appreciation rights ("SARs") are accounted for as variable awards and
compensation expense is measured at each reporting date based on the difference
between the exercise price and the market price of the common stock. For
unvested awards, compensation expense is recognized over the vesting period; for
vested awards, compensation expense is adjusted up or down at each reporting
date based on changes in the market price of the common stock.  At June 30, 2001
and 2000, there were 2,705,282 and 2,949,556 options, respectively, to purchase
the Company's common stock that included SARs.

     On April 3, 2001, the Company's Board of Directors resolved to reprice
options to purchase 2,584,167 shares of the Company's common stock. The options
were originally issued between October 1999 and December 2000 and had exercise
prices ranging from $1.88 to $5.00 per share. The exercise price for these
options was reduced to $1.03, the closing market value of the Company's common
stock as of the repricing date. The repriced options continue to vest according
to the original grant date. These options are now accounted for as variable
awards, similar to the SARs. At June 30, 2001, there were 2,120,609 outstanding
options to purchase the Company's common stock that were repriced and subject to
variable plan accounting.

     During the six months ended June 30, 2001, the Company recorded stock-based
compensation expense of $765,887. This expense is due primarily to the
amortization of $598,064 of deferred stock-based compensation recognized as the
result of the Company's issuance of stock options to employees at exercise
prices less than the quoted market price on the grant date. In addition, stock-
based compensation of $99,163 was recognized in connection with the Company's
issuance of 92,973 options to non-employees in lieu of cash compensation. The
remainder of the stock-based compensation expense was recorded as a result of
the effects of the decrease in the quoted market price of the Company's common
stock and its affect on outstanding stock options accounted for as variable
awards.

     During the three months ended June 30, 2001, the Company recorded stock-
based compensation expense of $264,614. This expense is due primarily to the
amortization of $203,722 of deferred stock-based compensation recognized as the
result of the Company's issuance of stock options to employees at exercise
prices less than the quoted market price on the grant date. In addition, stock-
based compensation of $68,723 was recognized in connection with the Company's
issuance of 67,973 options to non-employees in lieu of cash compensation. The
remainder of the stock-based compensation expense was a $7,831 benefit recorded
as a result of the effects of the decrease in the quoted market price of the
Company's common stock and its affect on outstanding stock options accounted for
as variable awards.

6.   NET INCOME (LOSS) PER COMMON SHARE

     Basic net income (loss) per common share is computed by dividing net income
(loss) applicable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted net income per common share
reflects, in addition to the weighted average number of common shares, the
potential dilution if potential common shares outstanding were exercised and/or
converted into common stock, unless the effect of such equivalent shares was
antidilutive.

     For the three months ended June 30, 2001 and the six months ended June 30,
2001 and 2000, the effect of stock options and other potential common shares
were excluded from the calculation of diluted net loss per common share as their
inclusion would have been antidilutive.

                                       9
<PAGE>

7.   REDUCTION IN FORCE

     Effective April 23, 2001, the Company implemented an approximate 40%
reduction in its work force. In connection with this work force reduction, the
Company eliminated the positions held by two members of senior management in
addition to twenty-three other employees.

     The Company recorded approximately $400,000 in severance and other related
personnel costs associated with this reduction in work force. As of June 30,
2001, approximately $125,000 remained unpaid and accrued related to the
severance payments. This accrued balance will be paid over the next twelve
months.

                                       10
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

  This Quarterly Report on Form 10-QSB contains forward-looking statements
within the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Any statements in this Quarterly 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 Quarterly Report on Form 10-QSB, 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, 2000
filed with the Securities and Exchange Commission.

Overview

  We develop Internet business software and services that improve the utility
and effectiveness of Internet-based business applications. We develop, market
and support software solutions to 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.

  Cachelink(TM) is a peer-to-peer clustered web cache. Cachelink utilizes our
peer-to-peer clustering technology to efficiently link together the individual
browser caches of multiple systems on a LAN into an aggregated "super cache,"
resulting in much faster Internet access without the expense of a dedicated
hardware caching appliance or server. Cachelink is a pure peer-to-peer
architecture, including a completely decentralized directory. The product is
self-configuring and self-healing from any number of system failures.

  Mangomind(TM) is a new multi-user, business-oriented, peer-to-peer file
sharing service, 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.

  The majority of our revenues from current operations are derived from sales of
our Cachelink product, for which sales under our July 13, 2000 Value Added
Reseller Agreement with 3Com Corporation ("3Com") have amounted to $189,000, or
35%, of our cumulative revenues since inception. We recognize revenue generated
from the sale of Cachelink when persuasive evidence of an arrangement exists,
the price is fixed and determinable, delivery has occurred and collection is
probable. We began marketing and selling our Mangomind service to professional
service organizations and other business organizations in January 2001 and have
generated $16,250 in revenues to date. We recognize revenue generated from the
sale of the Mangomind service as the service is provided.

  Cost of software license revenues primarily consist of disk replication costs
and other costs we incur in connection with sales of Cachelink.

  Cost of services consist solely of the expenses we incur to administer the
Mangomind service. These expenses consist primarily of salaries and related
personnel costs, the cost of our outsourced data center, and the license
royalties we pay to our e-security software provider for the 128-bit encryption
the Mangomind service employs.

                                       11
<PAGE>

  Engineering and development expenses consist primarily of salaries and related
personnel costs and other 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. The engineering, research and
development we perform is essential to providing the most robust, reliable and
secure products and services to our end customers to meet their requirements and
those of a changing market.

  Selling and marketing expenses consist primarily of salaries and related
personnel costs and additional 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.

  Effective April 23, 2001, we implemented an approximate 40% reduction in our
work force due to adverse economic conditions and our need to conserve capital.
We believe that this reduction was necessary to reduce our overhead and enable
us to grow our business and position ourselves for greater long-term success. We
incurred approximately $400,000 in severance and other personnel related costs
in connection with this action. Of this total, approximately $205,000 was
charged to engineering and development expenses, $175,000 was charged to general
and administrative expenses and $20,000 was charged to selling and marketing
expenses. At June 30, 2001, all but approximately $125,000 of these expenses was
fully paid.

  We are considered to be a development stage company since we have not
generated significant revenues from the products and services that have been
developed to date. We are subject to a number of risks similar to those of other
companies in an early stage of development. Principal among these risks are
dependencies on key individuals, competition from other substitute products and
larger companies, the successful development and marketing of our products and
services and the need to obtain adequate additional financing necessary to fund
future operations.

Results of Operations - Three Months Ended June 30, 2001 and 2000

  Revenues for the three months ended June 30, 2001 increased $57,736 to $59,970
compared with $2,234 for the comparable period in 2000. We recognized $55,080
from the sale of our Cachelink product and $4,890 from the sale of our Mangomind
service. Sales of Cachelink under our July 13, 2000 Value Added Reseller
Agreement with 3Com of $54,000 represented approximately 90% of our revenues for
the three-month period ended June 30, 2001. Customers representing 10% or more
of our revenues for the three-month period ended June 30, 2000 were IPEX
Information Technology Group and Nokia Corporation (formerly Ramp Networks,
Inc.) (approximately 50% and 15%, respectively). No other customer accounted for
more than 10% of our sales for either period.

  Cost of software license revenues for the three months ended June 30, 2001
consisted primarily of disk replication costs incurred in connection with our
sales of Cachelink under our agreement with 3Com. There were no such costs
incurred in the three-month period ended June 30, 2000.

  Cost of services for the three months ended June 30, 2001 consisted primarily
of managed storage service costs and the salaries and related personnel costs of
our dedicated technical support and Mangomind operations teams. There were no
such costs incurred in the three-month period ended June 30, 2000.

  Engineering and development expenses for the three months ended June 30, 2001
decreased approximately 32% or $426,784 to $920,658 from $1,347,442 for the
comparable period in 2000. The decrease in engineering and development was
primarily due to a decrease in our engineering and development personnel
headcount and its related effect on salaries and related personnel costs.  A
significant

                                       12
<PAGE>

portion of our April 23, 2001 work force reduction was made to our engineering
and development departments. The remainder of the decrease was attributable to
various cost saving measures employed since the beginning of 2001.

  Other operating expenses including selling and marketing and general and
administrative expenses for the three months ended June 30, 2001 increased
approximately 15% or $236,893 to $1,852,773 from $1,615,880 for the comparable
period in 2000. The growth in these expenses is primarily attributable to our
increased efforts in developing sales channels, an internal sales force,
fostering strategic relationships and other general corporate expenses. We began
an aggressive cost savings plan in the beginning of 2001 that reduced
approximately $279,000 from these expenses from the three-month period ended
March 31, 2001.

  Stock-based compensation expense of $264,614 was recorded for the three-month
period ended June 30, 2001 compared to a benefit of $9,661,760 for the
comparable period in 2000. Included in the 2001 expense was $203,722 in
amortization of deferred stock-based compensation recognized as the result of
the Company's issuance of stock options to employees at exercise prices less
than the quoted market price on the grant date. In addition, stock-based
compensation of $68,723 was recognized in connection with the Company's issuance
of 67,973 options to non-employees in lieu of cash compensation. The remainder
of the stock-based compensation expense was a $7,831 benefit recorded as a
result of the effects of the decrease in the quoted market price of the
Company's common stock and its affect on outstanding stock options accounted for
as variable awards. The benefit recorded in 2000 was attributable to the decline
in the market value of our common stock and its affect on SARs.  See note 4 to
the condensed consolidated financial statements.

  Excluding the non-cash effects of stock-based compensation, the loss from
operations for the three months ended June 30, 2001 increased $37,544 to
$3,017,632 from $2,980,088 for comparable period in 2000 as a result of the
above factors.

   Interest income decreased $244,662 to $141,048 for the three months ended
June 30, 2001 compared to $385,710 for the three months ended June 30, 2000. The
decrease is attributable to the use of the proceeds we received from the sales
of common stock and the Convertible Preferred Stock, Series A in March, April
and May 2000 in our operations and its affect on our interest bearing cash
accounts.

Results of Operations - Six Months Ended June 20, 2001 and 2000

  Revenues for the six months ended June 30, 2001 increased $195,031 to $198,600
compared with $3,569 for the comparable period in 2000. We recognized $182,350
from the sale of our Cachelink product and $16,250 from the sales of our
Mangomind service. Sales of Cachelink under our July 13, 2000 Value Added
Reseller Agreement with 3Com and Kacom, Inc., a Korean systems integrator, of
$144,000 and $25,500, respectively, represented approximately 73% and 13% of our
revenues for the six-month period ended June 30, 2001. Customers representing
10% or more of our revenues for the three-month period ended June 30, 2000 were
IPEX Information Technology Group and Nokia Corporation (formerly Ramp Networks,
Inc.) (approximately 32% and 17%, respectively). No other customer accounted for
more than 10% of our sales for either period.

  Cost of software license revenues for the six months ended June 30, 2001
consisted primarily of disk replication costs incurred in connection with our
sales of Cachelink to 3Com. There were no such costs incurred in the six-month
period ended June 30, 2000.

  Cost of services for the six months ended June 30, 2001 consisted primarily of
managed storage service costs and the salaries and related personnel costs of
our dedicated technical support and Mangomind operations teams. There were no
such costs incurred in the six-month period ended June 30, 2000.

                                       13
<PAGE>

  Engineering and development expenses for the six months ended June 30, 2001
decreased approximately 18% or $438,546 to $2,050,677 from $2,489,223 for the
comparable period in 2000. The decrease in engineering and development was
primarily due to a decrease in our engineering and development personnel and its
related effect on salaries and related personnel costs. A significant portion of
our April 23, 2001 work force reduction was made to our engineering and
development departments. The remainder of the decrease was attributable to
various cost saving measures employed since the beginning of 2001.

  Other operating expenses including selling and marketing and general and
administrative expenses for the six months ended June 30, 2001 increased
approximately 56% or $1,428,859 to $3,984,638 from $2,555,779 for the comparable
period in 2000. The growth in these expenses is primarily attributable to our
increased efforts in developing sales channels, an internal sales force,
fostering strategic relationships and other general corporate uses. We began an
aggressive cost savings plan in the beginning of 2001 that, in effect, curtailed
our mass marketing campaigns that had begun in the third and fourth quarters of
2000.

  Stock-based compensation expense of $765,887 was recorded for the six-month
period ended June 30, 2001 compared to $12,504,249 for the comparable period in
2000. The significant decrease in this expense is primarily attributable to the
fluctuations in the market price of our common stock and the related impact on
stock-based compensation recorded on employee stock options accounted for as
variable awards. See note 4 to the condensed consolidated financial statements.

  Excluding the non-cash effects of stock-based compensation, the loss from
operations for the six months ended June 30, 2001 increased $1,474,268 to
$6,534,701 from $5,060,433 for comparable period in 2000 as a result of the
above factors.

   Interest income decreased $33,882 to $365,053 for the six months ended June
30, 2001 compared to $398,935 for the six months ended June 30, 2000. The
decrease is attributable to the use of the proceeds we received from the sale of
common stock and the Convertible Preferred Stock, Series A in March, April and
May 2000 in our operations and its effect on our interest bearing cash accounts.

Financial Condition, Liquidity and Capital Resources

  We were formed in June 1995 and, since our formation, have raised
approximately $74.2 million in gross proceeds as of June 30, 2001 through the
private placement of debt and equity securities. Approximately $32.2 million of
these proceeds were raised in 2000.

  In addition, we have, at times, depended upon bank debt, 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 June 30, 2001,
approximately $1.5 million in additional financing was provided through accounts
payable, accrued expenses and other trade credit.

  At June 30, 2001, we had a cash balance of approximately $10.9 million and
working capital of approximately $9.6 million. Excluding our facility lease and
other minor equipment leases, we do not have any long-term obligations.

  We are in the development stage, and to date, our product sales have provided
a minor source of liquidity. From inception through June 30, 2001, we have
generated approximately $542,000 in sales and incurred cumulative net losses of
approximately $73.5 million.

  Effective April 23, 2001, we implemented an approximate 40% reduction in our
work force due to adverse economic conditions and our need to conserve capital.
We believe that this reduction was necessary to reduce our overhead and enable
us to grow our business and position ourselves for greater long-term

                                       14
<PAGE>

success. We incurred approximately $400,000, of which all but approximately
$125,000 was paid as of June 30, 2001, in severance and other personnel related
costs in connection with this action.

  We believe that unless we can generate a significant level of on-going revenue
and attain adequate profitability in the near-term, we will need to seek
additional sources of equity or debt financing. Although we have been successful
in obtaining financing in the past, there can be no assurance that any
additional financing will be available to us on commercially reasonable terms or
at all. Our inability to obtain additional financing when needed will have a
material adverse effect on our business and prospects, requiring us to
significantly curtail or possibly cease our operations.  In addition, any
additional equity financing may involve substantial dilution to the interests of
our then existing shareholders.

  We believe that we have adequate funding to continue operations at least for
the next twelve (12) months based on our current and forecasted expenses and
cash flows.

Recently Issued Accounting Standards

   In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 is effective
immediately and SFAS No. 142 will be effective January 2002. The new standards
are not expected to have a significant impact on our consolidated financial
statements.

Risk Factors

We Have A Limited Operating History And A History Of Substantial Operating
Losses.

  Our current operations substantially commenced in May 1997. Accordingly, our
prospects should be evaluated based on the expenses and operating results
typically experienced by any early stage business. We have a history of
substantial operating losses and an accumulated deficit of approximately $76.6
million as of June 30, 2001. For the six months ended June 30, 2001 and the year
ended December 31, 2000, our losses from operations, excluding the net effects
of stock-based compensation, were $6.5 million and $13.9 million, respectively.
We have historically experienced cash flow difficulties primarily because our
expenses  have exceeded our revenues. We expect to incur additional operating
losses and expect cumulative losses to increase substantially as our marketing,
sales, and research and development efforts expand.

Our Performance Depends On Market Acceptance Of Our Products.

  We expect to derive a substantial portion of our future revenues from the
sales of Cachelink and the Mangomind service, both of which are in the initial
marketing phase. If markets for our products and services fail to develop,
develop more slowly than expected or are subject to substantial competition, our
business, financial condition and results of operations will be materially and
adversely affected.

We Have A Multi-faceted Market Strategy.

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

                                       15
<PAGE>

We Will Need Additional Financing.

  We will require substantial additional capital to finance our future growth
and product development. We can provide no assurance that we will obtain
additional financing sufficient to meet our future needs on commercially
reasonable terms or otherwise.  If we are unable to obtain the necessary
financing, our business, operating results and financial condition will be
materially and adversely affected.

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 assurance 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, the market price of our common stock will be materially and
adversely affected.

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 assurance 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 such 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.

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 proprietary intellectual property, 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.

Our Success Depends on Key Personnel.

  Our success is dependent upon the efforts of our senior management personnel.
The loss of members of our senior management group could have a material adverse
effect on our business. In addition, competition for qualified personnel in the
computer software industry is intense, and we can provide no assurance that we
will be able to retain existing personnel or attract and retain additional
qualified personnel necessary for the development of our business. Our inability
to attract and retain such personnel would have a material adverse effect on our
business, financial condition and results of operations.

Defects In Our Software May Adversely Affect Our Business.

  Complex software products and services such as the software developed by
MangoSoft may contain defects when introduced and also when updates, upgrades
and new versions are released. Our introduction of software with defects or
quality problems could 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 and services or
claims by customers or others against us. Such problems or claims could have a
material adverse effect on our business, financial condition and results of
operations.

                                       16
<PAGE>

                          PART II - OTHER INFORMATION

ITEM 6.   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)
     10         Lease of Westborough Office Park, Building Five, dated November
                10, 1995. (3)
     16         Letter on Change in Certifying Accountant. (4)
     21         Subsidiary of the Registrant. (2)
   99.1         1999 Incentive Compensation Plan, as amended and restated on May
                1, 2000. (2)
   99.2         Form of Subscription Agreement for purchase of common stock,
                dated as of March 20, 2000. (2)
   99.3         Form of Warrant Agreement. (2)
   99.4         Value Added Reseller Agreement, dated July 14, 2000, between
                MangoSoft, Inc. and 3Com Corporation. (5)

   (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 Current Report on Form 8-K/A for an event
        dated January 11, 2000 and hereby incorporated by reference thereto.
   (5)  Filed as an exhibit to our Registration Statement on Form 10-SB/A, filed
        August 30, 2000, and hereby incorporated by reference thereto.

(b) Report on Form 8-K:

  On April 24, 2001, we filed on Form 8-K a notification that we implemented an
approximate 40% reduction in our work force effective April 23, 2001. In
connection with this work force reduction, we eliminated the positions held by
Ms. Linda Myers-Tierney, Senior Vice President and Chief Marketing Officer, and
Mr. Thomas Teixeira, Vice President of Engineering.

                                       17
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

August 3, 2001                          MANGOSOFT, INC.

                                        /s/  Robert E. Parsons
                                            ------------------
                                            Robert E. Parsons
                                            Chief Financial Officer
                                            (Principal Financial and Accounting
                                              Officer)

                                       18