<PAGE>

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


    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                           26,977,389 Shares
          $0.001 Par Value                (Outstanding on November 7, 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
  September 30, 2001 and 2000.........................................................................    3
Condensed Consolidated Statements of Operations For The Nine Months Ended
  September 30, 2001 and 2000 and Cumulative For The Period From June 15, 1995 (Inception)
  to September 30, 2001...............................................................................    4
Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000..................    5
Condensed Consolidated Statements of Cash Flows For The Nine Months Ended September 30, 2001
  and 2000 and Cumulative For The Period From June 15, 1995 (Inception) To September 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.............................................................   18

Signatures............................................................................................   19

</TABLE>

                                       2
<PAGE>

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

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended September 30,
                                                               -----------------------------------
                                                                   2001                    2000
                                                                   ----                    ----
<S>                                                    <C>                         <C>
Software license revenues............................          $    67,785         $            --
Service revenues.....................................               20,004                      --
                                                               -----------         ---------------
    Total revenues...................................               87,789                      --
Costs and expenses:
  Cost of software license revenues..................               11,167                      --
  Cost of services (1)...............................              190,486                      --
  Engineering and development (1)....................              604,154               1,569,116
  Selling and marketing (1)..........................              292,111               1,181,776
  General and administrative (1).....................              933,258               1,813,873
  Stock-based compensation expense (benefit).........              190,778             (15,311,214)
                                                               -----------         ---------------
    (Loss) income from operations                               (2,134,165)             10,746,449
Interest income......................................               94,681                 384,101
                                                               -----------         ---------------
Net (loss) income....................................          $(2,039,484)        $    11,130,550
                                                               ===========         ===============

Net (loss) income per share applicable to common
  Shareholders:
    Basic............................................          $     (0.08)        $          0.41
    Diluted..........................................          $     (0.08)        $          0.36
Weighted average shares outstanding:
    Basic............................................           26,969,901              26,887,992
    Diluted..........................................           26,969,901              31,035,443

(1) Excludes stock-based compensation expense (benefit)
    as follows:
     Cost of services................................          $    15,475         $            --
     Engineering and development.....................               54,958              (7,814,515)
     Selling and marketing...........................               13,875                (804,967)
     General and administrative......................              106,470              (6,691,732)
                                                               -----------         ---------------
                                                               $   190,778         $   (15,311,214)
                                                               ===========         ===============
</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
                                                                    Nine Months Ended September 30,      June 15, 1995
                                                                    -------------------------------
                                                                                                         (Inception) to
                                                                        2001              2000          September 30, 2001
                                                                        ----              ----          ------------------
<S>                                                                 <C>                <C>              <C>
Software license revenues.........................................   $   250,135       $      3,569        $    593,286
Service revenues..................................................        36,254                 --              36,254
                                                                     -----------       ------------        ------------
    Total revenues................................................       286,389              3,569             629,540
Costs and expenses:
  Cost of software license revenues...............................        37,011                 --             137,858
  Cost of services (1)............................................       862,628                 --             862,628
  Engineering and development (1).................................     2,654,831          4,058,339          31,279,769
  Selling and marketing (1).......................................     1,585,192          1,893,486          14,630,976
  General and administrative (1)..................................     3,624,815          3,661,608          19,003,301
  Stock-based compensation expense (benefit)......................       956,665         (2,806,965)          6,593,010
  Consulting fees paid to related parties.........................            --             25,288             747,971
                                                                     -----------       ------------        ------------
    Loss from operations..........................................    (9,434,753)        (6,828,187)        (72,625,973)
Interest income...................................................       459,734            783,036           2,141,226
Interest expense..................................................            --                 --           5,308,114
                                                                     -----------       ------------        ------------
Net loss..........................................................    (8,975,019)        (6,045,151)        (75,792,861)
Accretion of preferred stock......................................            --          9,627,147          16,231,171
                                                                     -----------       ------------        ------------
Net loss applicable to common stockholders........................   $(8,975,019)      $(15,672,298)       $(92,024,032)
                                                                     ===========       ============        ============

Net loss per share applicable to common shareholders -
  basic and diluted ..............................................   $     (0.33)      $      (0.64)
Weighted average shares outstanding - basic and diluted...........    26,961,424         24,411,792


(1) Excludes stock-based compensation expense (benefit)
    as follows:
    Cost of services..............................................   $    55,367       $         --        $     55,367
    Engineering and development...................................       262,674         (2,856,712)          1,197,712
    Selling and marketing.........................................       193,626             97,103             890,385
    General and administrative....................................       444,998            (47,356)          4,449,546
                                                                     -----------       ------------        ------------
                                                                     $   956,665       $ (2,806,965)       $  6,593,013
                                                                     ===========       ============        ============
</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>
                                                                             September 30,                 December 31,
                                                                             ------------------------------------------
                                                                                2001                          2000
                                                                                ----                          ----
<S>                                                           <C>                           <C>
                            ASSETS
Current Assets:
   Cash and cash equivalents...................................              $  8,942,834                  $ 17,354,025
   Accounts receivable.........................................                    88,787                        10,639
   Prepaid expenses and other current assets...................                   207,530                       155,445
                                                                             ------------                  ------------
      Total current assets.....................................                 9,239,151                    17,520,109
Property and Equipment - Net...................................                   961,442                     1,164,916
Other Assets...................................................                     2,400                         2,400
                                                                             ------------                  ------------
          Total................................................              $ 10,202,993                  $ 18,687,425
                                                                             ============                  ============
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable............................................              $    850,268                  $  1,285,614
   Accrued compensation........................................                   370,518                       286,552
   Other accrued expenses and current liabilities..............                   170,786                       293,955
                                                                            -------------                  ------------
      Total current liabilities................................                 1,391,572                     1,866,121
                                                                             ------------                  ------------
Commitments and Contingencies

Stockholders' Equity:
   Common stock................................................                    26,978                        26,957
   Additional paid-in-capital..................................                89,660,653                    90,431,502
   Deferred compensation.......................................                (1,999,905)                   (3,735,869)
   Deficit accumulated during the development stage............               (78,876,305)                  (69,901,286)
                                                                             ------------                  ------------
      Total stockholders' equity...............................                 8,811,421                    16,821,304
                                                                             ------------                  ------------
          Total................................................              $ 10,202,993                  $ 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
                                                               Nine Months Ended September 30,                 (Inception) to
                                                               -------------------------------
                                                                   2001                  2000                September 30, 2001
                                                                   ----                  ----                ------------------
<S>                                                    <C>                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................   $(8,975,019)          $(6,045,151)               $(75,792,861)
Adjustments to reconcile net loss to net cash used
  for operating activities:
    Depreciation and amortization...........................       404,155               359,236                   2,812,432
    Stock-based compensation................................       956,665            (2,806,965)                  6,593,010
    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...................................       (78,148)                   --                     (88,787)
      Prepaid expenses and other current assets.............       (52,085)              (29,351)                    (71,442)
      Accounts payable......................................      (442,331)               36,324                   1,098,646
      Accrued compensation..................................        83,966               151,216                     370,518
      Accrued expenses to related parties...................        (3,015)             (706,395)                      6,985
      Other accrued expenses and current liabilities........      (113,169)              175,928                     245,440
                                                               -----------           -----------                ------------
        Net cash used for operating activities..............    (8,218,981)           (8,865,158)                (59,588,650)
                                                               -----------           -----------                ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.......................      (200,681)           (1,136,633)                 (3,773,874)
Increase in other long-term assets..........................            --                    --                      (2,400)
Payment of merger costs.....................................            --               (77,893)                   (276,173)
                                                               -----------           -----------                ------------
        Net cash used for investing activities..............      (200,681)           (1,214,526)                 (4,052,447)
                                                               -----------           -----------                ------------

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.....................................................         8,471            32,247,631                  66,820,019
Purchase of common stock from related party.................            --                    --                    (100,000)
                                                               -----------           -----------                ------------
        Net cash provided by financing activities...........         8,471            31,922,227                  72,583,931
                                                               -----------           -----------                ------------
NET (DECREASE) INCREASE IN CASH AND CASH  EQUIVALENTS.......    (8,411,191)           21,842,543                   8,942,834
CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD.............    17,354,025                29,959                          --
                                                               -----------           -----------                ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................   $ 8,942,834           $21,872,502                $  8,942,834
                                                               ===========           ===========                ============
</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 nine
months ended September 30, 2001 and 2000 and cumulative for the period from June
15, 1995 (inception) to September 30, 2001, the Company incurred net losses of
$8,975,019, $6,045,151 and $75,792,861, respectively. Excluding the effect of
stock-based compensation charges, the net loss for the nine-month periods ended
September 30, 2001 and 2000 and cumulative for the period from June 15, 1995
(inception) to September 30, 2001 would have been $8,018,354, $8,852,116 and
$69,199,851. 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 nine months ended September 30, 2001
and 2000, and cumulative for the period from June 15, 1995 (inception) to
September 30, 2001:

<TABLE>
<CAPTION>
                                                             Nine Months Ended September 30,         Cumulative
                                                           ------------------------------------
                                                                 2001               2000           Since Inception
                                                                 ----               ----           ---------------
<S>                                                          <C>                <C>                <C>
Cash paid for interest...................................      $  --              $ 10,244             $ 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 ("FASB") 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.

    In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.  This Statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business. This standard establishes a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale and also resolves significant implementation issues related
to Statement 121.  This statement is effective for the Company on January 1,
2002.  The Company is currently assessing, but has not yet determined, the
impact of SFAS No. 144 on its financial position and results of operations.

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

                                       8
<PAGE>

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.

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 September 30,
2001 and 2000, there were 2,683,611 and 2,897,756 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 September 30, 2001, there were 2,080,851
outstanding options to purchase the Company's common stock that were repriced
and subject to variable plan accounting.

    During the nine months ended September 30, 2001, the Company recorded stock-
based compensation expense of $956,665. This expense is due primarily to the
amortization of $794,638 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 $158,449 was recognized in connection with the Company's
issuance of 163,730 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 effect on outstanding stock options accounted for as variable
awards.

    During the three months ended September 30, 2001, the Company recorded
stock-based compensation expense of $190,778. This expense is due primarily to
the amortization of $196,574 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 $59,286 was recognized in connection with the Company's
issuance of 70,757 options to non-employees in lieu of cash compensation. The
remainder of the stock-based compensation expense was a $65,082 benefit recorded
as a result of the effects of the decrease in the quoted market price of the
Company's common stock and its effect on outstanding stock options accounted for
as variable awards.

                                       9
<PAGE>

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 nine months ended September 30, 2001 and 2000 and the three months
ended September 30, 2001, 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.

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 September
30, 2001, approximately $90,000 remained unpaid and accrued.

                                       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 approximately
$257,000, or 41%, 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 $36,254 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 September 30, 2001, all but approximately
$90,000 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 September 30, 2001 and 2000

     Revenues for the three months ended September 30, 2001 were $87,789
compared with $0 for the comparable period in 2000. We recognized $67,785 from
the sale of our Cachelink product and $20,004 from the sale of our Mangomind
service. Sales of Cachelink under our July 13, 2000 Value Added Reseller
Agreement with 3Com of $67,785 represented approximately 77% of our revenues for
the three-month period ended September 30, 2001. No other customer accounted for
more than 10% of our sales.

     Cost of software license revenues for the three months ended September 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 September 30, 2000.

     Cost of services for the three months ended September 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
September 30, 2000.

     Engineering and development expenses for the three months ended September
30, 2001 decreased approximately 61% or $964,962 to $604,154 from $1,569,116 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 portion of our April 23, 2001 work force reduction was made to our
engineering and development

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<PAGE>

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 September 30, 2001 decreased
approximately 59% or $1,770,280 to $1,225,369 from $2,995,649 for the comparable
period in 2000. The decrease in these expenses is primarily attributable to our
increased efforts in reducing our overhead, headcount reductions and the
curtailment of our mass marketing and advertising campaigns.

     Stock-based compensation expense of $190,778 was recorded for the three-
month period ended September 30, 2001 compared to a benefit of $15,311,214 for
the comparable period in 2000. Included in the 2001 expense was $196,574 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 $59,286 was recognized in connection with the Company's issuance
of 72,523 options to non-employees in lieu of cash compensation. The remainder
of the stock-based compensation expense was a $65,082 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 September 30, 2001 decreased $2,621,378 to
$1,943,387 from $4,564,765 for comparable period in 2000 as a result of the
above factors.

     Interest income decreased $289,420 to $94,681 for the three months ended
September 30, 2001 compared to $384,101 for the three months ended September 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 effect on our interest
bearing cash accounts as well as a decrease in the rate of return on our
investments.

Results of Operations - Nine Months Ended September 20, 2001 and 2000

     Revenues for the nine months ended September 30, 2001 increased $282,820 to
$286,389 compared with $3,569 for the comparable period in 2000. We recognized
$250,135 from the sale of our Cachelink product and $36,254 from the sales of
our Mangomind service. Sales of Cachelink under our July 13, 2000 Value Added
Reseller Agreement with 3Com of $211,785 represented approximately 74% of our
revenues for the nine-month period ended September 30, 2001. Customers
representing 10% or more of our revenues for the nine-month period ended
September 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 nine months ended September 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 nine-
month period ended September 30, 2000.

     Cost of services for the nine months ended September 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 September
30, 2000.

     Engineering and development expenses for the nine months ended September
30, 2001 decreased approximately 35% or $1,403,508 to $2,654,831 from $4,058,339
for the comparable period in 2000. The

                                       13
<PAGE>

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 nine months ended September 30, 2001 decreased
approximately 6% or $345,087 to $5,210,007 from $5,555,094 for the comparable
period in 2000. The decrease in these expenses is primarily attributable to our
commitment to an aggressive cost savings plan in the beginning of 2001 that, in
effect, curtailed our mass marketing and advertising campaigns that had begun in
the third and fourth quarters of 2000.

     Stock-based compensation expense of $956,665 was recorded for the nine-
month period ended September 30, 2001 compared to a benefit of $2,806,965 for
the comparable period in 2000. The significant fluctuation 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 nine months ended September 30, 2001 decreased $1,157,064 to
$8,478,088 from $9,635,152 for comparable period in 2000 as a result of the
above factors.

     Interest income decreased $323,302 to $459,734 for the nine months ended
September 30, 2001 compared to $783,036 for the nine months ended September 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 as well as a decrease in the rate of return on our investments.

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 September 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 September 30,
2001, approximately $1.4 million in additional financing was provided through
accounts payable, accrued expenses and other trade credit.

     At September 30, 2001, we had a cash balance of approximately $8.9 million
and working capital of approximately $7.8 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 September 30, 2001,
we have generated approximately $630,000 in sales and incurred cumulative net
losses of approximately $75.8 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
$90,000 was paid as of September 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.



Recently Issued Accounting Standards

     In July 2001, the Financial Accounting Standards Board ("FASB") 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.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This standard establishes a single
accounting model, based on the framework established in SFAS No. 121, for long-
lived assets to be disposed of by sale and also resolves significant
implementation issues related to Statement 121. This statement is effective on
January 1, 2002. We are currently assessing, but have not yet determined, the
impact of SFAS No. 144 on our financial position and results of operations.


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 $78.9
million as of September 30, 2001. For the nine months ended September 30, 2001
and the year ended December 31, 2000, our losses from operations, excluding the
net effects of stock-based compensation, were $8.0 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

                                       15
<PAGE>

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.

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

                                       16
<PAGE>

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.

                                       17
<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:

    None.


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<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.

November 8, 2001                   MANGOSOFT, INC.

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


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