**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-KSB**




x
              **Annual
                Report Under Section 13 or 15(d)
                of the Securities Exchange Act of
                1934.**
 **For
        the Fiscal Year Ended December 31, 2005**
 or
 o
              **Transition
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934.**


**For
      the Transition Period From ________To ________**





**Commission
      File Number: 000-30781**





**MANGOSOFT,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
            
            **87-0543565**(State
                or other jurisdictionof
                incorporation or organization)
            
            (IRS
                Employer Identification No.)**12
                Technology Way**
              **Nashua,
                NH**
            
            **03062**(Address
                of principal executive offices)
            
            (Zip
                code)




**Issuer’s
      telephone number: (603) 324-0400**


**Securities
      registered under Section 12(b) of the Exchange Act: None**


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


**Common
      Stock, $0.001 par value**





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB.





State
      issuer’s revenues for the most recent fiscal year: $336,524





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and ask price of such common equity, as of a specified
      date within the past 60 days: $835,756. This amount reflects the average bid
      and
      ask price of the Company’s common stock on the OTCBB on March 29, 2006.




1




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date:




**Common
                Stock**
            
            **1,013,038
                Shares**$0.001
                Par Value
            
            (Outstanding
                on March 30,
                2006)




Transitional
      Small Business Disclosure Format (check one):




Yes: o No:
x




2




**MANGOSOFT,
      INC.**





**INDEX
      TO FORM 10-KSB**




**PART
                I**
            **Page**ITEM
                1
            Description
                of Business
            4ITEM
                2
            Description
                of Property
            12ITEM
                3
            Legal
                Proceedings
            12ITEM
                4
            Submission
                of Matters to a Vote of the Security Holders
            12




**PART
                II**


ITEM
                5
            Market
                for Common Equity and Related Stockholder Matters
            13ITEM
                6
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations.
            15ITEM
                7
            Financial
                Statements
            20ITEM
                8
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            20


ITEM
                8A
            Controls
                and Procedures
            21ITEM
                8B
            Other
                Information
            21




**PART
                III**ITEM
                9
            Directors
                and Executive Officers of the Registrant
            22ITEM
                10
            Executive
                Compensation
            23ITEM
                11
            Security
                Ownership of Certain Beneficial Owners and Management And
                Related Stockholder Matters
            24ITEM
                12
            Certain
                Relationships and Related Transactions
            25ITEM
                13
            Exhibits
                and Reports on Form 8-K
            26ITEM
                14
            Principal
                Accountant Fees and Services
            27Signature
            
            28





**FACTORS
      THAT MAY AFFECT FUTURE RESULTS**





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





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





3




**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





**(A)
      BUSINESS DEVELOPMENT**




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





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





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





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





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





4




**(B)
      BUSINESS OF MANGOSOFT**





**GENERAL**





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





**BUSINESS
      STRATEGY**





We
      no
      longer develop new software products or services. We continue to market, sell
      and support our software services. Our strategy also includes seeking strategic
      business partnerships and distribution channels to leverage our patented
      technology.





**COMPETITION**





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




**PRODUCTS**





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





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





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





Mangomind
      facilitates business-to-business communications using the following
      features:





·
            **Simultaneous,
                multi-user file access.**Mangomind is an Internet file-sharing system that allows multiple
                users in
                any location to simultaneously access and share files.




5




·
              **Robust,
                  safe and secure.**Mangomind
                  allows users to set access permissions for files and folders on
                  a
                  Mangomind drive. Data encryption (128-bit) at the client (user)
                  level
                  ensures that all files are securely transmitted and stored. Service
                  level
                  agreements ensure that a user’s files are available and
                  protected.


·
            **Business
                level security through encryption.**Access
                to shared files is restricted to clients authenticated by using
                public/private keys; each Mangomind user is authenticated using
                state-of-the-art private key encryption. Data is stored in encrypted
                form
                to prevent unauthorized access.


·
            **File
                access permissions**.
                The Mangomind file system allows users to define access permissions
                for
                users or groups of users on individual drives, files and folders.
                Permission settings are easily specified using the same familiar
                Microsoft
                Windows procedures.


·
            **Familiar
                Windows interface.**Mangomind
                looks and operates just like a local drive and is completely integrated
                with Windows. No user training is required; applications run as if
                on a
                local drive.


·
            **Access
                anytime, even when offline.**When disconnected from the Internet, users can continue to work on
                their
                files offline because Mangomind caches the latest version of a file
                into a
                system’s local memory. Mangomind automatically synchronizes the files when
                the user reconnects to the
                Internet.


·
            **High
                availability service**.
                The Mangomind service provides automatic backup and restore functions,
                full-time customer support and service, and service level agreements
                to
                ensure high availability of the service. The Mangomind service is
                hosted
                and managed by leading service providers.




fileTRUST SM is an
      online data storage service we purchased from Bank of America (formerly
      FleetBoston) in February 2002. fileTRUST SM users
      can access their stored files from any Internet-connected system. The
      fileTRUST SM service
      complements our Mangomind service by providing our customers with a lower cost
      online storage system. In conjunction with our purchase of fileTRUST SM ,
      we
      executed a two-year enterprise license agreement with Bank of America (formerly
      FleetBoston) for the internal use of fileTRUST SM by Bank
      of America (formerly FleetBoston), which expired in February 2004. The terms
      and
      conditions of this agreement provide for automatic renewals on a month-to-month
      basis. Bank of America (formerly FleetBoston) terminated its license agreement
      with us in September 2004. The loss of Bank of America (formerly FleetBoston)
      as
      a customer has had a material adverse affect on our business.





6




**MARKETING
      AND SALES**





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




The
      success of our marketing and sales activities is dependent, among other things,
      on our ability to retain and attract qualified resellers and original equipment
      manufacturers (“OEMs”) as well as the overall market perception of our products
      and services.




***Mangomind***




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


We
      have
      identified small and medium sized business in the financial services,
      consulting, manufacturing, healthcare, real estate and architecture industries
      as key vertical markets to focus our marketing of the Mangomind service. These
      industries are characterized by a high degree of interaction with workgroups
      outside their organization and a need for an efficient and secure means of
      file
      sharing and project collaboration. Our recruitment of resellers is targeted
      toward those resellers that have existing penetration within these targeted
      vertical markets. We offer 15-day risk-free trials to participants responding
      to
      our resellers’ marketing programs. These participants have become valuable
      prospects for our direct sales efforts.




The
      introduction of our Mangomind product has allowed our reseller channel to
      increase its focus on the enterprise customer. Enterprise sales are lead-driven
      and generally require on-site product demonstrations. An enterprise customer
      will then enter into a pilot implementation and ultimately a full-scale
      deployment. Enterprise sales are a lengthy process and may take three to six
      months to close.





***fileTRUST***




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




7





**PRODUCT
      SUPPORT**





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





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





**CONCENTRATIONS**





We
      generate the majority of our revenues from the sale of our products and services
      in North America. All of our 2005, 2004 and 2003 revenues were generated from
      sales to North American customers.




Two
      customers accounted for approximately 12% of our 2005 net revenues. One customer
      accounted for approximately 35% of our 2004 net revenues and two customers
      accounted for approximately 52% of our 2003 revenues.





**INTELLECTUAL
      PROPERTY**





To
      date,
      we have been granted five patents as follows: (i) System and Method for
      Providing Highly Available Data Storage Using Globally Addressable Memory (June
      1, 1999); (ii) Structured Data Storage Using Globally Addressable Memory (June
      29, 1999); (iii) Remote Access and Geographically Distributed Computers in
      a
      Globally Addressable Storage Environment (November 16, 1999); (iv) Shared
      client-side Web Caching Using Globally Addressable Memory (February 15, 2000);
      and (v) Shared Memory Computer Networks (November 14, 2000). We have applied
      for
      five additional U.S. patents which applications are still pending. Our patents
      cover aspects of our peer-to-peer clustering technology, Cachelink and
      Mangomind. We have also filed patent applications outside of the U.S. that
      are
      counterparts to the issued patents and pending applications. We also own
      trademarks on “Cachelink,” “Medley,” “Mango,” and “MangoSoft.” In addition, we
      also own service marks on “Mangomind,” “fileTRUST” and “the Business Internet
      File Service.”




We
      consider elements of our software and peer-to-peer clustering technology to
      be
      proprietary. We rely on a combination of trade secrets, copyright and trademark
      law, contractual provisions, confidentiality agreements, and certain technology
      and security measures to protect our intellectual property, proprietary
      technology and know-how. Our future results of operations are highly dependent
      on the proprietary technology that we have developed internally. Consequently,
      we have taken actions to secure our proprietary technology in the form of patent
      protection. If we are denied our patent requests, either individually or as
      a
      group, we believe that there would be a material adverse impact on our business.





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




8




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




We
      license encryption software from a leading e-security software provider. This
      encryption software allows multiple users to more securely transmit, share
      and
      store files via the Mangomind service. All files shared, stored and transmitted
      over the Internet using the Mangomind service are protected with 128-bit
      encryption. We are required to make royalty payments to the software provider
      based on the volume of our sales.





**EMPLOYEES**





As
      of
      December 31, 2005 we had 1 full-time employee. Our success is highly dependent
      on our ability to attract and retain qualified resellers and to retain qualified
      outsourced information system management. To date, we believe we have been
      successful in our efforts, but there is no assurance that we will continue
      to be
      as successful in the future. Our employee is not subject to a collective
      bargaining agreement.





**RISK
      FACTORS**





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





We
      have a
      history of substantial operating losses and an accumulated deficit of
      $89,069,999 as of December 31, 2005. For the years ended December 31, 2005,
      2004
      and 2003, our losses from operations, excluding the net effects of stock-based
      compensation, were $363,961, $373,034 and $1,041,618, respectively. We have
      historically experienced cash flow difficulties primarily because our expenses
      have exceeded our revenues. We expect to incur additional operating losses.
      These factors, among others, raise significant doubt about our ability to
      continue as a going concern. If we are unable to generate sufficient revenue
      from our operations to pay expenses or we are unable to obtain additional
      financing on commercially reasonable terms, our business, financial condition
      and results of operations will be materially and adversely
      affected.





*We
      Will Need Additional Financing.*





We
      may
      require additional capital to finance our future operations. We can provide
      no
      assurance that we will obtain additional financing sufficient to meet our future
      needs on commercially reasonable terms or otherwise. Also, Bank of America
      (formerly FleetBoston) terminated its license agreement with us in September
      2004. While we are seeking new business opportunities to replace the resulting
      loss of revenue, we cannot be certain we will find a replacement for such
      revenue. If we are unable to obtain the necessary financing, our business,
      operating results and financial condition will be materially and adversely
      affected.





*Our
      Success Depends on Our Outsourced Services Agreement.*





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




9




*Our
      Performance Depends on Market Acceptance of Our Products.*


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





*We
      Depend on Strategic Marketing Relationships.* **


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





*There
      May Be Limited Liquidity in Our Common Stock and Its Price May Be Subject to
      Fluctuation.*


Our
      common stock is currently traded on the OTC Bulletin Board and there is only
      a
      limited market for our common stock. We can provide no assurances that we will
      be able to have our common stock listed on an exchange or quoted on Nasdaq
      or
      that it will continue to be quoted on the OTC Bulletin Board. If there is no
      trading market for our common stock, the market price of our common stock will
      be materially and adversely affected.





*SEC
      Rules Concerning Sales of Low-Priced Securities May Hinder Re-Sales of Our
      Common Stock*


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





*Rapidly
      Changing Technology and Substantial Competition May Adversely Affect Our
      Business.*


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





*Litigation
      Concerning Intellectual Property Could Adversely Affect Our
      Business.*


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




10




*Defects
      in Our Software Products May Adversely Affect Our Business.*


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





*We
      Have Limitations On The Effectiveness Of Our Internal
      Controls.*





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





11




**ITEM
      2. DESCRIPTION OF PROPERTY**





We
      terminated our lease, which was located in Nashua, New Hampshire and consisted
      of approximately 2,400 square feet of office space. The Company no longer leases
      its own facility. Effective, December 1, 2004 the Company uses the office space
      of BuiltRight Networks at no specific rent. Our office had the capacity to
      accommodate approximately twenty people. Our office was leased from Forward
      Journey LLC, an independent third party lessor. In 2005 and 2004, we recorded
      approximately $0 and $28,000 in rent expense for this facility.





Until
      October 2002, our former principal corporate offices were located in
      Westborough, Massachusetts. We restructured this facility lease on several
      occasions beginning in January 2002. This lease expired in September 2003.
      We
      recorded approximately $71,000 of rent expense in 2003 in connection with this
      facility.





**ITEM
      3. LEGAL PROCEEDINGS**





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





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





On
      July
      2, 2003, the Company filed a complaint in the United States District Court,
      Northern District of California, against Oracle Corporation, Sun Microsystems,
      Inc., Dell Computer Corporation and Electronic Arts, Inc. for infringement
      of
      U.S. Patent No. 6,148,377 and U.S. Patent No. 5,918,229. The complaint seeks
      unspecified monetary damages and injunctive relief and awards for interest,
      costs and attorneys’ fees.




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





Other
      than the matters listed above, there are no material pending legal proceedings,
      other than the routine litigation occurring in the normal course of operations,
      to which we are party or of which any of our properties are
      subject.





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





No
      matters were submitted during the fourth quarter of the year ended December
      31,
      2005 to a vote of our security holders, through the solicitation of proxies
      or
      otherwise.





12





**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





**(A)
      Market Information**





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





The
      following sets forth the high and low bid price quotations for each calendar
      quarter in which trading occurred during the last two fiscal years, adjusted
      to
      reflect the effects of the March 7, 2003 reverse stock split. Such quotations
      reflect interdealer prices, without retail markup, markdown or commission,
      and
      may not represent actual transactions:





**2005**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            10.00
            
            $
            4.25Second
                Quarter
            
            
            11.35
            
            
            4.25Third
                Quarter
            
            
            6.40
            
            
            3.00Fourth
                Quarter
            
            
            4.75
            
            
            3.30




**2004**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            4.00
            
            $
            1.55Second
                Quarter
            
            
            7.20
            
            
            2.45Third
                Quarter
            
            
            6.00
            
            
            3.30Fourth
                Quarter
            
            
            10.00
            
            
            3.60





On
      March
      29, 2006, the last reported sale price of our common stock on the OTCBB was
      $.75
      per share.





**(B)
      Holders**





As
      of
      December 31, 2005, there were approximately 385 holders of record of our common
      stock. This number does not include stockholders for whom shares were held
      in a
“nominee” or “street name.”





**(C)
      Dividends**





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





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




13




**(D)
      Securities Authorized for Issuance Under Equity Compensation Plans**





The
      following sets forth information surrounding compensation plans in which we
      have
      authorized the future issuance of our common stock, adjusted to reflect the
      effects of the March 7, 2003 reverse stock split:





**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            
            110,245
            
            $
            12.99
            
            
            179,910Equity
                compensation plans not approved by security holders
            
            
            13,111
            
            
            43.13
            
            
            N/ATotal
            
            
            123,356
            
            $
            16.19
            
            
            179,910





**(E)
      Recent Sales of Unregistered Securities**





On
      July
      24, 2003, we issued 20,000 shares of Series B Convertible Preferred Stock to
      two
      significant shareholders for $50,000, one of which is our former co-chairman
      of
      the board of directors. Each of the shareholders are accredited investors.
      Each
      share of preferred stock is convertible into one share of common stock at the
      option of the holder. In addition to the convertible features of this private
      placement, the holders of the preferred stock are entitled to twenty-five votes
      per share of preferred stock on any matter brought to the vote of
      shareholders.




14




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





This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      safe
      harbor provisions of the Private Securities Litigation Reform Act of 1995.
      Any
      statements in this Annual Report that are not statements of historical facts
      are
      forward-looking statements, which involve risks and uncertainties. Without
      limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,”
and similar expressions are intended to identify forward-looking statements.
      Our
      actual results may differ materially from those indicated in the forward-looking
      statements as a result of the factors set forth elsewhere in this Annual Report
      on Form 10-KSB, including under “Risk Factors.” You should read the following
      discussion and analysis together with our condensed consolidated financial
      statements for the periods specified and the related notes included herein.
      Further reference should be made to our Annual Report on Form 10-KSB for the
      period ended December 31, 2005 filed with the Securities and Exchange
      Commission.





**OVERVIEW**





We
      market, sell and support Internet business software and services that improve
      the utility and effectiveness of Internet-based business applications. Our
      software solutions address the networking needs of small businesses, workgroups
      and large enterprises. Our products and services enhance the performance of
      PC
      networks and deliver improved service utilizing existing equipment. We no longer
      develop new software products or services.




Mangomind SM  is
      a
      multi-user, business-oriented, peer-to-peer file sharing system, allowing
      individual users to collaborate over the Internet across organizational
      boundaries in a safe and secure manner. The architecture is a blend of the
      manageability of client/server with the autonomy, clustering, and caching
      optimizations of peer-to-peer. The user experience is one of easy file sharing
      with colleagues through what looks like an ordinary LAN shared drive.
      Mangomind SM provides
      the secure file sharing benefits of a VPN without additional hardware and
      configuration complexities. Mangomind SM is sold
      as both a service and a standalone software product





fileTRUST SM is an
      online data storage service we purchased from Bank of America (formerly
      FleetBoston) in February 2002 for approximately $427,000, of which $175,000
      was
      paid in cash and the balance in our common stock and warrants to purchase our
      common stock at $14.31 per share. fileTRUST SM users
      can access their stored files from any Internet-connected system. The
      fileTRUST SM service
      compliments our Mangomind SM service
      by providing customers with a lower cost online storage system. In conjunction
      with our purchase of fileTRUST SM ,
      we
      executed a two-year enterprise license agreement with Bank of America (formerly
      FleetBoston) for the internal use of fileTRUST SM by Bank
      of America (formerly FleetBoston), which expired in February 2004. The terms
      and
      conditions of this agreement provided for automatic renewals on a month-to-month
      basis. We recorded approximately $493,000 in net revenues from the inception
      of
      this agreement through December 31, 2004. Bank of America (formerly FleetBoston)
      terminated its license agreement with us in September 2004.





We
      had no
      revenues from Bank of America (formerly FleetBoston) for the year ended December
      31, 2005. We are actively seeking new business opportunities to replace this
      lost revenue. If we are unable to replace this revenue, our operations may
      be
      adversely affected. During September 2004, we instituted cost reductions to
      lessen the adverse effects of this loss of revenue, including restructuring
      our
      business relationships with key vendors such as Built Right
      Networks.





15




**CRITICAL
      ACCOUNTING POLICIES**





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





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





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





*Investments* - At
      December 31, 2005, we have approximately $3,000 invested in two high-yield,
      secured corporate notes with related parties. These investments are classified
      as held-to-maturity and are carried at their amortized cost. Investments with
      maturities of less than one year are classified as short-term
      investments.





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





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





**Costs
      and Expenses**





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





*Engineering
      and Development Expenses* -
      Engineering and development expenses consist primarily of costs related to
      the
      design, development, testing, deployment and enhancement of our products and
      services. We have expensed our engineering and development costs as incurred.
      At
      December 31, 2005, there were no full time employees performing engineering
      or
      development on our products and services. Effective September 30, 2002, we
      have
      outsourced the maintenance of our billable services infrastructure as well
      as
      product and customer support to Built Right Networks.




16




*Other
      Operating Expenses* --
      Selling and marketing expenses consist primarily of costs incurred to market
      our
      products and services such as the costs of attending and presenting at trade
      shows. General and administrative expenses consist primarily of salaries and
      related personnel costs and other general corporate costs such as facility
      costs, commercial and general liability insurance, accounting and legal expenses
      and other costs typical of a publicly held corporation. At December 31, 2005,
      there were no full time employees performing selling and marketing activities.
      Our remaining employee is performing general and administrative
      activities.





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





**RESULTS
      OF OPERATIONS - YEARS ENDED DECEMBER 31, 2005 AND 2004**





Revenues
      for year ended December 31, 2005 decreased $129,701 or 28% to $336,524 from
      $466,225 for the comparable year in 2004. One customer, Bank of America
      (formerly FleetBoston) represented approximately 35% of our revenues for the
      year ended December 31, 2004. In 2003, Bank of America (formerly FleetBoston)
      and New York Life Insurance Company (“New York Life”) accounted for
      approximately 39% and 13% of our revenues, respectively. In September 2004,
      we
      were notified by Bank of America (formerly FleetBoston) that it had terminated
      its February 2002 enterprise license agreement with us. We are investigating
      options to replace the loss of this revenue. No other customer accounted for
      more than 10% of our revenues for either period.





We
      recognized $310,777 from the sale of our Mangomind SM service
      and $25,747 from the sale of our fileTRUST SM service
      during the year ended December 31, 2005. During the year 2004, we recognized
      $270,656 from the sale of the Mangomind SM service
      and $195,565 from the sale of our fileTRUST SM service.




Cost
      of
      services for year ended December 31, 2005 decreased $122,594 or 31% to $268,082
      compared to $390,676 for the comparable year in 2004. The decrease in the cost
      of delivering our services was primarily a result of our continued reductions
      and our switch to a lower cost data center. In response to our loss of Bank
      of
      America (formerly FleetBoston) as a customer, we have instituted cost reductions
      to lessen the adverse effects of the loss of the Bank of America (formerly
      FleetBoston) revenues, including restructuring our business relationships with
      key vendors such as Built Right Networks.





There
      was
      no engineering and development expense for the years ended December 31, 2005
      and
      2004. . During the years ended December 31, 2005 and 2004, we had no employees
      performing engineering or development activities





For
      the
      year ended December 31, 2005, other operating expenses including selling and
      marketing and general and administrative expenses increased $5,730 or 1% to
      $432,403 compared with $426,673 for the comparable period in 2004. The increase
      in other operating expenses was due primarily to legal costs incurred in pursuit
      of patents combined with a reduction of public relations, legal and other
      corporate consultants and facility rent in addition to reductions in our
      marketing, selling and general and administrative personnel associated with
      our
      work force reductions. During the year ended December 31, 2005, our one (1)
      full-time employee was working in a general and administrative capacity.
      Additionally, during 2004 management elected to discontinue providing for
      $149,000 of previously accrued rent for its facility which it abandoned in
      September 2002. This was an expense reduction in 2004 of $149,000.





17


Stock-based
        compensation expense of $428 was recorded for the year ended December 31,
        2005
        compared to $1,032 for the comparable year in 2004. The decrease in this
        expense
        was primarily attributable to the decrease in the number of outstanding employee
        stock options subject to compensation expense. The expense represents the
        ratable recognition of stock-based compensation for stock option awards granted
        in 2000 at exercise prices that were less than the fair value at the time
        of
        grant. See Note 8 to the consolidated financial statements.




Our
      loss
      from operations decreased $9,677 to $364,389 for the year ended December 31,
      2005 compared with a loss from operations of $374,066 for the comparable year
      in
      2004 as a result of the above factors.





Interest
      income decreased $64,463 to $17,504 for the year ended December 31, 2005
      compared to $81,967 for the year ended December 31, 2004. Our cash balances
      available for investment have decreased period over period.





**RESULTS
      OF OPERATIONS - YEARS ENDED DECEMBER 31, 2004 AND 2003**





Revenue
      decreased $37,931 from $504,156 in 2003 to $466,225 in 2004, a decrease of
      approximately 8%. In 2004, we recognized $270,660 from the sale of the Mangomind
      service and $195,565 from the sale of the fileTRUST service. In 2003, we
      recognized $729 from the sale of the Cachelink product, $36,698 from the sale
      of
      the Mangomind product, $256,959 from the sale of the Mangomind service and
      $209,770 from the sale of the fileTRUST service. The decrease in revenues was
      primarily attributable to the decreases in Mangomind service revenue offset
      by
      the significant increase in fileTRUST service. Customers representing more
      than
      10% of our 2003 revenues were FleetBoston and New York Life Insurance Company
      approximately 39% and 13%, respectively.





Cost
      of
      services for the year ended December 31, 2004 decreased $113,980 or 23% from
      $504,656 in 2003 to $390,676 in 2004. The decrease in our cost of services
      is
      due primarily to the significant reduction in our operations personnel. At
      December 31, 2004, we no longer had any internal personnel dedicated to
      maintaining our services. We have outsourced these services to Built Right
      Networks for approximately $30,000 each month. In addition, we will continue
      to
      incur costs of service in the area of our security license royalties and our
      outsourced data center.





There
      was
      no engineering and development expense for the year ended December 31, 2004.
      In
      2003, engineering and development expense was $4,205. During the years ended
      December 31, 2004 and 2003, we had no full-time employees performing engineering
      or development activities.





Other
      operating expenses including selling and marketing and general and
      administrative expenses decreased approximately 59% or $610,290 to $426,623
      in
      2004 from $1,036,913 in 2003. The significant decrease in other operating
      expenses is primarily attributable to the reductions in our selling and
      marketing and general and administrative personnel. In addition, we continued
      our aggressive cost savings plan that began in the third quarter of 2000. We
      no
      longer maintain a selling and marketing team. These activities have been
      outsourced to Built Right Networks as part of our September 30, 2002 Outsourced
      Services Agreement. Future selling and marketing expenses will consist primarily
      of sales commissions and various marketing programs intended to complement
      our
      sales channel. Our general and administrative costs necessary to operate our
      business. These costs typically include salaries and related personnel costs,
      facility rent, commercial insurance, accounting and legal expenses and other
      costs typical of a publicly held corporation.





Stock-based
      compensation expense decreased $31,075 to $1,032 in 2004 compared to $32,107
      in
      2003. The decrease is due to the significant decrease in the number of
      outstanding options to purchase our common stock as a result of stock option
      cancellations and their related effect on stock-based compensation. Terminated
      employees are given ninety days from the date of their termination to exercise
      their vested stock options. No employees exercised their stock options in 2003.
      See Note 8 to the consolidated financial statements.





18


Our
      loss
      from operations decreased approximately 65% or $699,659 to $374,066 in 2004
      from
      $1,073,725 in 2003 as a result of the above factors.





Interest
      income decreased $35,814 to $81,967 in 2004 compared to $117,781 in 2003.





**FINANCIAL
      CONDITION, LIQUIDITY AND CAPITAL RESOURCES**





We
      were
      formed in June 1995 and, since our formation, have raised approximately
      $74,250,000 in financing from private placements of debt and equity securities.
      In addition to the financing we received through the sale of our securities,
      we
      have, at times, depended upon loans from stockholders and directors and credit
      from suppliers to meet interim financing needs. Borrowings from stockholders
      and
      directors have generally been refinanced with new debt instruments or converted
      into additional equity. At December 31, 2005, approximately $844,879 in
      additional financing was provided through accounts payable, accrued expenses
      and
      other trade credit, a significant portion of which is past due.




At
      December 31, 2005, we had a cash balance of approximately $481,000 and a working
      capital deficit of approximately $343,272. Excluding our Nashua, NH facility
      lease which expired in November 2004, we do not have any commercial commitments
      or off balance sheet financing. Our commitments under our operating leases
      are
      described in Note 10 to our consolidated financial statements.





At
      December 31, 2005, two corporate notes receivable totaling approximately $3,000
      were due from Unicrown Partners LLC, a privately held company in which Selig
      Zises and Jay Zises are members. Selig Zises and Jay Zises are stockholders
      of
      MangoSoft, Inc. Selig Zises was the former co-chairman of our Board of
      Directors. Investments in high-yield securities pose higher risks than
      investments in lower-yield securities, including the risk of total
      loss.





We
      did
      not make any capital expenditures during the fiscal year 2005.





We
      have
      significantly modified our operations and reduced our work force on four
      separate occasions since April 2001. We currently have one (1) employee, working
      in a general and administrative capacity. We outsource the management of our
      billable services infrastructure, software code base, customer support and
      reseller channel management to Built Right Networks for approximately $21,000
      per month, under a September 30, 2002 agreement, which can be cancelled with
      a
      ninety (90) day notice.





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





As
      shown
      in the audited consolidated financial statements, during the years ended
      December 31, 2005, 2004 and 2003, we incurred net losses of $347,088, $297,124
      and $926,644, respectively. Cash used in operations during the years ended
      December 31, 2005, 2004 and 2003 was $320,340, $306,806 and $479,420,
      respectively. The factors, among others, raise significant doubt about our
      ability to continue as a going concern. Our continuation as a going concern
      is
      dependent upon our ability to generate sufficient cash flow and meet our
      obligations on a timely basis and ultimately attain profitability.





19




**OFF-BALANCE
      SHEET ARRANGEMENTS**





Excluding
      our Nashua, NH facility lease which expired in November 2004, we do not have
      any
      commercial commitments or off balance sheet financing. Our commitments under
      our
      operating leases are described in Note 10 to our consolidated financial
      statements.





**RECENTLY
      ISSUED ACCOUNTING STANDARDS**





On
      December 16, 2004, the Financial Accounting Standards Board issued SFAS
      123(R), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123 (SFAS 123R). SFAS 123R supersedes APB 25 ** and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Generally, the approach in SFAS 123R is similar to the approach described in
      SFAS 123, detailed below. However, SFAS 123R requires all share-based payments
      to employees, including grants of employee stock options, to be recognized
      in
      the statement of operations based on their fair values at the date of grant.
      Pro
      forma disclosure is no longer an alternative. SFAS 123R is effective for public
      entities that file as small business issuers as of the beginning or the first
      interim or annual reporting period that begins after December 15, 2005. Early
      adoption is permitted in periods in which financial statements have not yet
      been
      issued. We expect to adopt SFAS 123R on January 1, 2006, the commencement
      of our first quarter of fiscal 2006.




The
      Company will apply SFAS 123R using the “modified prospective” method. Under this
      transition method, compensation cost is recognized on or after the required
      effective date for the portion of outstanding awards for which the requisite
      service has not yet been rendered, based on the grant-date fair value of those
      awards calculated under SFAS 123 for either recognition or pro forma
      disclosures.





In
      May 2005, the Financial Accounting Standards Board issued SFAS No. 154, *Reporting
      Accounting Changes in Interim Financial Statements* (“SFAS
      154”) *,* which
      replaces APB Opinion No. 20, *Accounting
      Changes,* and
      SFAS
      No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* ,
      and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. SFAS 154 applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. When a pronouncement includes specific transition provisions, those
      provisions should be followed. SFAS 154 will be effective for the Company
      beginning January 1, 2006 and is not expected to have a material impact on
      the Company’s financial position or results of operations.





**ITEM
      7. FINANCIAL STATEMENTS**





Our
      consolidated financial statements and related notes, which are attached to
      this
      Annual Report on Form 10-KSB beginning on page 29, are incorporated by
      reference.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.





20




**ITEM
      8A. CONTROLS AND PROCEDURES**





We
      have
      significantly reduced our work force on several occasions during 2001 and 2002.
      At December 31, 2005 and 2004, we had one (1) and two (2) employees,
      respectively, including Mr. Dale Vincent, our President, Chief Executive Officer
      and sole director. A complete set of internal controls including segregation
      of
      duties is not possible in an organization of this size. However, we have
      implemented control procedures surrounding the maintenance of our accounting
      and
      financial systems and the safeguarding of our assets. Further, all transactions
      entered into outside the normal course of our day-to-day operations must be
      approved by Mr. Vincent.





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





There
      was
      no change in our internal control over financial reporting (as defined in
      Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during
      the year ended December 31, 2005 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.





**ITEM
      8B. OTHER INFORMATION**





None.




21




**PART
      III**




**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**





Dale Vincent,
        age 59, is our President, Chief Executive Officer and sole director. Mr.
        Vincent
        provides his services on a full-time basis. Mr. Vincent was appointed President,
        Chief Executive Officer and elected a Director in September 1999. Previously,
        he
        served as the Chief Executive Officer of MangoSoft Corporation since May
        1999,
        as its Chief Financial Officer from September 1998 to May 1999, and as a
        Director of MangoSoft Corporation since July 1995. Mr. Vincent has over 25
        years
        of senior financial and business management experience, with the last 16
        years
        developing and funding companies in the software industry. Since April 1990,
        Mr.
        Vincent has served as a Managing Director of ACAP, a private investment company,
        the general partner of Associated Capital L.P., a private investment company,
        and consults with Associated Capital L.P with respect to its investment and
        marketing activities. He has also served as a Director of MaMaMedia, Inc.
        since
        1996.




**Section
      16 (a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Exchange Act and the rules thereunder require our directors and
      officers and persons who own more than 10% of our outstanding common stock
      to
      file reports of ownership and changes in ownership with the Securities and
      Exchange Commission (the “Commission”). Our personnel generally prepare these
      reports on the basis of information obtained from each director and officer,
      and
      greater than 10% stockholders are required by the Commission to furnish the
      Company with copies of all reports filed. To the best of our knowledge, all
      reports required by Section 16(a) of the Exchange Act to be filed by our
      directors, officers and 10% or greater stockholders during our fiscal year
      ended
      December 31, 2005 were filed on time with one exception.





**Audit
      Committee**




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





**Code
      of Ethics**




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





22




**ITEM
      10. EXECUTIVE COMPENSATION**





The
      following table sets forth information concerning the total compensation we
      paid
      to our chief executive officer in 2005, 2004 and 2003 (the “Named Executive
      Officer”).





**Summary
      Compensation Table**




**Annual
                    Compensation**
                
                **Long
                    Term Compensation****Awards**
                
                **Payout****Name
                    and Principal Position**
                
                **Year**
                
                **Salary**
                
                **Bonus**
                
                **Other
                    Annual Compensation**
                
                **Restricted
                    Stock Awards**
                
                **Securities
                    Under Options/SARS**
                
                **LTIP
                    Payouts**
                
                **All
                    Other Comp.**Dale
                    Vincent
                
                
                2005
                
                $
                208,667
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -President
                    and Chief
                
                
                2004
                
                
                204,046
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Executive
                    Officer
                
                
                2003
                
                
                202,500
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
 **Options**





The
      following tables sets forth information concerning the number and value of
      unexercised options held by him at December 31, 2005. The value of the
      unexercised in-the-money options is based on the average bid and ask price
      of
      our common stock on the OTCBB on December 31, 2005 ($4.06).




**Fiscal
      Year-End Option / SAR Values**





**No.
                  of Securities Underlying Unexercised Options**
              
              **Value
                  of Unexercised**
                **In-The-Money
                  Options****Name**
              
              **Shares
                  Acquired on Exercise**
              
              **Value
                  Realized**
              
              **Exercisable**
              
              **Unexercisable**
              
              **Exercisable**
              
              **Unexercisable**Dale
                  Vincent
              
              
              -
              
              
              -
              
              
              75,000
              
              
              -
              
              $
              113,342
              
              $
              -





**Compensation
      of Directors**





There
      were no outside directors in 2005. Accordingly, with the exception of the
      compensation we paid to Mr. Vincent for his services as our president and chief
      executive officer, no other compensation was paid to any director in
      2005.





**Employment
      Contracts**





None.





**Report
      on Repricing of Options/SARs**





On
      July
      24, 2003, the Company amended its outstanding and vested stock options granted
      to its Chief Executive Officer. Vested and outstanding options to purchase
      22,222 and 14,815 shares of the Company’s common stock at $27.81 and $33.75 per
      share, respectively, were cancelled. The Company granted its Chief Executive
      Officer options to purchase 37,037 shares of its common stock at an exercise
      price of $1.00 per share. The newly granted options are completely vested.
      The
      Company recognized $29,253 in stock-based compensation expense relating to
      this
      re-pricing in 2003.





23





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      following table sets forth certain information as of March 1, 2006 with respect
      to beneficial ownership of our common stock by (i) each person we know to own
      beneficially more than 5% of our outstanding common stock; (ii) each director
      and named executive officer; and (iii) all directors and named executive
      officers as a group. The percentages in the last column are based on 1,013,038
      shares of common stock outstanding on March 1, 2005. In each case, except as
      otherwise indicated in the footnotes to the table, the shares shown in the
      second column are owned directly by the individual or members of the group
      named
      in the first column and such individual or group members have sole voting and
      dispositive power with respect to the shares shown. For the purposes of this
      table, beneficial ownership is determined in accordance with the federal
      securities laws and regulations; inclusion in the table of shares not owned
      directly by the named director or executive officer does not constitute an
      admission that such shares are beneficially owned by the director or officer
      for
      any other purpose.







**Beneficial
                owners:**
            
            **Number
                of Shares of****Common
                Stock Owned**
            
            **Percent
                of Outstanding****Common
                Stock Owned**Selig
                Zises (2)(4)
            
            
            119,859
            
            
            11.8
            %988
                Fifth Avenue, 9thFloor
              New
                York, NY 10021Jay
                Zises (1)(4)
            
            
            117,851
            
            
            11.6767
                3rdAvenue, 16thFloor
              New
                York, NY 10017Directors
                and officers:Dale
                Vincent (3)
            
            
            76,116
            
            
            7.0All
                Directors and officers as a group
            
            
            **76,116**
            
            
            **7.0**
            **%**





(1)
            Total
                shares of common stock beneficially owned by Jay Zises, the brother
                of the
                former co-chairman of our Board of Directors Selig Zises, include
                the
                following: 2,481 shares owned by Jay Zises; 104,530 shares owned
                by
                Delaware Guarantee & Trust TTEE FBO Jay Zises IRA (a self-directed
                IRA); 701 shares owned by Nancy Zises as custodian for Meryl Shane
                Zises;
                and 139 shares owned by Jay Zises as custodian for Justin Zises.
                Nancy
                Zises is the wife of Jay Zises. Other than the Zises family relationships
                referenced in this table and the related footnotes, there are no
                affiliations between Jay Zises and any other persons or entities
                identified in such table or footnotes.





(2)
            Total
                shares of common stock beneficially owned by the former co-chairman
                of our
                Board of Directors Selig Zises include the following: 103,114 shares
                owned
                by Selig Zises; 4,196 shares owned by Guarantee & Trust Co. TEE FBO
                Selig Zises R-IRA DTD 5-20-96 (a self-directed IRA); and 2,549 shares
                owned by his daughter Lynn Zises. Selig Zises is the brother of Jay
                Zises,
                both of whom are principal stockholders of the MangoSoft. Other than
                the
                Zises family relationships references in this table and the related
                footnotes, there are no affiliations between Selig Zises and any
                other
                persons or entities identified in such table or footnotes.





(3)
            Includes
                75,000 shares of common stock Mr. Vincent has the right to acquire
                through
                the exercise of stock options. Mr. Vincent’s address is c/o MangoSoft,
                Inc., 12 Technology Way, Nashua, NH
                01062.





(4)
            Jay
                Zises and Selig Zises own 10,000 shares each of the Series B Convertible
                Preferred Stock issued on July 23, 2003. Each share of Preferred
                stock is
                convertible into one share of common stock at the option of the holder.
                In
                addition to its convertible features, the holders of the Preferred
                Stock
                are entitled to twenty-five votes per share of Preferred Stock on
                any
                matter brought to the vote of
                shareholders.




24




Securities
      Authorized for Issuance Under Equity Compensation Plans





See
      information provided under the Section titled “ **Securities
      Authorized for Issuance Under Equity Compensation Plans” under Part II, Item 5
      above.**





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




**(A)
      TR** **ANSACTIONS
      WITH DIRECTORS AND OFFICERS**


****


At
      December 31, 2005, two corporate notes receivable totaling approximately $3,000
      were due from Unicrown Partners LLC, a privately held company in which Selig
      Zises and Jay Zises are members. Selig Zises and Jay Zises are stockholders
      of
      MangoSoft, Inc. Selig Zises was the former co-chairman of our Board of
      Directors. Investments in high-yield securities pose higher risks than
      investments in lower-yield securities, including the risk of total
      loss.





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





25





**ITEM
      13. EXHIBITS AND REPORTS ON FORM 8-K**




**(a)
          Exhibits:**
  **Exhibit
                    Number**
                
                **Description
                    of Exhibit**2.1
                
                Agreement
                    and Plan of Merger by and among First American Clock Co., MangoSoft
                    Corporation and MangoMerger Corp., dated as of August 27,1999.
                    (1)3.1
                
                Articles
                    of Incorporation, as amended. (2)3.2
                
                By-laws.
                    (2)4.1
                
                Rights
                    Plan. (6)10
                
                Lease
                    of Westborough Office Park, Building Five, dated November 10,
                    1995.
                    (3)14
                
                Code
                    of Ethics. (7)21
                
                Subsidiary
                    of the Registrant. (2)31.1
                
                Certification
                    of Principal Executive Officer required by Rule 13a 14(a) or
                    Rule
                    15-d14(a) of the Securities Exchange Act of 1934, as adopted
                    pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                
                Certification
                    of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.99.1
                
                1999
                    Incentive Compensation Plan, as amended and restated on May 1,
                    2000.
                    (1)99.2
                
                Form
                    of Subscription Agreement for purchase of common stock, dated
                    as of March
                    20, 2000. (1)99.3
                
                Form
                    of Warrant Agreement. (1)99.4
                
                Asset
                    Purchase Agreement, dated February 11, 2002, between MangoSoft,
                    Inc. and
                    Fleet National Bank. (4)99.5
                
                Warrant
                    Agreement, dated February 11, 2002, between MangoSoft, Inc. and
                    Fleet
                    National Bank. (4)99.6
                
                Information
                    Management Services Agreement, dated September
                  30,
                    2002, between MangoSoft, Inc. and Built Right Networks LLC.
                    (5)99.7
                
                Rights
                    Agreement, dated March 14, 2003 and amended on July 25, 2003,
                    between
                    MangoSoft, Inc. and Interwest Transfer Co., Inc.
                    (6)


(1)
            Filed
                as an exhibit to our Current Report on Form 8-K for an event dated
                September 7, 1999 and hereby incorporated by reference
                thereto.


(2)
            Filed
                as an exhibit to our Registration Statement on Form 10-SB, filed
                June 9,
                2000, and hereby incorporated by reference
                thereto.


(3)
            Filed
                as an exhibit to our Quarterly Report filed November 9, 1999 for
                the
                quarter ended September 30, 1999 and hereby incorporated by reference
                thereto.


(4)
            Filed
                as an exhibit to our Quarterly Report filed August 14, 2002 for the
                quarter ended June 30, 2002 and hereby incorporated by reference
                thereto.


(5)
            Filed
                as an exhibit to our Current Report on Form 8-K for an event dated
                September 30, 2002 and hereby incorporated by reference
                thereto.


(6)
            Filed
                as an exhibit to our Current Report on Form 8-K for an event dated
                March
                21, 2003, as amended on July 25, 2003, and hereby incorporated by
                reference thereto.


(7)
            Filed
                as an exhibit to our Annual Report filed on March 26, 2004 for the
                years
                ended December 31, 2003 and hereby incorporated by reference
                thereto.





**(b)** **Reports
      on Form 8-K:**





There
      were no notifications filed on Form 8-K during the year ended December 31,
      2005.





26




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





On
      September 26, 2002, we engaged Stowe & Degon as our new independent
      accountants. Prior to the appointment of Stowe & Degon, Deloitte &
Touche LLP were our independent accountants.





***Audit
      Fees***





Fees
      billed by Stowe & Degon for the audit of our annual financial statements for
      the fiscal years ended December 31, 2005, 2004 and 2003 and the review of our
      quarterly financial statements included in our quarterly reports on Form 10-QSB
      were approximately $35,000, $32,000 and $35,000, respectively.





***Audit-Related
      Fees***





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








***Audit
      Committee Pre-Approval***





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





27




**SIGNATURES**





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






**MANGOSOFT,
                  INC.**March
                30, 2006
              By:
              /s/ Dale
                VincentDale
                VincentPresident,
                  Chief Executive Officer and
                Chairman
                  of the Board of Directors
                (Principal
                  Financial and Accounting
                  Officer)


28




**MANGOSOFT,
      INC. AND SUBSIDIARY**





**INDEX
      TO FINANCIAL STATEMENTS**




PageReport
                    of Independent Registered Public Accounting Firm
              30Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              31Consolidated
                  Statements of Operations For The Years Ended December 31, 2005,
                  2004, and
                  2003
              32Consolidated
                  Statements of Stockholders’ Equity For The Years Ended December 31, 2005,
                  2004 and 2003
              33Consolidated
                  Statements of Cash Flows For The Years Ended December 31, 2005,
                  2004 and
                  2003
              34Notes
                  to Consolidated Financial Statements
              35
 29
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





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





We
      have
      audited the accompanying consolidated balance sheets of MangoSoft, Inc. and
      subsidiary (the “Company”) as of December 31, 2005, 2004 and 2003, and the
      related consolidated statements of operations, stockholders’ equity, and cash
      flows for the three years ended December 31, 2005. These financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements based on our audits.





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





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the consolidated financial position of MangoSoft, Inc. and subsidiary
      as of December 31, 2005, 2004 and 2003, and the results of their operations
      and
      their cash flows for the three years ended December 31, 2005, in conformity
      with
      accounting principles generally accepted in the United States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Note 1, the Company’s
      recurring losses from operations and its dependency on financing raise
      substantial doubt about its ability to continue as a going concern. Management’s
      plans concerning these matters are also discussed in Note 1. The consolidated
      financial statements do not include any adjustments that might result from
      the
      outcome of these uncertainties.






/s/
        Stowe
& Degon
 
 Worcester,
        MA
 March
        29,
        2006





30





**MANGOSOFT,
      INC. AND SUBSIDIARY**





**CONSOLIDATED
      BALANCE SHEETS**





**December
                31,****2005**
            
            **2004****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            480,662
            
            $
            458,032Short-term
                investments
            
            
            3,538
            
            
            346,508Accounts
                receivable
            
            
            17,407
            
            
            12,512Total
                current assets
            
            $
            501,607
            
            $
            817,052**LIABILITIES
                AND STOCKHOLDERS’ EQUITY **(DEFICIT)****Current
                Liabilities:Accounts
                payable
            
            $
            736,037
            
            $
            731,850Accrued
                compensation
            
            
            7,788
            
            
            10,073Other
                accrued expenses and current liabilities
            
            
            101,054
            
            
            51,274Deferred
                revenue
            
            
            -
            
            
            20,467Total
                current liabilities
            
            
            844,879
            
            
            813,664Commitments
                and Contingencies (Note 10)Stockholders’
                Equity (Deficit):Preferred
                stock - $0.001 par value; authorized, 5,000,000shares;
                issued and outstanding, 20,000
            
            
            20
            
            
            20Common
                stock - $0.001 par value, authorized, 3,703,704 shares; issued and
                oustanding 1,013,038
            
            
            1,013
            
            
            1,013Additional
                paid-in-capital
            
            
            88,725,694
            
            
            88,725,694Deferred
                compensation
            
            
            -
            
            
            (428
            )Accumulated
                deficit
            
            
            (89,069,999
            )
            
            (88,722,911
            )Total
                stockholders’ equity (deficit)
            
            
            (343,272
            )
            
            3,388Total
            
            $
            501,607
            
            $
            817,052





See
      notes
      to the consolidated financial statements.




31




**MANGOSOFT,
      INC. AND SUBSIDIARY**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Service
                revenues
            
            $
            336,524
            
            $
            466,225
            
            $
            466,729Software
                license revenues
            
            
            -
            
            
            -
            
            
            37,427Total
                revenues
            
            
            336,524
            
            
            466,225
            
            
            504,156Costs
                and expenses:Cost
                of services (1)
            
            
            268,082
            
            
            390,676
            
            
            504,656Engineering
                and development (1)
            
            
            -
            
            
            -
            
            
            4,205Selling
                and marketing (1)
            
            
            -
            
            
            -
            
            
            6,119General
                and administrative (1)
            
            
            432,403
            
            
            426,673
            
            
            1,030,794Loss
                on the disposal of equipment
            
            
            -
            
            
            21,910
            
            
            -Stock-based
                compensation expense
            
            
            428
            
            
            1,032
            
            
            32,107Loss
                from operations
            
            
            (364,389
            )
            
            (374,066
            )
            
            (1,073,725
            )Interest
                income
            
            
            17,504
            
            
            81,967
            
            
            117,781Other
                (expense) income
            
            
            (203
            )
            
            (5,025
            )
            
            29,300Net
                loss
            
            $
            (347,088
            )
            $
            (297,124
            )
            $
            (926,644
            )Net
                loss per share - basic and diluted
            
            $
            (0.34
            )
            $
            (0.29
            )
            $
            (0.91
            )Weighted
                average shares outstanding - basic and diluted
            
            
            1,013,038
            
            
            1,013,038
            
            
            1,013,038(1)  
                Excludes stock-based compensation expense as follows:Engineering
                  and development
            
            $
            -
            
            $
            -
            
            $
            1,798General
                  and administrative
            
            
            428
            
            
            1,032
            
            
            30,309$
            428
            
            $
            1,032
            
            $
            32,107








See
      notes
      to the consolidated financial statements.




32


**MANGOSOFT,
        INC. AND SUBSIDIARY**
  **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 
 **Convertible
                    Preferred Stock**
                
                **Common
                    Stock**
                
                **Additional****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Paid-in
                    Capital**
                
                **Deferred**Compensation
                
                **Accumulated**Deficit
                
                **Total**Balance,
                    January 1, 2003
                
                
                --
                
                $
                --
                
                $
                1,013,038
                
                $
                1,013
                
                $
                88,660,123
                
                $
                (17,976
                )
                $
                (87,499,143
                )
                $
                1,144,017Issuance
                    of convertible preferred stock, Series B
                
                
                20,000
                
                
                20
                
                
                --
                
                
                
                
                
                49,980
                
                
                
                
                
                
                
                
                50,000Stock-based
                    compensation
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                15,591
                
                
                16,516
                
                
                --
                
                
                32,107Net
                    loss
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                (926,644
                )
                
                (926,644
                )Balance,
                    December 31, 2003
                
                
                20,000
                
                
                20
                
                
                1,013,038
                
                
                1,013
                
                
                88,725,694
                
                
                (1,460
                )
                
                (88,425,787
                )
                
                299,480Stock-based
                    compensation
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Stock
                    options exercised
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                1,032
                
                
                --
                
                
                1,032Net
                    loss
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                (297,124
                )
                
                (297,124
                )Balance,
                    December 31, 2004
                
                
                20,000
                
                
                20
                
                
                1,013,038
                
                
                1,013
                
                
                88,725,694
                
                
                (428
                )
                
                (88,722,911
                )
                
                3,388Stock-based
                    compensation
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Stock
                    options exercised
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                428
                
                
                
                
                
                428Net
                    loss
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                (347,088
                )
                
                (347,088
                )Balance,
                    December 31, 200520,000
                
                $
                20
                
                $
                1,013,038
                
                $
                1,013
                
                $
                88,725,694
                
                $
                --
                
                $
                (89,069,999
                )
                $
                (343,272
                )
 
  See
        notes
        to the consolidated financial statements.


33




**MANGOSOFT,
      INC. AND SUBSIDIARY**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (347,088
            )
            $
            (297,124
            )
            $
            (926,644
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation,
                amortization and equipment write-down
            
            
            -
            
            
            147,132
            
            
            301,309Loss
                on the disposal of equipment
            
            
            -
            
            
            21,910
            
            
            -Intangible
                assets impairment loss
            
            
            -
            
            
            29,916
            
            
            -Stock-based
                compensation
            
            
            428
            
            
            1,032
            
            
            32,107Increase
                (decrease) in cash from the change in:Accounts
                receivable
            
            
            (4,895
            )
            
            14,769
            
            
            (7,055
            )Prepaid
                expenses and other current assets
            
            
            -
            
            
            1,625
            
            
            97,035Accounts
                payable
            
            
            4,187
            
            
            60,467
            
            
            (35,740
            )Accrued
                compensation
            
            
            (2,285
            )
            
            (2,319
            )
            
            (10,750
            )Other
                accrued expenses and current liabilities
            
            
            49,780
            
            
            (284,705
            )
            
            115,659Deferred
                revenue
            
            
            (20,467
            )
            
            491
            
            
            (45,341
            )Net
                cash used in operating activities
            
            
            (320,340
            )
            
            (306,806
            )
            
            (479,420
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Cash
                paid for short and long-term investments
            
            
            -
            
            
            -
            
            
            (414,112
            )Investment
                maturities
            
            
            321,446
            
            
            462.264
            
            
            743,396Interest
                receivable
            
            
            21,524
            
            
            (20,786
            )
            
            (1,873
            )Other
                assets
            
            
            -
            
            
            5,916
            
            
            (5,916
            )Net
                cash provided by investing activities
            
            
            342,970
            
            
            447,394
            
            
            321,495CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from the issuance of preferred shares
            
            
            -
            
            
            -
            
            
            50,000Net
                cash provided by financing activities
            
            
            -
            
            
            -
            
            
            50,000NET
                INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS
            
            
            22,630
            
            
            140,588
            
            
            (107,925
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OFYEAR
            
            
            458,032
            
            
            317,444
            
            
            425,369CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            $
            480,662
            
            $
            458,032
            
            $
            317,444









See
      notes
      to the consolidated financial statements.




34




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.
      Nature of Business and Operations**





***The
      Company***




MangoSoft,
      Inc. and subsidiary (the "Company") markets, sells and supports Internet
      business software and services that improve the utility and effectiveness of
      Internet-based business applications. The Company’s software solutions address
      the networking needs of small businesses, workgroups and large enterprises.
      The
      Company is engaged in a single operating segment of the computer software
      industry.




As
      shown
      in the consolidated financial statements, during each of the three years in
      the
      period ended December 31, 2005, the Company incurred net loss of $(347,088),
      $(297,124) and $(926,644), respectively. Cash used in operations during each
      of
      the three years in the period ended December 31, 2005 was $320,340 $306,806
      and
      $479,420, respectively. These factors, among others, raise significant doubt
      about the Company's ability to continue as a going concern. The consolidated
      financial statements do not include any adjustments relating to the
      recoverability and classification of assets or the amounts and classification
      of
      liabilities that might be necessary should the Company be unable to continue
      as
      a going concern. The Company's continuation as a going concern is dependent
      upon  its
      ability to generate  sufficient
      cash flow and meet its obligations on a timely basis and ultimately attain
      profitability.




The
      Company has reduced its work force on four separate occasions since April 23,
      2001 due to adverse economic conditions and the Company’s need to conserve
      capital. At December 31, 2005 and 2004, the Company had one (1) and two (2)
      employees, respectively, working in a general and administrative
      capacity.





35




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**2.
      Summary of Significant Accounting Policies**




*Principles
      of Consolidation* - The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiary after the elimination of all significant intercompany
      balances.





*Use
      of Estimates* - The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the balance
      sheet dates. Actual results could differ from those estimates.





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





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





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




*Intangible
      Assets -* Intangible
      assets consist of acquired technology, customer relationships and service marks
      (see Note 3). Amortization expense for the year ended December 31, 2004 was
      approximately $110,000, which amortized this asset in full. The Company
      evaluates the carrying value of its intangible assets using anticipated cash
      flows to be generated by these assets over their useful lives. The Company
      assesses the carrying value of its intangible assets for impairment each year.
      As a result they have been written off at December 31, 2004. Based on its
      assessments, the Company incurred impairment charges for the year ended December
      31, 2004 of $29,917.





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





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





36





**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**2.
      Summary of Significant Accounting Policies (continued)**





*Stock-Based
      Compensation* - The
      Company accounts for stock-based employee compensation arrangements using the
      intrinsic value method in accordance with Accounting Principles Board Opinion
      (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and complies with
      the disclosure provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.”




Equity
      instruments issued to non-employees are accounted for in accordance with the
      provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Abstract No.
      96-18, “Accounting for Equity Instruments That Are Issued To Other Than
      Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services.”




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




The
      following table provides the reported and pro forma net loss and loss per share
      amounts had compensation expense for the Company’s stock-based compensation
      plans been determined based on the fair market value on the grant dates for
      awards under those plans consistent with the method of SFAS 123 :





**2005**
            
            **2004**
            
            **2003**Net
                loss applicable to common stockholders, as reported
            
            $
            (347,088
            )
            $
            (297,124
            )
            $
            (926,644
            )Add
                back: stock-based compensation costs includedin
                the determination of net loss applicable to commonshareholders,
                as reported
            
            
            428
            
            
            1,032
            
            
            32,107Less:
                Stock-based compensation had all optionsbeen
                recorded at fair value
            
            
            (428
            )
            
            (157,111
            )
            
            (127,826
            )Adjusted
                net loss
            
            $
            (347,088
            )
            $
            (453,203
            )
            $
            (1,022,363
            )Weighted
                average shares outstanding, basic and diluted
            
            
            1,013,038
            
            
            1,013,038
            
            
            1,013,038Net
                loss per share, basic and diluted, as reported
            
            $
            (0.34
            )
            $
            (0.29
            )
            $
            (0.91
            )Adjusted
                net loss per share, basic and diluted
            
            $
            (0.34
            )
            $
            (0.45
            )
            $
            (1.01
            )





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




37




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**2.
      Summary of Significant Accounting Policies (continued)**




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





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





Basic
      and
      diluted loss per common share are the same for 2005, 2004 and 2003 as
      potentially dilutive stock options totaling 75,000 in 2005, 117,652 in 2004
      and
      79,689 in 2003 have not been included in calculations of diluted net loss per
      common share available to common stockholders, as their inclusion would have
      been antidilutive. **





*Supplemental
      Cash Flow Information* - The
      following table sets forth certain supplemental cash flow information for the
      years ended December 31, 2005, 2004 and 2003:





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Cash
                paid for interest
            
            $
            -
            
            $
            -
            
            $
            -Cash
                paid for income taxes
            
            $
            -
            
            $
            -
            
            $
            -




38


**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**2.
      Summary of Significant Accounting Policies (continued)**




***Recently
      Issued Accounting Pronouncements***




On
      December 16, 2004, the Financial Accounting Standards Board issued SFAS
      123(R), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123 (SFAS 123R). SFAS 123R supersedes APB 25 ** and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Generally, the approach in SFAS 123R is similar to the approach described in
      SFAS 123, detailed below. However, SFAS 123R requires all share-based payments
      to employees, including grants of employee stock options, to be recognized
      in
      the statement of operations based on their fair values at the date of grant.
      Pro
      forma disclosure is no longer an alternative. SFAS 123R is effective for public
      entities that file as small business issuers as of the beginning or the first
      interim or annual reporting period that begins after December 15, 2005. Early
      adoption is permitted in periods in which financial statements have not yet
      been
      issued. We expect to adopt SFAS 123R on January 1, 2006, the commencement
      of our first quarter of fiscal 2006.




The
      Company will apply SFAS 123R using the “modified prospective” method. Under this
      transition method, compensation cost is recognized on or after the required
      effective date for the portion of outstanding awards for which the requisite
      service has not yet been rendered, based on the grant-date fair value of those
      awards calculated under SFAS 123 for either recognition or pro forma
      disclosures.





In
      May 2005, the Financial Accounting Standards Board issued SFAS No. 154, *Reporting
      Accounting Changes in Interim Financial Statements* (“SFAS
      154”) *,* which
      replaces APB Opinion No. 20, *Accounting
      Changes,* and
      SFAS
      No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* ,
      and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. SFAS 154 applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. When a pronouncement includes specific transition provisions, those
      provisions should be followed. SFAS 154 will be effective for the Company
      beginning January 1, 2006 and is not expected to have a material impact on
      the Company’s financial position or results of operations.





39





**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**3.
      Business Combination**





On
      February 11, 2002, the Company acquired the fileTRUST online data storage
      service and related assets from Bank of America (formerly FleetBoston) Financial
      Corporation (“Bank of America (formerly FleetBoston)”). Under the terms of the
      purchase, the Company paid $175,000 in cash, issued 12,963 shares (as restated
      for the 1-for-27 reverse stock split on March 7, 2003) of the Company’s common
      stock and warrants to purchase 5,556 shares (as restated for the 1-for-27
      reverse stock split on March 7, 2003) of the Company’s common stock at an
      exercise price of $14.31 per share (as restated for the 1-for-27 reverse stock
      split on March 7, 2003). The aggregate fair value of the common stock was
      $182,000, which was based on the closing price of the Company’s common stock on
      February 11, 2002. The aggregate fair value of the warrants was $70,000, which
      was determined using the Black-Scholes valuation model using the following
      assumptions: expected life of the warrants, 5 years; volatility, 127%; and
      the
      risk free interest rate, 4.25%.





As
      part
      of the transaction, Bank of America (formerly FleetBoston) and the Company
      entered into a two-year enterprise license agreement for the internal use of
      fileTRUST by Bank of America (formerly FleetBoston). In addition, the two
      companies will continue to market fileTRUST under a cooperative marketing
      agreement. Under the terms of this cooperative marketing agreement, the Company
      is required to issue warrants to purchase its common stock to Bank of America
      (formerly FleetBoston) based on certain revenue targets, not to exceed 31,481
      warrants over this two-year period. The 31,481 warrants have been accounted
      for
      as contingent consideration and will be recognized as additional purchase price
      as the revenue targets are achieved. No warrants were issued in 2005 or 2004
      under the terms of the cooperative marketing agreement.





The
      total
      aggregate consideration rendered for this transaction totaled approximately
      $427,000. The following presents the preliminary allocation of the purchase
      price:





Cash
                paid
            
            $
            175,000Fair
                value of common stock issued
            
            
            182,000Fair
                value of warrants issued
            
            
            70,000Purchase
                price
            
            $
            427,000Software
                and acquired technology
            
            $
            329,000Computer
                equipment
            
            
            54,000Other
                identifiable intangible assets
            
            
            44,000$
            427,000





The
      software and acquired technology represents the fileTRUST operating software
      that has reached technological feasibility and has future economic value. The
      other identifiable intangible assets are comprised of customer relationships
      and
      the fileTRUST service mark. The computer equipment was being depreciated over
      its estimated useful lives, generally not to exceed three years. The software
      and acquired technology was being amortized over three years. The computer
      equipment and software were transferred to Builtright Networks, Inc., the
      Company’s primary outsourced service provider in September 2004. The net book
      value of these assets was $21,911 on the date of transfer. No proceeds were
      realized by the Company as part of this transfer. This amount has been reported
      in the 2004 statement of operations as loss on disposal of equipment. The other
      identifiable intangible assets have indefinite lives and were not being
      amortized but were subject to an impairment analysis in accordance with SFAS
      No.
      142, “Goodwill and Other Intangible Assets.” These intangible assets were
      determined by management to be permanently impaired and were written off at
      December 31, 2004.





40






The
      operations of the fileTRUST assets prior to the acquisition were not material
      to
      the Company’s financial statements.






41





**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**4.
      Investments**




Investments
      in held-to-maturity debt securities are carried at amortized costs and are
      as
      follows at December 31, 2005 and 2004:




**2005**
              
              **Cost**
              
              **Interest
                  Receivable**
              
              **Total
                  Value**Corporate
                  notes, 12.0%, issued October 31, 2002, maturity date, April 15,
                  2005
              
              $
              1,529
              
              $
              723
              
              $
              2,252Corporate
                  notes, 12.0%, issued December 15, 2002, maturity date, April 15,
                  2005
              
              
              874
              
              
              412
              
              
              1,286Total
                  short-term held-to-maturity investments
              
              $
              2,403
              
              $
              1,135
              
              $
              3,538
  **2004**
                
                **Cost**
                
                **Interest
                    Receivable**
                
                **Total
                    Value**Corporate
                    notes, 12.0%, issued October 31, 2002, maturity date, April 15,
                    2005
                
                $
                142,139
                
                $
                702
                
                $
                142,841Corporate
                    notes, 12.0%, issued December 15, 2002, maturity date, April
                    15,
                    2005
                
                
                81,222
                
                
                400
                
                
                81,622Corporate
                    notes, 12%, issued at various dates in 2002, maurity dates vary
                    in 2004
                    (collected in2005)
                
                
                100,489
                
                
                21,556
                
                
                122,045Total
                    short-term held-to-maturity investments
                
                $
                323,850
                
                $
                22,658
                
                $
                346,508





The
      secured corporate notes have been executed between the Company and several
      privately-held companies, each of which are related parties (see Note 11).
      The
      notes are secured by certain collateral pursuant to each note agreement and
      certain guarantees by the respective corporations. The 12.0% corporate notes
      with varying maturity dates in 2004 are carried at cost due to the uncertainty
      of their interest payment. The principal on these notes is collateralized by
      the
      debtor’s receivables.




42




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**5.
      Property and Equipment**





During
      2004 the Company relocated its outsourced data centers and changed its billable
      service’s infrastructure configuration. Certain computer hardware, related
      equipment and leasehold improvements used to operate these services were no
      longer necessary and were disposed of. The loss of $21,910 was charged to
      operations during the year ended December 31, 2004.





**6.
      Income Taxes**





The
      Company has federal and state tax net operating loss carryforwards available
      for
      future periods of approximately $72,847,000. The federal tax net operating
      loss
      carryforwards expire beginning in 2010, and state tax net operating loss
      carryforwards began expiring in 2000. As a result of the changes in the
      ownership of the Company, there may be limitations on the amounts of net
      operating loss carryforwards that may be utilized in any one year. The Company
      also has research and development credits for federal and state tax purposes
      of
      approximately $1,548,000 and $1,118,000, respectively, which expire beginning
      in
      2011.





The
      tax
      effect of significant items comprising the Company’s deferred tax assets at
      December 31, 2005 and 2004 are as follows:





**2005**
            
            **2004**Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            29,100,000
            
            $
            28,854,000Stock-based
                compensation
            
            
            1,339,000
            
            
            1,339,000Research
                and development credits
            
            
            2,668,000
            
            
            2,664,00033,107,000
            
            
            32,857,000Valuation
                allowance
            
            
            (33,107,000
            )
            
            (32,857,000
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -




43





**MANGOSOFT,
      INC. AND SUBSIDIARY**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**6.
      Income Taxes (continued)**





The
      Company believes that uncertainty exists with respect to future realization
      of
      the deferred tax assets and has established a valuation allowance for the full
      amount as of December 31, 2005 and 2004.





A
      reconciliation between the amount of income tax determined by applying the
      applicable U.S. statutory tax rate to the pre-tax loss is as follows:





**2005**
            
            **2004**
            
            **2003**Federal
                statutory rate
            
            
            34
            %
            
            34
            %
            
            34
            %State
                tax, net of federal impact
            
            
            6
            
            
            6
            
            
            6Provision
                for valuation allowance on deferredtax
                assets
            
            
            (40
            )
            
            (40
            )
            
            (40
            )Effective
                tax rate
            
            
            --
            %
            
            --
            %
            
            --
            %





**7.
      Stockholders’ Equity**





*Preferred
      stock* - At
      December 31, 2005 and 2004 the Company had 5,000,000 authorized shares of
      preferred stock, $0.001 par value, of which 20,000 were issued and outstanding.
      On July 24, 2003, the Company issued 20,000 shares of Series B Convertible
      Preferred Stock (the “Preferred Stock”) to two significant shareholders for
      $50,000, one of which is the Company’s former co-chairman of the board. The
      Preferred Stock has no stated dividend rate. Each share of Preferred Stock
      is
      convertible into one share of common stock at the option of the holder. In
      addition to the convertible features of this private placement, the holders
      of
      the Preferred Stock are entitled to twenty-five votes per share of Preferred
      Stock on any matter brought to a vote of shareholders.





*Common
      Stock* - At
      December 31, 2005 and 2004 the Company had 3,703,704 authorized shares of common
      stock, $0.001 par value, of which 1,013,038 were issued and
      outstanding.





On
      March
      11, 2003, the Board of Directors of MangoSoft, Inc. declared a dividend
      distribution of one right (a “Right”) to purchase one-tenth of a share of common
      stock, $0.001 par value, of the Company for each share of common stock, payable
      to stockholders of record on March 18, 2003. The Board of Directors also
      authorized and directed the issuance of one Right with respect to each common
      share issued thereafter until the distribution date (as defined in the Rights
      Agreement) and, in certain circumstances, with respect to common shares issued
      after the distribution date. Except as set forth in the Rights Agreement, each
      Right, when it becomes exercisable, entitles the registered holder to purchase
      from the Company one-tenth of a common share at a price of $250 per whole common
      share, subject to adjustment, as amended. The description and terms of the
      Rights  are
      set
      forth in a Rights Agreement between the Company and Interwest Transfer Co.,
      Inc., as Rights Agent, dated as of March 14, 2003, as amended.





44





**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**8.
      Stock Option Plan**





In
      connection with the Merger, MangoSoft Corporation’s 1995 Stock Option Plan was
      terminated and the Company adopted the 1999 Incentive Compensation Plan (the
      “Plan”). As amended, the Plan provides for the issuance of up to 296,297 shares
      of common stock to employees, officers, directors and consultants in the form
      of
      nonqualified and incentive stock options, restricted stock grants or other
      stock-based awards, including stock appreciation rights. The stock options
      are
      exercisable as specified at the date of grant and expire no later than ten
      years
      from the date of grant. As of December 31, 2005, there were 179,652 remaining
      options available under the Plan.





As
      discussed in Note 2, the Company accounts for stock options granted to employees
      in accordance with APB No. 25. Options granted in 1999 included stock
      appreciation rights (“SARs”) that permit the employee to receive the
      appreciation in shares of common stock in lieu of exercising the option. At
      December 31, 2005, 2004 and 2003, there were, 14,815, 40,874 and 42,086
      outstanding options, respectively, to purchase the Company’s common stock that
      included SARs. Under APB No. 25, SARs are accounted for as variable
      awards.





On
      April
      3, 2001, the Company’s Board of Directors resolved to reprice options to
      purchase 95,710 shares of the Company’s common stock. The options were
      originally issued between October 1999 and December 2000 and had exercise prices
      ranging from $50.76 to $135.00 per share. The exercise price for these options
      was reduced to $27.81, the closing market value of the Company’s common stock as
      of the repricing date. The repriced options are now accounted for as variable
      awards, similar to the SARs. At December 31, 2005, 2004 and 2003, there were
      22,222, 26,222 and 27,627 outstanding options, respectively, to purchase the
      Company’s common stock that were repriced and subject to variable plan
      accounting.




Under
      APB
      No. 25, stock-based compensation expense pertaining to variable awards is
      measured at each reporting date based on the difference between the exercise
      price and the market price of the common stock. For unvested options,
      compensation expense is recognized over the vesting period; for vested options,
      compensation expense is adjusted up or down at each reporting date based on
      changes in the market price of the Company’s common stock.




On
      July
      24, 2003, the Company amended its outstanding and vested stock options granted
      to its Chief Executive Officer. Vested and outstanding options to purchase
      22,222 and 14,815 shares of the Company’s common stock at $27.81 and $33.75 per
      share, respectively, were cancelled. The Company granted its Chief Executive
      Officer options to purchase 37,037 shares of its common stock at an exercise
      price of $1.00 per share. The newly granted options are completely vested.
      The
      Company recognized $29,253 in stock-based compensation expense relating to
      this
      pricing in 2003.





In
      2000,
      the Company granted employees 94,930 options to purchase its common stock at
      prices less than the current market price of its common stock on the grant
      date.
      Stock-based compensation of $428, $1,032 and $2,854 is included in the Company’s
      2005, 2004 and 2003 results of operations in connection with these grants,
      respectively.




There
      were no such grants made in 2005, 2004 or 2003. The fair value of the stock
      options awarded to non-employees is calculated using the Black-Scholes
      option-pricing model.





45




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**8.
      Stock Option Plan (continued)**





Stock
      option activity, including options granted under the predecessor 1995 Stock
      Option Plan, was as follows:


**Number
                of Options**
            
            **Weighted****Exercise
                Price**
            
            **Average**
              **Fair
                Value**Outstanding
                at January 1, 2003
            
            
            83,232
            
            $
            35.64Granted
            
            
            37,037
            
            
            1.00
            
            $
            1.58Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (40,580
            )
            
            30.23Outstanding
                at December 31, 2003
            
            
            79,689
            
            
            22.31Granted
            
            
            37,963
            
            
            4.05
            
            $
            4.04Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (7,407
            )
            
            67.50Outstanding
                at December 31, 2004
            
            
            110,245
            
            
            12.99Granted
            
            
            -Exercised
            
            
            -
            
            
            -Forfeited
            
            
            35,245
            )
            
            35.22Outstanding
                at December 31, 2005
            
            
            75,000
            
            $
            1.73Exercisable
                at December 31, 2005
            
            
            75,000Exercisable
                at December 31, 2004
            
            
            110,245Exercisable
                at December 31, 2003
            
            
            75,910






**Options
                Outstanding**
            
            **Options
                Exercisable****Number
                of****Options**
            
            **Range
                of Exercise****Prices**
            
            **Weighted
                Average Remaining Life****(in
                years)**
            
            **Weighted
                Average****Exercise
                Price**
            
            **Number
                Currently****Exercisable**37,037
            
            $
            1.00
            
            
            5.5
            
            $
            1.00
            
            
            37,03737,963
            
            $
            4.05
            
            
            8.5
            
            $
            4.04
            
            
            37,96375,000
            
            
            
            
            
            
            
            
            
            
            
            75,000







46




**MANGOSOFT,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**8.
      Stock Option Plan (continued)**





The
      fair
      value of options on their grant date was measured using the Black-Scholes
      option-pricing model. Key assumptions used to apply this pricing model are
      as
      follows:





**2005**
            
            **2004**
            
            **2003**Risk-free
                interest rate
            
            
            N/A
            
            
            4.47
            %
            
            3.0
            %Expected
                life of option grants
            
            
            N/A
            
            
            10
                years
            
            
            2
                yearsExpected
                volatility of underlying stock
            
            
            N/A
            
            
            188
            %
            
            179
            %





**9.
      Retirement Savings Plan**





The
      Company adopted a savings plan for its employees pursuant to Section 401(k)
      of
      the Internal Revenue Code. All employees are eligible to participate and the
      plan allows a deferral ranging from a minimum 1% to the maximum percentage
      of
      compensation permitted by law. The Company may, at the discretion of the Board
      of Directors, make contributions on behalf of its employees under this plan.
      Such contributions, if any, become fully vested after five years of continuous
      service. The Company did not make any contribution in 2005, 2004 or
      2003.





**10.
      Commitments and Contingencies**





The
      Company has cancelled its operating lease for office space in November 2004.
      Total rent expense was approximately $0, $23,000 and $101,000 for the years
      ended December 31, 2005, 2004 and 2003, respectively.





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





**11.
      Related Party Transactions**





Investments
      - During 2003 the Company issued approximately $414,000 in several secured
      corporate notes receivable accruing interest at 12.0% to 15.0% per annum to
      companies who are beneficially owned by two stockholders. Approximately $321,000
      and $462,000 was repaid to the Company in 2005 and 2004 as some of the corporate
      notes matured. See Note 4.





Private
      Placement - In July 2003, the Company issued 20,000 shares of its Class B
      Convertible Preferred Stock to two related parties for $50,000. See Note
      7.





**12.
      Geographic Sales Information and Major Customers**





The
      Company generates the majority of its revenues from the sale of its products
      and
      services in North America. All of the Company’s 2005, 2004 and 2003 revenues
      were generated from sales to North American customers.




Two
      customers accounted for approximately 12% of 2005 net revenues. One customer
      accounted for approximately 35% of 2004 net revenues. Two customers accounted
      for approximately 52% of 2003 revenues.




47




**13.** **Subsequent
        Event**





On
      March
      14, 2006, the U,S., District Court in New Hampshire ruled in favor of Oracle’s
      motion for summary judgment that it did not infringe U.S. Patent No. 6,148,377
      held by Mangosoft, Inc. Mangosoft had sued Oracle in 2002, claiming infringement
      of its patent on shared memory technology as described in ITEM 3: LEGAL
      PROCEEDINGS.






48