**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, 2007**




**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 jurisdiction
            (IRS
                Employer Identification No.)of
                incorporation or organization)**29
                Riverside Street, Suite A, MS A-8****Nashua,
                NH**
            **03062**(Address
                of principal executive offices)
            (Zip
                code)


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


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


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


**Common
      Stock, $0.001 par value**





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





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





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





State
      issuer’s revenues for the most recent fiscal year: $250,813








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: $1,594,357. This amount reflects the average
      bid
      and ask price of the Company’s common stock on the OTCBB on March 25,
      2008.





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




**Common
                Stock**
            **5,443,157
                Shares**$0.001
                Par Value
            (Outstanding
                on March 25, 2008)




Transitional
      Small Business Disclosure Format (check one):




Yes: o No: x




2





**MANGOSOFT,
      INC.**





**INDEX
      TO FORM 10-KSB**




**Page****PART
                I**ITEM
                1—
            Description
                of Business
            4ITEM
                2—
            Description
                of Property
            10ITEM
                3—
            Legal
                Proceedings
            10ITEM
                4—
            Submission
                of Matters to a Vote of the Security Holders
            11**PART
                II**ITEM
                5—
            Market
                for Common Equity and Related Stockholder Matters
            12ITEM
                6—
            Management’s
                Discussion and Analysis of Financial Condition and Results
                ofOperations
            13ITEM
                7—
            Financial
                Statements
            17ITEM
                8—
            Changes
                in and Disagreements With Accountants on Accounting and
                FinancialDisclosure
            17ITEM
                8A—
            Controls
                and Procedures
            17ITEM
                8B—
            Other
                Information
            18**PART
                III**ITEM
                9—
            Directors
                and Executive Officers of the Registrant
            19ITEM
                10—
            Executive
                Compensation
            20ITEM
                11—
            Security
                Ownership of Certain Beneficial Owners and ManagementAnd
                Related Stockholder Matters
            23ITEM
                12—
            Certain
                Relationships and Related Transactions
            24ITEM
                13—
            Exhibits
                and Reports on Form 8-K
            25ITEM
                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” or
      the
“Company”) 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 were 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, the
        Company completed a private placement of 111,112 shares of common stock for net proceeds
        of approximately $3.1 millio n and issued
        11,112 shares of common stock to the placement agent in respect of such private
        placement. Because First American was a non-operating entity and the closing
        of
        such private placement was contingent upon the closing of the Merger, the
        Merger
        was accounted for as a capital transaction and treated as a reverse acquisition,
        so that MangoSoft Corporation was deemed to have acquired First American.
        Accordingly, unless otherwise specified, historical references to our operations
        are references to the operations of MangoSoft Corporation.





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





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





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




4


In
        February 2008, the Company received gross proceeds of approximately $1,023,672
        million through the issuance of common stock pursuant to a rights offering
        and
        as a consequence issued, commencing on or about February 27, 2008, approximately
        2,047,344 shares of its common stock to stockholders who properly exercised
        their rights in the rights offering. Pursuant to the rights offering, which
        concluded as of the close of business on February 19, 2008, stockholders
        of
        record at the close of business on December 21, 2007, received, at no charge,
        a
        0.7032 non-transferable right for each share of common stock owned by such
        stockholder on the record date. Each full right entitled the holder to purchase
        one share of the Company's common stock at a purchase price of $0.50 per
        share.
        The Company expects to use approximately $750,000 of the net proceeds from
        the
        rights offering in connection with pursuing various intellectual property
        litigations to enforce the Company’s patent portfolio. The Company anticipates
        using the balance of the net proceeds from the rights offering for working
        capital purposes, including obtaining directors’ and officers’
insurance.




**(B)
      BUSINESS OF MANGOSOFT**





**GENERAL**





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





**BUSINESS
      STRATEGY**





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





**COMPETITION**





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




**PRODUCTS**





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





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





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




5




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





·
            **Simultaneous,
                multi-user file access.**Mangomind is an Internet file-sharing system that allows multiple
                users in
                any location to simultaneously access and share files.·
            **Online
                workgroup collaboration.**Mangomind allows multiple users to collaborate online using Windows
                database applications commonly used in accounting, contact management,
                calendars, appointment scheduling and project management software
                packages.·
            **Robust,
                safe and secure.**Mangomind allows users to set access permissions for files and folders
                on
                a Mangomind drive. Data encryption (128-bit) at the client (user)
                level
                ensures that all files are securely transmitted and stored. Service
                level
                agreements ensure that a user’s files are available and
                protected.·
            **Business
                level security through encryption.**Access to shared files is restricted to clients authenticated by
                using
                public/private keys; each Mangomind user is authenticated using
                state-of-the-art private key encryption. Data is stored in encrypted
                form
                to prevent unauthorized access.·
            **File
                access permissions**.
                The Mangomind file system allows users to define access permissions
                for
                users or groups of users on individual drives, files and folders.
                Permission settings are easily specified using the same familiar
                Microsoft
                Windows procedures.·
            **Familiar
                Windows interface.**Mangomind looks and operates just like a local drive and is completely
                integrated with Windows. No user training is required; applications
                run as
                if on a local drive.·
            **Access
                anytime, even when offline.**When disconnected from the Internet, users can continue to work on
                their
                files offline because Mangomind caches the latest version of a file
                into a
                system’s local memory. Mangomind automatically synchronizes the files when
                the user reconnects to the
                Internet.




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




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




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 2007 and 2006 revenues were generated from sales
      to
      North American customers.




Two
      customers accounted for approximately 25% of our 2007 net revenues. No single
      customer accounted for 10% or more of our 2006 net revenues.





**INTELLECTUAL
      PROPERTY**





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




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





See
      Item
      3. Legal Proceedings, included in this annual report, for a complete description
      of legal proceedings related to our intellectual property.





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, 2007 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
      $89,733,481 as of December 31, 2007. For the years ended December 31, 2007
      and
      2006, our losses from operations, excluding the net effects of stock-based
      compensation, were $815,846, and $555,806, respectively. We have historically
      experienced cash flow difficulties primarily because our expenses have exceeded
      our revenues. We expect to incur additional operating losses. These factors,
      among others, raise significant doubt about our ability to continue as a going
      concern. If we are unable to generate sufficient revenue from our operations
      to
      pay expenses or we are unable to obtain additional financing on commercially
      reasonable terms, our business, financial condition and results of operations
      will be materially and adversely affected.




*We
      Will Need Additional Financing.*





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




8




*Our
      Success Depends on Our Outsourced Services Agreement.*





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





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




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





*We
      Depend on Strategic Marketing Relationships.*  **




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





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




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





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




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





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




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




9




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




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





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




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





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





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





**ITEM
      2. DESCRIPTION OF PROPERTY**





As
      of
      December 31, 2007 the Company does not own or lease any property.





**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.




10




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




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




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




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




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





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





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





No
      matters were submitted during the fourth quarter of the year ended December
      31,
      2007 to a vote of our security holders, through the solicitation of proxies
      or
      otherwise.





11




**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,. Such
      quotations reflect interdealer prices, without retail markup, markdown or
      commission, and may not represent actual transactions:


**2007**
              
              **High**
              
              **Low**First
                  Quarter
              
              $
              0.95
              
              $
              0.65Second
                  Quarter
              
              
              1.45
              
              
              0.68Third
                  Quarter
              
              
              1.15
              
              
              0.68Fourth
                  Quarter
              
              
              0.75
              
              
              0.57




**2006**
              
              
              **High**
              
              
              **Low**First
                  Quarter
              
              $
              7.70
              
              $
              0.60Second
                  Quarter
              
              
              1.01
              
              
              0.35Third
                  Quarter
              
              
              1.00
              
              
              0.47Fourth
                  Quarter
              
              
              1.76
              
              
              0.56




**(B)
      Holders**





As
      of
      December 31, 2007, 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 State 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.




12




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





The
      following sets forth information surrounding compensation plans in which we
      have
      authorized the future issuance of our common stock:





Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            75,000
            
            $
            1.73
            
            
            179,652





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





This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      safe
      harbor provisions of the Private Securities Litigation Reform Act of 1995.
      Any
      statements in this Annual Report that are not statements of historical facts
      are
      forward-looking statements, which involve risks and uncertainties. Without
      limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,”
and similar expressions are intended to identify forward-looking statements.
      Our
      actual results may differ materially from those indicated in the forward-looking
      statements as a result of the factors set forth elsewhere in this Annual Report
      on Form 10-KSB, including under “Risk Factors.” You should read the following
      discussion and analysis together with our condensed consolidated financial
      statements for the periods specified and the related notes included herein.
      Further reference should be made to our Annual Report on Form 10-KSB for the
      period ended December 31, 2007 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. fileTRUST SM users
        can access their stored files from any Internet-connected system. The fileTRUST SM service
        compliments our Mangomind SM service
        by providing customers with a lower cost online storage system. In conjunction
        with our purchase of fileTRUST SM ,
        we
        executed a two-year enterprise license agreement with Bank of America (formerly
        FleetBoston) for the internal use of fileTRUST SM by Bank
        of America (formerly FleetBoston), which expired in February 2004. The terms
        and
        conditions of this agreement provided for automatic renewals on a month-to-month
        basis.


13




**CRITICAL
      ACCOUNTING POLICIES**





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





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




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





*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. The Company accounts for
      stock-based employee compensation arrangements according to Statement of
      Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based
      Payment”




**Costs
      and Expenses**




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





14




*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, 2007, there were no full time employees performing engineering
      or
      development on our products and services. We have outsourced the maintenance
      of
      our billable services infrastructure as well as product and customer support
      to
      Built Right Networks.





*Other
      Operating Expenses* -
      Selling and marketing expenses consist primarily of costs incurred to market
      our
      products and services such as the costs of attending and presenting at trade
      shows. General and administrative expenses consist primarily of salaries and
      related personnel costs and other general corporate costs such as facility
      costs, commercial and general liability insurance, accounting and legal expenses
      and other costs typical of a publicly held corporation. At December 31, 2007,
      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,
      2007, we had one employee, working in a general and administrative
      capacity.





**RESULTS
      OF OPERATIONS - YEARS ENDED DECEMBER 31, 2007 AND 2006**





Revenues
      for year ended December 31, 2007 decreased $24,287 or 8.8% to $250,813 from
      $275,100 for the comparable year in 2006. No customer accounted for more than
      10% of our revenues for either period.


We
        recognized $239,540 from the sale of our Mangomind SM service
        and $11,273 from the sale of our fileTRUST SM service
        during the year ended December 31, 2007. During the year 2006, we recognized
        $260,399 from the sale of the Mangomind SM service
        and $14,701 from the sale of our fileTRUST SM service.




Cost
      of
      services for year ended December 31, 2007decreased $2,591 less than 1% to
      $260,312 compared to $262,903 for the comparable year in 2006. 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, 2007
      and
      2006. During the years ended December 31, 2007 and 2006, we had no employees
      performing engineering or development activities





For
      the
      year ended December 31, 2007, other operating expenses including selling and
      marketing and general and administrative expenses increased $238,603 or 42%
      to
      $806,606 compared with $568,003 for the comparable period in 2006. The increase
      in other operating expenses was due primarily to legal costs incurred in pursuit
      of patents and in defense of our patents combined with a reduction of public
      relations, legal and other corporate consultants and facility rent in addition
      to reductions in our marketing, selling and general and administrative personnel
      associated with our work force reductions. During the year ended December 31,
      2007 and 2006, our one (1) full-time employee was working in a general and
      administrative capacity.




15




There
      was
      no stock-based compensation recorded for the year ended December 31, 2007 or
      December 31, 2006.





Our
      loss
      from operations increased $260,299 to $816,105 for the year ended December
      31,
      2007 compared with a loss from operations of $555,806 for the comparable year
      in
      2006 as a result of the above factors.





Interest
      income increased $16,379 to $26,622 for the year ended December 31, 2007
      compared to $10,243 for the year ended December 31, 2006.





We
      settled an outstanding account payable to a law firm during 2006 that resulted
      in the recognition of other income in the amount of $677,777. No similar income
      items were recognized in 2007.





**FINANCIAL
      CONDITION, LIQUIDITY AND CAPITAL RESOURCES**





We
      were
      formed in June 1995 and, since our formation, have raised approximately
      $74,500,000 in financing from private placements of debt and equity securities.
      In addition to the financing we received through the sale of our securities,
      we
      have, at times, depended upon loans from stockholders and directors and credit
      from suppliers to meet interim financing needs. Borrowings from stockholders
      and
      directors have generally been refinanced with new debt instruments or converted
      into additional equity. At December 31, 2006, approximately $114,000 in
      additional financing was provided through accounts payable, accrued expenses
      and
      other trade credit, a significant portion of which is past due.




At
      December 31, 2007, we had a cash balance of approximately $318,000 and a working
      capital balance of approximately $174,000. We do not have any commercial
      commitments or off balance sheet financing. Our commitments under our operating
      leases are described in Note 10 to our consolidated financial
      statements.




During
        2006 two corporate notes receivables totaling
        approximately $3,000 matured from Unicrown Partners LLC, a privately held
        company in which Selig Zises and Jay Zises are members. Selig Zises and Jay
        Zises are stockholders of MangoSoft .
        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 2007.





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




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.




16


As
      shown
      in the audited consolidated financial statements, during the years ended
      December 31, 2007 and 2006, we recognized net (loss) income of ($789,233) and
      125,751, respectively. Cash used in operations during the years ended December
      31, 2007 and 2006 was $738,746 and $608,852, respectively. The factors, among
      others, raise significant doubt about our ability to continue as a going
      concern. Our continuation as a going concern is dependent upon our ability
      to
      generate sufficient cash flow and meet our obligations on a timely basis and
      ultimately attain profitability.





**PLAN
      OF OPERATION**





We
      believe that we may be required to raise additional funds in order to meet
      our
      cash requirements. In the event that our revenues from the current marketing,
      sales and support of our business software and services are insufficient, we
      may
      need to seek alternative sources of capital over the next twelve (12) months.
      While we do not anticipate any capital expenditures, product research and
      development or significant increase in employees over the next twelve (12)
      months, we continue to have additional cash needs related to our ongoing
      operations in general and our various ongoing intellectual property litigations
      in particular. In the event that cash flow from operations is insufficient
      for
      us to meet our obligations on a timely basis, we will be required to raise
      additional capital from stockholders, of which there can be no assurances.




On
        January 10, 2007, the Company announced the sale of an aggregate of 2,400,000
        shares of common
        stock, par value $.001 per share to a
        group of investors led by current stockholders. Through this private placement
        of its common stock, the Company raised aggregate gross proceeds of $1,200,000.
        One of the investors in the offering provided bridge financing to the Company
        on
        September 20, 2006 in the principal amount of $250,000, and which the bridge
        financing was automatically converted into a subscription for Common Stock
        pursuant to the offering. The Company intends to utilize the net proceeds
        of the
        private placement to pay past due expenses and to fund its various patent
        litigations.
 
 In
        February 2008, the Company
        received gross proceeds of approximately $1,023,672 million through the issuance
        of common stock pursuant to a rights offering and as a consequence issued,
        commencing on or about February 27, 2008, approximately 2,047,344 shares
        of its
        common stock to stockholders who properly exercised their rights in the rights
        offering. Pursuant to the rights offering, which concluded as of the close
        of
        business on February 19, 2008, stockholders of record at the close of business
        on December 21, 2007, received, at no charge, a 0.7032 non-transferable right
        for each share of common stock owned by such stockholder on the record date.
        Each full right entitled the holder to purchase one share of the Company's
        common stock at a purchase price of $0.50 per share.




The
      Company expects to use approximately $750,000 of the net proceeds from the
      rights offering in connection with pursuing various intellectual property
      litigations to enforce the Company’s patent portfolio. The Company anticipates
      using the balance of the net proceeds from the rights offering for working
      capital purposes, including obtaining directors’ and officers’
insurance.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





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





**ITEM
      7. FINANCIAL STATEMENTS**





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





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





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**




Evaluation
        of disclosure controls and procedures.
  Our
        Chief
        Executive Officer ,
        President and sole
        director, after evaluating the effectiveness of our "disclosure controls
        and
        procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
        and 15d-15(e)) as of the end of the period covered by this Annual Report
        on Form
        10-KSB (the "Evaluation Date"), has concluded that as of the Evaluation Date,
        our disclosure controls and procedures were not effective to provide reasonable
        assurance that information we are required to disclose in reports that we
        file
        or submit under the Exchange Act is recorded, processed, summarized and reported
        within the time periods specified in the Securities and Exchange Commission
        rules and forms, and that such information is accumulated and communicated
        to
        our management, including our Chief Executive Officer, as appropriate, to
        allow
        timely decisions regarding required disclosure.
 17
 We
        have
        identified deficiencies in the design or operation of the Company’s internal
        controls that we consider to be
        material weaknesses in the effectiveness of the Company’s internal controls
        pursuant to standards established by the Public Company Accounting Oversight
        Board. A “material weakness” is a deficiency, or combination of significant
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. Specifically, we found that the
        Company has an overall lack of segregation of duties as well as a lack of
        necessary corporate accounting resources related to the financial reporting
        process and accounting functions as the Company does not have any full time
        accounting personnel. The Company’s President serves as both Chief Executive
        Officer and Chief Financial Officer of the Company. Accordingly, certain
        functional and monitoring controls do not exist.


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, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.


**ITEM
      8B. OTHER INFORMATION**





None.




18




**PART
      III**





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




Dale
        Vincent, age 61 , 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. Mr.
        Vincent has served
        as the Chief Executive Officer of the
        Company since
        May 1999, as its Chief Financial Officer from September 1998 to May 1999, and
        from
        2001 to the present time,  and
        as a director
        of the Company 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, 2007 were filed on time.





**Audit
      Committee**




We
        do not
        have an Audit Committee comprised of independent directors. Dale Vincent
        is our
        President, Chief Executive Officer and sole director. In such
        capacities ,
        Mr.
        Vincent performs the functions of a typical Audit Committee. Mr. Vincent
        has also 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., 29 Riverside Street, Suite A,
        Box 8,
        Nashua, New Hampshire. The
        Company will post a copy of this Code of Ethics on its
        corporate website - www.mangosoft.com.


19




**ITEM
      10. EXECUTIVE COMPENSATION**




**Executive
      Compensation**




*Compensation
      Discussion and Analysis*




***Overview***




The
      sole
      director is responsible for establishing, implementing and continually
      monitoring adherence with our compensation philosophy. The director seeks to
      ensure that the total compensation is fair and reasonable. Currently, we have
      one (1) executive officer.




This
      section describes our compensation program for our executive officer. The
      discussion focuses on our executive compensation policies and decisions and
      the
      most important factors relevant to an analysis of these policies and decisions.
      We address why we believe our compensation program is appropriate for us and
      our
      stockholders, and we explain how executive compensation is
      determined.




***Compensation
      Philosophy and Design***




Historically,
      our compensation philosophy has been to preserve cash and minimize expenses
      while rewarding the creation of long-term stockholder value. Our historical
      compensation philosophy and design have more closely resembled that of a private
      company than a public company. In addition, our director has not adopted any
      formal or informal policies or guidelines for allocating compensation between
      cash and equity compensation or other forms of non-cash compensation.




As
      a
      result of our history of operating losses, our cash compensation plans have
      been
      designed to balance our salary expenses against cash flows and available cash
      and our need to retain key members of management (currently our Chief Executive
      Officer). Our executive compensation packages have not included a variable
      cash
      compensation element.




***Objectives
      of Our Compensation Program for Executive Officers***




The
      fundamental objective of our executive compensation and benefits program is
      to
      maximize stockholder value over time.




As
      noted
      above, our compensation decisions to date have been based largely on our budget
      and operating results and on our need to preserve cash.




***Elements
      of Executive Compensation***




Our
      compensation program consists of a base salary and a long-term compensation
      awarded in equity, consisting of equity-based incentives such as stock
      options.




In
      recent
      periods, there have been no discretionary bonuses for our Chief Executive
      Officer. Our chief executive officer is currently not entitled under the terms
      of his employment to any cash severance or similar benefits in connection with
      a
      termination of employment or change of control.




20




Currently
      all of our cash compensation is paid out within one year. We do not have any
      deferred compensation cash plans. Our equity-based incentives are long-term
      incentives that are based on the parameters described below under "Equity-Based
      Incentives."




***Allocation
      of Compensation Among Principal Elements***




The
      specifics of each element are as follows:




*Base
      Salary*





Historically,
        we have paid base salaries that we believe are below the market median for
        officers performing comparable jobs at comparable public companies. The annual
        salary for Dale
        Vincent, our President and Chief Executive Officer ,
        remained the same at $202,000 for 2007
        and 2006.


*Equity-Based
      Incentives*




We
        grant
        equity-based incentives to our Chief
        Executive Officer ,
        in
        order to create a corporate culture that aligns employee interests with
        stockholder interests. We have not adopted any specific stock ownership
        guidelines. At present, our long-term compensation consists solely of stock
        options. Our Board of Directors grants
        options to our executive officer to enable him to participate in any long-term
        appreciation in our stockholder value.




No
      equity
      based compensation was granted in 2007.




*Discretionary
      Bonuses*




We
      have
      not adopted any formal cash bonus plans.




*Benefits*




We
      provide no benefits to our executive officer.





**SUMMARY
      COMPENSATION TABLE**




The
        following table presents information concerning the total compensation of
        our Chief
        Executive Officer for
        services rendered to us in all capacities for the fiscal years ended December
        31, 2007, 2006 and 2005. Our Chief Executive
        Officer received no other compensation required to be disclosed by law or
        in
        excess of $10,000 annually.




**Name
                  and Principal Position**
              
              **Year**
              
              **Salary****($)**
              
              **Discretionary**
                **Non-Plan****Based
                  Bonus****($)**
              
              **Option****Awards****($)**
              
              **Non-Equity****Incentive****Plan****Compensation****($)**
              
              **All
                  Other****Compensation****($)**
              
              **Total****($)**Dale
                  Vincent
              
              
              2007
              
              $
              202,488
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              202,488President
                  and Chief
              
              
              2006
              
              
              202,488
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              202,488Executive
                  Officer
              
              
              2005
              
              
              208,667
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              208,667




21




**GRANTS
      OF PLAN-BASED AWARDS**




There
        were no grants of plan-based awards to the named
        executive officer and sole
        employee during the fiscal year ended December 31, 2007.





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**




The
      following table presents certain information concerning equity awards held
      by
      our Chief Executive Officer at the end of the fiscal year ended
      December 31, 2007.




**Option
                Awards****Name**
            
            **Number of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options (#)(1)**
              **Exercisable**
            
            **Number of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options (#)(1)**
              **Unexercisable**
            
            **Equity**
              **Incentive**
              **Plan**
              **Awards:**
              **Number of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Unearned**
              **Options (#)**
            
            **Option**
              **Exercise**
              **Price ($)**
            
            **Option**
              **Expiration**
              **Date**Mr.
                Dale Vincent
              President
                and Chief
              Executive
                Officer
            
            
            75,000
            
            
            —
            
            
            —
            
            
            1.73
            
            
            —




**OPTION
      EXERCISES AND STOCK VESTED AT FISCAL YEAR-END**




There
      were no options exercised by our Chief Executive Officer during the fiscal
      year ended December 31, 2007, and there were no stock awards that vested
      during the fiscal year.




**Legal
      Proceedings**




We
      are
      not aware of any legal proceedings which name our sole officer and director
      as a
      defendant or co-defendant and therefore have no obligation to indemnify him
      for
      legal costs related to such litigation




**Compensation
      of Directors**





There
      were no outside directors in 2007. 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
      2007.


22




**Employment
      Contracts**





None.





**Report
      on Repricing of Options/SARs**





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




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





The
      following table sets forth certain information as of March 26, 2008 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 5,443,157
      shares of common stock outstanding on March 25, 2008. In each case, except
      as
      otherwise indicated in the footnotes to the table, the shares shown in the
      second column are owned directly by the individual or members of the group
      named
      in the first column and such individual or group members have sole voting and
      dispositive power with respect to the shares shown. For the purposes of this
      table, beneficial ownership is determined in accordance with the federal
      securities laws and regulations; inclusion in the table of shares not owned
      directly by the named director or executive officer does not constitute an
      admission that such shares are beneficially owned by the director or officer
      for
      any other purpose.




**Beneficial
                  owners:**
              
              **Number
                  of Shares of****Common
                  Stock Owned**
              
              **Percent
                  of Outstanding****Common
                  Stock Owned**Selig
                  Zises (1)(5)
              
              
              1,659,548
              
              
              30.5
              %Southpaw
                  Asset Management LP (2)
              
              
              1,482,128
              
              
              27.2
              %Jay
                  Zises (3)(5)
              
              
              807,712
              
              
              15.0
              %Directors
                  and officers:Dale
                  Vincent (4)
              
              
              77,066
              
              
              1.4
              %All
                  Directors and officers as a group
              
              
              77,066
              
              
              1.4
              %




(1)
            Total
                shares of common stock beneficially owned by the former co-chairman
                of our
                Board of Directors Selig Zises include the following: 1,652,803
                shares owned by Selig Zises; 4,196 shares owned by Guarantee & Trust
                Co. TEE FBO Selig Zises R-IRA DTD 5-20-96 (a self-directed IRA);
                and 2,549
                shares owned by his daughter Lynn Zises. Selig Zises is the brother
                of Jay
                Zises, both of whom are principal stockholders of the MangoSoft.
                Other
                than the Zises family relationships references in this table and
                the
                related footnotes, there are no affiliations between Selig Zises
                and any
                other persons or entities identified in such table or
                footnotes. Selig Zises ’ address is 988 Fifth Avenue, New York, New
                York 10021.(2)
            This
                Information is based solely on Schedule 13D, as amended, filed with
                the
                Securities and Exchange Commission on February 20, 2008 by (i) Southpaw
                Credit Opportunity Master Fund LP (“Fund”), a Cayman Islands limited
                partnership, as the holder of the shares of Common Stock, (ii) Southpaw
                Asset Management LP (“Southpaw Management”), a Delaware limited
                partnership, as the investment manager to Fund, (iii) Southpaw Holdings
                LLC (“Southpaw Holdings”), a Delaware limited liability company, as the
                general partner of Southpaw Management, (iv) Kevin Wyman, a principal
                of
                Southpaw Holdings LLC, and (v) Howard Golden, a principal of Southpaw
                Holdings LLC (the persons mentioned in (i), (ii), (iii), (iv) and
                (v)
                immediately preceding are collectively referred to as “Southpaw”).
                Southpaw has the power to vote and dispose of all 1,482,128 shares
                of the
                Company’s Common Stock.(3)
            Total
                shares of common stock beneficially owned by Jay Zises, the brother
                of the
                former co-chairman of our Board of Directors Selig Zises, include
                the
                following: 591,930 shares owned by Jay Zises; 214,942 shares owned by
                Delaware Guarantee & Trust TTEE FBO Jay Zises IRA (a self-directed
                IRA); 701 shares owned by Nancy Zises as custodian for Meryl Shane
                Zises;
                and 139 shares owned by Jay Zises as custodian for Justin Zises.
                Nancy
                Zises is the wife of Jay Zises. Other than the Zises family relationships
                referenced in this table and the related footnotes, there are no
                affiliations between Jay Zises and any other persons or entities
                identified in such table or footnotes. Jay Zises ’ address is 965 Fifth
                Avenue, Apt. 10B, New York, New York 10021.(4)
            Includes
                75,000 shares of common stock Mr. Vincent has the right to acquire
                through
                the exercise of stock options. Mr. Vincent’s address is c/o MangoSoft,
                Inc., 29 Riverside Street, Suite A, MS A-8, Nashua, New Hampshire
                03062.(5)
            Beneficially
                owned shares for Jay Zises and Selig Zises exclude 10,000 shares of
                the Series B Convertible Preferred Stock owned by each Jay Zises
                and Selig
                Zises which were issued on July 23, 2003. Each share of Preferred
                stock is
                convertible into one share of common stock at the option of the holder.
                In
                addition to its convertible features, the holders of the Preferred
                Stock
                are entitled to twenty-five votes per share of Preferred Stock on
                any
                matter brought to the vote of
                shareholders.





23




Securities
      Authorized for Issuance Under Equity Compensation Plans





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





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




At
      December 31, 2006, two corporate notes receivable totaling approximately $3,000
      matured from Unicrown Partners LLC, a privately held company in which Selig
      Zises and Jay Zises are members. Selig Zises and Jay Zises are stockholders
      of
      MangoSoft, Inc. Selig Zises was the former co-chairman of our Board of
      Directors. Investments in high-yield securities pose higher risks than
      investments in lower-yield securities, including the risk of total
      loss.





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




On
        September 26, 2006, Selig Zises provided bridge financing to the
        Company in the
        principal amount of $250,000. At the closing of the Company’s offer
        and sale of 2,400,000 shares of common stock on January 10, 2007, the bridge
        financing provided
        by Selig Zises was automatically converted
        into a subscription of common stock . of
        500,000 shares .
        Furthermore, Selig Zises purchased an additional 300,000 shares for $150,000
        in
        cash during such sale of 2,400,000 shares of common stock .
 
 On
        January 10, 2007, in connection with the sale of 2,400,000 of common stock,
        Jay
        Zises purchased 300,000 shares for $150,000 in cash.
  In
        February 2008, in connection with the
        Company’s rights
        offering Jay Zises purchased 400,000 shares
        and Selig Zises purchased 750,000 shares of common stock for $ 200,000 and
        $375,000, respectively.


24




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





**(a)**
            **Exhibits:**




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




(1)
            Filed
                as an exhibit to our Current Report on Form 8-K for an event dated
                September 7, 1999 and hereby incorporated by reference
                thereto.(2)
            Filed
                as an exhibit to our Registration Statement on Form 10-SB, filed
                June 9,
                2000, and hereby incorporated by reference thereto.(3)
            Filed
                as an exhibit to our Quarterly Report filed November 9, 1999 for
                the
                quarter ended September 30, 1999 and hereby incorporated by reference
                thereto.(4)
            Filed
                as an exhibit to our Quarterly Report filed August 14, 2002 for the
                quarter ended June 30, 2002 and hereby incorporated by reference
                thereto.(5)
            Filed
                as an exhibit to our Current Report on Form 8-K for an event dated
                September 30, 2002 and hereby incorporated by reference
                thereto.


25




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


26




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





***Audit
      Fees***





Fees
      billed by Stowe & Degon for the audit of our annual financial statements for
      the fiscal years ended December 31, 2007 and 2006 and the review of our
      quarterly financial statements included in our quarterly reports on Form 10-QSB
      were approximately $33,000 and $31,000, 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
                28, 2008
            By:
            */s/**Dale
                Vincent*Dale
                VincentPresident,
                Chief Executive Officer andChairman
                of the Board of Directors(Principal
                Financial and Accounting Officer)


28




**MANGOSOFT,
      INC. AND SUBSIDIARIES**





**INDEX
      TO FINANCIAL STATEMENTS**





PageReport
                of Independent Registered Public Accounting Firm
            
            
            30Consolidated
                Balance Sheet as of December 31, 2007
            
            
            31Consolidated
                Statements of Operations For The Years Ended December 31, 2007 and
                2006
            
            
            32Consolidated
                Statements of Stockholders’ Equity For The Years EndedDecember
                31, 2007 and 2006
            
            
            33Consolidated
                Statements of Cash Flows For The Years Ended December 31, 2007 and
                2006
            
            
            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 sheet of MangoSoft, Inc. and
      subsidiaries (the “Company”) as of December 31, 2007 and the related
      consolidated statements of operations, stockholders’ equity, and cash flows for
      the years ended December 31, 2007 and 2006. These financial statements are
      the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





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





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the consolidated financial position of MangoSoft, Inc. and
      subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for the years ended December 31, 2007 and 2006,
      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
      28,
      2008




30




**MANGOSOFT,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEET**





**AS
      OF DECEMBER 31, 2007**





**ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            318,065Accounts
                receivable
            
            
            20,607Total
                current assets
            
            $
            338,672**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                Liabilities:Accounts
                payable
            
            $
            114,566Accrued
                compensation
            
            
            7,788Other
                accrued expenses and current liabilities
            
            
            41,609Total
                current liabilities
            
            
            163,963Commitments
                and Contingencies (Note 11)Stockholders’
                Equity:Preferred
                stock - $0.001 par value; authorized, 5,000,000  shares; issued and
                outstanding, 20,000 shares
            
            
            20Common
                stock - $0.001 par value, authorized, 15,000,000 shares, issued and
                outstanding 3,413,038 shares
            
            
            3,413Additional
                paid-in-capital
            
            
            89,904,757Accumulated
                deficit
            
            
            (89,733,481
            )Total
                stockholders’ equity
            
            
            174,709Total
            
            $
            338,672





See
      notes
      to the consolidated financial statements.


31




**MANGOSOFT,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year
                Ended December 31,****2007**
            
            **2006**Service
                revenues
            
            $
            250,813
            
            $
            275,100Costs
                and expenses:Cost
                of services
            
            
            260,312
            
            
            262,903General
                and administrative
            
            
            806,606
            
            
            568,003Loss
                from operations
            
            
            (816,105
            )
            
            (555,806)
            )Interest
                income
            
            
            26,622
            
            
            10,243Interest
                expense
            
            
            (9
            )
            
            (6,463)-Income
                from settlement of accrued legal fees
            
            
            259
            
            
            677,777-Net
                income (loss)
            
            $
            (789,233
            )
            $
            125,751Net
                income (loss) per share - basic
            
            $
            (0.24
            )
            $
            0.12Net
                income (loss) per share - diluted
            
            $
            (0.24
            )
            $
            0.12Weighted
                average shares outstanding - basic
            
            
            3,347,285
            
            
            1,013,038Weighted
                average shares outstanding - diluted
            
            
            3,347,285
            
            
            1,088,038




See
      notes
      to the consolidated financial statements.


32




**MANGOSOFT,
      INC. AND SUBSIDIARY**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**





**Convertible
                Preferred Stock**
            
            **Common
                Stock**
            
            **Additional
                Paid-in**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Total**Balance,
                January 1, 2006
            
            
            20,000
            
            $
            20
            
            
            1,013,038
            
            $
            1,013
            
            $
            88,725,694
            
            $
            (89,069,999
            )
            $
            (343,272),Net
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            125,751
            
            
            125,751Balance,
                December 31, 2006
            
            
            20,000
            
            
            20
            
            
            1,013,038
            
            
            1,013
            
            
            88,725,694
            
            
            (88,944,248
            )
            
            (217,521
            )Shares
                issued, net of issuance costs of $18,537
            
            
            
            
            
            
            
            
            2,400,000
            
            
            2,400
            
            
            1,179,063
            
            
            
            
            
            1,181,463Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (789,233
            )
            
            (789,233
            )Balance,
                  December 31, 2007
            
            
            20,000
            
            $
            20
            
            
            3,413,038
            
            $
            3,413
            
            $
            89,904,757
            
            $
            (89,733,481
            )
            $
            174,709





See
      notes
      to the consolidated financial statements.


33




**MANGOSOFT,
      INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Year
                Ended December 31,****2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            (789,233
            )
            $
            125,751Adjustments
                to reconcile net loss to net cash used in operating
                activities:Income
                from settlement of accrued legal expenses
            
            
            -
            
            
            (677,777
            )Increase
                (decrease) in cash from the change in:Accounts
                receivable
            
            
            293
            
            
            (3,493
            )Accounts
                payable
            
            
            62,828
            
            
            (6,522
            )Other
                accrued expenses and current liabilities
            
            
            (12,634
            )
            
            (46,811
            )Net
                cash used in operating activities
            
            
            (738,746
            )
            
            (608,852
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Investment
                maturities
            
            
            -
            
            
            3,538Net
                cash provided by investing activities
            
            
            -
            
            
            3,538CASH
                FLOWS FROM FINANCING ACTIVITIES:(Repayment
                of) Proceeds from note payable
            
            
            (250,000
            )
            
            250,000Proceeds
                from common stock offering
            
            
            1,181,463
            
            
            -Net
                cash provided by financing activities
            
            
            931,463
            
            
            250,000NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            192,717
            
            
            (355,314
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            125,348
            
            
            480,662CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            $
            318,065
            
            $
            125,348





See
      notes to the consolidated financial statements.


34




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.
      Nature of Business and Operations**





***The
      Company***




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




As
      shown
      in the consolidated financial statements, during each of the two years in the
      period ended December 31, 2007, the Company incurred losses from operations
      of
      $815,846 and $555,806 respectively. Cash used in operations during each of
      the
      two years in the period ended December 31, 2006 was $738,746 and $608,852,
      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, 2007 and 2006, the Company had one (1) employee
      respectively, working in a general and administrative capacity.





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





On
      September 11, 2006, Mangosoft Corp. assigned the ownership and legal titles
      of
      twelve of its patents and applications with no recorded value to Mangosoft
      Intellectual Property, Inc., (a wholly owned subsidiary). Pursuant to the
      agreement, Mangosoft Corp. assigned the entire right, title, and interest in
      and
      to the following applications to Mangosoft Intellectual Property,
      Inc.:





**Title**
            
            **Application
                No./Patent No.**
            
            **Filing
                Date/Issue Date**System
                For Tracking Data
            
            08/848,970
            
            05/02/97Method
                For Scheduling Thread Execution On A
              Limited
                Number Operating System
            
            09/069,352
            
            04/29/98Internet-Based
                Shared File Service With Native PC
              Client
                Access And Semantics And Distributed
              Access
                Control
            
            09/704,050
            
            11/01/00Internet-Based
                Shared File Service With Native PC
              Client
                Access And Semantics
            
            09/704,262
            
            11/01/00


35




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


On
      April
      25, 2007, the Company announced that its Mangomind Business Internet File
      Service now supports Microsoft's Windows Vista. With the addition of Windows
      Vista, Mangomind runs on all of the most commonly used Windows PC business
      platforms, including Windows 97, 98, ME, NT, 2000, XP and Windows Server
      2003.





On
      July
      3, 2007, the Company filed a registration statement with the Securities and
      Exchange Commission announcing the rights offering to purchase up to 2,400,000
      shares of its common stock to current stockholders of the Company at an
      unspecified date. Each full right will be exercisable for one share of common
      stock at a subscription price of approximately $.50 per share. The Company
      has
      reserved a total of 2,400,000 shares of common stock for the exercise of these
      rights. The Company has agreed to pay the fees and expenses of the subscription
      agent in the rights offering. The Company has also agreed to indemnify the
      subscription agent from any liability which it may incur in connection with
      the
      rights offering, including liabilities under the Securities Act of 1933. The
      Company will not engage the services of any third party solicitation agent
      or
      information agent with respect to the rights offering. The material conditions
      required to consummate the above rights offering are subject to the approval
      of
      the registration statement filed with the Securities and Exchange Commission.




36




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**2.
      Summary of Significant Accounting Policies**




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





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





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





*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.





Sales
      to
      two customers accounted for approximately 25% of total sales during 2007.
      Accounts receivable from these two customers represents 48% of total accounts
      receivable at December 31, 2007. There were no customers who accounted for
      10%
      or more of the Company’s total sales during 2006. Accounts receivable from two
      customers accounted for approximately 23% of total accounts receivable at
      December 31, 2006.





The
      Company purchases all of its outsourced data center services from one vendor.
      Management believes an alternate vendor could be secured in the event the
      current vendor discontinued services in its current capacity.




*Intangible
      Assets -* Intangible assets consist of acquired technology, customer relationships and
      service marks (see Note 3).





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





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





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


37




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




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




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





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





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





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





*Net
      Loss Per Common Share* - Basic
      net income (loss) per common share is computed by dividing net loss applicable
      to common stockholders by the weighted average number of common shares
      outstanding during the period. Diluted net income (loss) per common share
      reflects, in addition to the weighted average number of common shares, the
      potential dilution if common stock options were exercised into common stock,
      unless the effects of such exercises would have been antidilitive. At
      December 31, 2007, we had 75,000 stock options outstanding which have been
      excluded from diluted common shares outstanding due to their antidilutive
      effect. These 75,000 shares were included in the December 31, 2006 diluted
      common shares.




38




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





*Supplemental
      Cash Flow Information* - The
      following table sets forth certain supplemental cash flow information for the
      years ended December 31, 2007, and 2006:





**Years
                Ended December 31,****2007**
            
            **2006**Cash
                paid for interest
            
            $
            -
            
            $
            -Cash
                paid for income taxes
            
            $
            -
            
            $
            -




***Recently
      Issued Accounting Pronouncements***




39




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





In
      December 2007 the Financial Accounting Standards Board (FASB) issued
      SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141
      and defines the acquirer in a business combination as the entity that obtains
      control of one or more businesses in a business combination and establishes
      the
      acquisition date as the date that the acquirer achieves control. SFAS
      No. 141R requires an acquirer to recognize the assets acquired, the
      liabilities assumed, and any noncontrolling interest in the acquiree at the
      acquisition date, measured at their fair values as of that date. SFAS
      No. 141R also requires the acquirer to recognize contingent consideration
      at the acquisition date, measured at its fair value at that date. This statement
      is effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. Earlier adoption is prohibited.
      The adoption of this statement is not expected to have a material effect on
      the
      Company’s financial statements.





In
      December 2007, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
      Statements — an Amendment of ARB No. 51”. This statement amends ARB 51 to
      establish accounting and reporting standards for the Noncontrolling interest
      in
      a subsidiary and for the deconsolidation of a subsidiary. This statement is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. Earlier adoption is prohibited.
      The adoption of this statement is not expected to have a material effect on
      the
      Company’s future reported financial position or results of operations.





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





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




40




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**3.
      Investments**





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





**4.
      Note Payable**





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




**5.
      Income Taxes**





The
      Company has federal and state tax net operating loss carryforwards available
      for
      future periods of approximately $72,700,000. The federal tax net operating
      loss
      carryforwards expire beginning in 2010, and state tax net operating loss
      carryforwards began expiring in 2000. As a result of the changes in the
      ownership of the Company, there may be limitations on the amounts of net
      operating loss carryforwards that may be utilized in any one year. The Company
      also has research and development credits for federal tax purposes of
      approximately $518,000, which expire beginning in 2011.





The
      tax
      effect of significant items comprising the Company’s deferred tax assets at
      December 31, 2007 is as follows:


**2007**Deferred
                  tax assets:Net
                  operating loss carryforwards
              
              $
              24,718,000Research
                  and development credits
              
              
              518,00025,236,000Valuation
                  allowance
              
              
              (25,236,000
              )Net
                  deferred tax assets
              
              $
              -
  41




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**5.
      Income Taxes (continued)**





The
      Company believes that uncertainty exists with respect to future realization
      of
      the deferred tax assets and has established a valuation allowance for the full
      amount as of December 31, 2007 and 2006.





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:


**2007**
              
              **2006**Federal
                  statutory rate
              
              
              34
              %
              
              34
              %State
                  tax, net of federal impact
              
              
              6
              
              
              6Provision
                  for valuation allowance on deferred tax assets
              
              
              (40
              )
              
              (40
              )Effective
                  tax rate
              
              
              -
              %
              
              -
              %




**6.
      Stockholders’ Equity**





*Preferred
      stock* -The
      Preferred Stock has no stated dividend rate. Each share of Preferred Stock
      is
      convertible into one share of common stock at the option of the holder. In
      addition to the conversion feature, the holders of the Preferred Stock are
      entitled to twenty-five votes per share of Preferred Stock on any matter brought
      to a vote of stockholders.




On
      January 10, 2007, the Company issued an aggregate of 2,400,000 shares of common
      stock, par value $.001 per share to a group of investors led by current
      stockholders. Through the private placement of its common stock, the Company
      raised aggregate gross proceeds of $1,200,000. One of the investors in the
      offering provided bridge financing to the Company on September 20, 2006 in
      the
      principal amount of $250,000. This principal amount and accrued interest of
      $6,463was automatically converted into a subscription for common stock pursuant
      to the offering. The Company intends to utilize the net proceeds of the private
      placement to pay past due expenses and to fund its various patent
      litigations .





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





**7.
      Stock Option Plan**





The
      Company’s 1999 Incentive Compensation Plan (the “Plan”) as amended, provides for
      the issuance of up to 296,297 shares of common stock to employees, officers,
      directors and consultants in the form of nonqualified and incentive stock
      options, restricted stock grants or other stock-based awards, including stock
      appreciation rights. The stock options are exercisable as specified at the
      date
      of grant and expire no later than ten years from the date of grant. As of
      December 31, 2007, there were 179,652 remaining options available for grant
      under the Plan.




42




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**7.
      Stock Option Plan (continued)**





No
      stock-based compensation is included in the Company’s 2007 or 2006 results of
      operations in connection with these grants issued prior to 2005 at exercise
      prices below the fair value of the Company’s common stock at the grant
      date.




There
      were no option grants made in 2007 and 2006.





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


**Number
                  of**
                **Options**
              
              **Weighted**
                **Exercise
                  Price**Outstanding
                  at December 31, 2005
              
              
              75,000
              
              
              1.73Granted
              
              
              -Exercised
              
              
              -Forfeited
              
              
              -Outstanding
                  at December 31, 2006
              
              
              75,000
              
              
              1.73Granted
              
              
              -Exercised
              
              
              -Forfeited
              
              
              -Outstanding
                  at December 31, 2007
              
              
              75,000
              
              $
              1.73Exercisable
                  at December 31, 2007 and 2006
              
              
              75,000  **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
                
                
                2.75
                
                $
                1.00
                
                
                37,03737,963
                
                $
                4.05
                
                
                6.5
                
                $
                4.05
                
                
                37,96375,000
                
                
                
                
                
                
                
                
                
                
                
                75,000




**8.
      Retirement Savings Plan**





The
      Company adopted a savings plan for its employees pursuant to Section 401(k)
      of
      the Internal Revenue Code. All employees are eligible to participate and the
      plan allows a deferral ranging from a minimum 1% to the maximum percentage
      of
      compensation permitted by law. The Company may, at the discretion of the Board
      of Directors, make contributions on behalf of its employees under this plan.
      Such contributions, if any, become fully vested after five years of continuous
      service. The Company did not make any contribution in 2007 or 2006.




43




**MANGOSOFT,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**9.
      Commitments and Contingencies**





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





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





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





**10.
      Related Party Transactions**




**None**





**11.
      Geographic Sales Information**





The
      Company generates the majority of its revenues from the sale of its products
      and
      services in North America. All of the Company’s 2007 and 2006 revenues were
      generated from sales to North American customers.




**12.
      Subsequent Event**





The
      Company received gross proceeds of approximately $1,023,672 million through
      the
      issuance of common stock pursuant to a rights offering and as a consequence
      issued, commencing on or about February 27, 2008, approximately 2,047,344 shares
      of its common stock to stockholders who properly exercised their rights in
      the
      rights offering. Pursuant to the rights offering, which concluded as of the
      close of business on February 19, 2008, stockholders of record at the close
      of
      business on December 21, 2007, received, at no charge, a 0.7032 non-transferable
      right for each share of common stock owned by such stockholder on the record
      date. Each full right entitled the holder to purchase one share of the Company's
      common stock at a purchase price of $0.50 per share.




The
      Company expects to use approximately $750,000 of the net proceeds from the
      rights offering in connection with pursuing various intellectual property
      litigations to enforce the Company’s patent portfolio. The Company anticipates
      using the balance of the net proceeds from the rights offering for working
      capital purposes, including obtaining directors’ and officers’
insurance.




44