UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K


(Mark
One)


x
                ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934For
      the fiscal year ended December 31,
2008


or


o
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period from _______________________ to
      ___________________





Commission
File Number 001-12345










MANGOSOFT,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
            
            87-0543565(State
      of incorporation)
            
            (I.R.S.
      Employer Identification No.)29
      Riverside Street, Suite A, MS A-8
              Nashua,
      NH
            
            03062(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code: (603) 324-0400





Securities registered pursuant to
Section 12(b) of the Act:  None


Securities registered pursuant to
Section 12(g) of the Act:  Common stock, $.001 par
value











Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. oYes xNo





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. oYes xNo





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. xYes oNo





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definitions of “accelerated filer,” “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
one):





Large
accelerated filer  o Accelerated
filer  o Non-accelerated
filer   o Smaller reporting
company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Act). oYes xNo





The
aggregate market value of the voting stock held by persons other than officers,
directors and more than 5% stockholders of the registrant as of June 30, 2008
was $1.59 million, based on the most recent sales price of the common stock of
Company ($0.25 per share) in private transactions at such date (when the common
stock of the Company was not publicly quoted or listed for
trading).  As of March 25, 2009, there were 5,443,157 shares of common
stock outstanding.










MANGOSOFT,
INC.





INDEX
TO FORM 10-K




PagePART
      IITEM
      1 —
                                      Description
      of Business
                                      4ITEM
      1A
                                      Risk
      Factors
                                      8ITEM
      1B
                                      Unresolved
      Staff Comments
                                      10ITEM
      2—
                                      Description
      of Property
                                      10ITEM
      3—
                                      Legal
      Proceedings
                                      10ITEM
      4—
                                      Submission
      of Matters to a Vote of the Security Holders
                                      11PART
      IIITEM
      5—
                                      Market
      for Common Equity and Related Stockholder Matters
                                      12ITEM
      7—
                                      Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
                                      13ITEM
      7A
                                      Quantitative
      and Qualitative Discussion about Market RiskITEM
      8—
                                      Financial
      Statements
                                      17ITEM
      9—
                                      Changes in and
      Disagreements With Accountants on Accounting and Financial Disclosure
                                      17ITEM
      9A—
                                      Controls
      and Procedures
                                      17ITEM
      9B—
                                      Other
      Information
                                      18PART
      IIIITEM
      10—
                                      Directors
      and Executive Officers of the Registrant
                                      19ITEM
      11—
                                      Executive
      Compensation
                                      20ITEM
      12—
                                      Security Ownership
      of Certain Beneficial Owners and Management And
      Related Stockholder Matters
                                      23ITEM
      13—
                                      Certain
      Relationships and Related Transactions
                                      24ITEM
      14—
                                      Principal
      Accountant Fees and Services
                                      24ITEM
      15—
                                      Exhibits
      and Reports on Form 8-K
                                      25Signature
                                      27




FACTORS
THAT MAY AFFECT FUTURE RESULTS





The
Company’s prospects are subject to certain uncertainties and risks. This Annual
Report on Form 10-K 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 million 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.


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’liability
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. 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


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.


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 2008 and 2007 revenues were generated from sales to
North American customers.




Excluding
the $2,300,000 one time license fee revenue as discussed under legal
proceedings, two customers accounted for approximately 37% and 25% of our 2008
and 2007 net revenues, respectively.





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, 2008 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.





ITEM
1A. RISK FACORS





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





We have a
history of substantial operating losses and an accumulated deficit of
$89,166,421 as of December 31, 2008. For the years ended December 31, 2008 and
2007, our income (loss) from operations was $547,660, and $(816,105),
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 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, or are subject to
substantial competition 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
1B. UNRESOLVED STAFF COMMENTS





As of
December 31, 2008 the Company does not have any unresolved Staff
Comments.





ITEM
2. DESCRIPTION OF PROPERTY





As of
December 31, 2008 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.





On May
14, 2008, Form 8-K was filed indicating that the United States Court of Appeals
for the Federal Circuit issued an opinion in the case Mangosoft, Inc. et al. v.
Oracle Corporation. The opinion affirmed the District Court’s claim construction
order of September 21, 2004 and the District’s Court’s decision granting
defendant’s motion for summary judgment on non-infringement entered by the
District Court on March 28, 2007.





On
December 4, 2008, Form 8-K was filed indicating that Mangosoft, Inc. entered
into an agreement to settle its patent litigation with Skype Technologies SA,
Skype Software SARL and eBay Inc. titled Mangosoft Intellectual Property, Inc.
V. Skype Technologies, S.A. et al., Civil Action No. 2:06CV-390 TJW, which was
pending in the United States District Court for the Eastern District of Texas.
Under the terms of the Agreement, eBay and its affiliates and subsidiaries will
receive a non-exclusive license to all of the patents or patent applications now
owned by the Company, or in which the Company has a controlling interest, for a
one time fee in the amount of $2,300,000. The Agreement also provides for
general releases and dismisses the existing litigation between the
parties.





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,
2008 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:





2008
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    1.45
                    
                    
                    $
                    0.37Second
      Quarter
                    
                    
                    0.55
                    
                    
                    
                    0.29Third
      Quarter
                    
                    
                    0.29
                    
                    
                    
                    0.10Fourth
      Quarter
                    
                    
                    0.24
                    
                    
                    
                    0.01




2007
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    0.95
                    
                    
                    $
                    0.65Second
      Quarter
                    
                    
                    1.45
                    
                    
                    
                    0.68Third
      Quarter
                    
                    
                    1.15
                    
                    
                    
                    0.68Fourth
      Quarter
                    
                    
                    0.75
                    
                    
                    
                    0.57




(B)
Holders





As of
December 31, 2008, 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
                        availablefor future
                        issuanceunder
                        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
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





This
Annual Report on Form 10-K 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-K, 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-K for the
period ended December 31, 2008 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. 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.


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, 2008, 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, 2008,
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, 2008, we
had one employee, working in a general and administrative capacity.





RESULTS
OF OPERATIONS - YEARS ENDED DECEMBER 31, 2008 AND 2007





Service
revenues for the year ended December 31, 2008 increased $17,970 or 7% to
$268,783 compared with $250,813 for the comparable year in
2007.  There was a one-time license fee in the amount of $2,300,000 as
a result of the settlement of litigation with Skype as discussed under legal
proceedings. Excluding the Skype license fee revenue, two customers accounted
for 37% and 25% of our revenues in 2008 and 2007 respectively. We recognized
$256,381 from the sale of our Mangomind SM service
and $12,402 from the sale of our fileTRUST SM service
during the year ended December 31, 2008. During the year 2007, we recognized
$239,540 from the sale of the Mangomind SM service
and $11,273 from the sale of our fileTRUST SM
service.




Cost of
services for year ended December 31, 2008 decreased $837 less than 1% to
$259,475 compared to $260,312 for the comparable year in 2007. Cost of services
consists primarily of outsourced data center charges with Built Right
Networks.





There was
no engineering and development expense for the years ended December 31, 2008 and
2007. During the years ended December 31, 2008 and 2007, we had no employees
performing engineering or development activities





For the
year ended December 31, 2008, other operating expenses including selling and
marketing and general and administrative expenses increased $192,042 or 24% to
$998,648 compared with $806,606 for the comparable period in 2007. The increase
in other operating expenses primarily consists of an increase in consulting fees
of $183,000 related to intellectual property matters. There was an additional
$763,000 in legal fees as a result of the Skype litigation settlement. These
legal fees include $690,000 that was contingent on a favorable outcome for the
Company.





During
the year ended December 31, 2008 and 2007, 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, 2008 or
December 31, 2007.





Our
results of operations improved $$1,364,000 to income of $$548,000 for the year
ended December 31, 2008 compared with a loss from operations of $816,105 for the
comparable year in 2007 primarily as a result of the one-time license fee from
Skype offset by the related legal fees as discussed above.





Interest
income decreased $7,200 to $19,400 for the year ended December 31, 2008 compared
to $26,600 for the year ended December 31, 2007.





FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES





We were
formed in June 1995 and, since our formation, have raised approximately
$75,450,000 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, 2008, approximately $240,000 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, 2008, we had a cash balance of approximately $1,980,000 and a
working capital balance of approximately $1,765,000. 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.





We did
not make any capital expenditures during the fiscal year 2008.





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.  As of December 2008, the fee was reduced to
$19,500.




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, 2008 and 2007, we recognized net income (loss) of $567,060 and
($789,233), respectively. Cash provided by (used in) operations during the years
ended December 31, 2008 and 2007 was $640,580 and ($738,746), respectively.
These factors, among others, raise significant doubt about our ability to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow and meet our obligations on a
timely basis and ultimately attain profitability.





PLAN
OF OPERATION





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




In
February 2008, the Company received gross proceeds of approximately $1,023,672
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
8. FINANCIAL STATEMENTS





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





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





None.


17




ITEM 9A(T).  CONTROLS AND PROCEDURES




Evaluation
of disclosure controls and procedures.




We
carried out an evaluation, under the supervision and with our sole employee Dale
Vincent in his role as President, Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934).  Based upon that evaluation, the
President, Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are not effective as of December 31,
2008.
 
 Management’s
Annual Report on Internal Control over Financial Reporting.
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934.  Under the
supervision and with the participation of our management, including our
President, Chief Executive Officer and Chief Financial Officer we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO
Framework”).  Based on our evaluation , our management concluded that
our internal control over financial reporting was not effective based on
criteria set forth on the COSO Framework.
  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 as of December 31,
2008.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
 
 Changes
in internal control.
 
 Our
evaluation did not identify any change in our internal controls over financial
reporting that occurred during the quarter ended December 31, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting
 ITEM
9B. OTHER INFORMATION
  None.


18




PART
III





ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT




Dale
Vincent, age 62, 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 many 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 there under 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, 2008 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
11. 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 2008 and 2007.





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 2008.




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, 2008, 2007 and 2006. 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
                          
                          2008
                          
                          $
                          202,488
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          202,488President
      and Chief
                          
                          2007
                          
                          
                          202,488
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          202,488Executive
      Officer
                          
                          2006
                          
                          
                          202,488
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          202,488


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, 2008.





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, 2008.




Option AwardsNumber 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
                            DateMr.
      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, 2008, 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 2008. 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
2008.


22




Employment
Contracts





None.




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





The
following table sets forth certain information as of March 26, 2009 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, 2009. 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
                          OwnedSelig
      Zises (1)(5)
                        
                        
                        12,549
                        
                        .23
                        %Douglas
      Krugman (6)
                        
                        
                        1,656,999
                        
                        30.44
                        %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 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.(6)
            On
      December 12, 2008, Selig Zises sold an aggregate of 1,656,999 shares of
      Common Stock for $0.02 per share in a series of two open market
      transactions and one privately negotiated transaction to Douglas Krugman,
      his son-in-law.


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
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




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.





On
December 12, 2008, Selig Zises sold an aggregate of 1,656,999 shares of Common
Stock for $0.02 per share in a series of two open market transactions and one
privately negotiated transaction to Douglas Krugman, his
son-in-law.





On
January 29, 2009 the Company agreed to loan $600,000 to Plaintiff Holding XI LLC
a wholly owned subsidiary of Plaintiff Funding Holding, Inc. d/b/a LawCash, a
company controlled by Mr. Selig Zises and Mr. Jay Zises.  This loan is
evidenced by a secured promissory note having a one year term and bearing
interest at 14% per annum.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit
Fees





Fees
billed by Stowe & Degon, LLC for the audit of our annual financial
statements for the fiscal years ended December 31, 2008 and 2007 and the review
of our quarterly financial statements included in our quarterly reports on Form
10-Q were approximately $36,000 and $33,000, respectively.





Audit-Related
Fees





There
were no other fees billed by Stowe & Degon, LLC 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.


24




ITEM
15. EXHIBITS AND REPORTS ON FORM 8-K





(a)
            Exhibits:




Exhibit
                    Number
                  
                  Description of Exhibits2.1
                  
                  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-K filed on March 30, 2007
      for the year ended December 31, 2006 and hereby incorporated by reference
      thereto.*
            Filed
      herewith.





(b)
            Reports
      on Form 8-K:





(1)
            On
      January 22, 2008, Form 8-K was filed indicating that its Board of
      Directors has extended the expiration date of its previously announced
      rights offering from January 29, 2008 to February 18,
  2008.





(2)
            On
      January 29, 2008, Form 8-K was filed indicating that its Board of
      Directors has extended the expiration date of its previously announced
      rights offering from February 18, 2008 to February 19,
    2008.





(3)
            On
      February 27, 2008, Form 8-K was filed indicating the closing and the
      results of its rights offering which ended as of the close of business on
      February 19, 2008. The Company received gross proceeds of approximately
      $1,023,672 and will issue approximately 2,047,344 shares of its common
      stock to its stockholders who properly exercised their rights in the
      rights offering. The Company expects to commence issuing the shares of
      common stock on or about February 27,
2008.





(4)
            On
      May 14 2008, Form 8-K was filed indicating that the United States Court of
      Appeals for the Federal Circuit issued an opinion in the case Mangosoft,
      Inc. et al. v. Oracle Corporation. The opinion affirmed the District
      Court’s claim construction order of September 21, 2004 and the District
      Court’s decision granting defendant’s motion for summary judgment on
      non-infringement entered by the District Court on March 28,
      2007.(5)
            On
      December 4, 2008, Form 8-K was filed indicating that Mangosoft, Inc.
      entered into an agreement to settle its patent litigation with Skype
      Technologies SA, Skype Software SARL and eBay Inc. titled Mangosoft
      Intellectual Property, Inc. V. Skype Technologies, S.A. et al., Civil
      Action No. 2:06CV-390 TJW, which was pending in the United States District
      Court for the Eastern District of Texas. Under the terms of the Agreement,
      eBay and its affiliates and subsidiaries will receive a non-exclusive
      license to all of the patents or patent applications now owned by the
      Company, or in which the Company has a controlling interest, for a one
      time fee in the amount of $2,300,000. The Agreement also provides for
      general releases and dismisses the existing litigation between the
      parties.


26




SIGNATURES





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




MANGOSOFT,
      INC.March
      30, 2009
              By:
              /s/Dale
      VincentDale
      VincentPresident,
      Chief Executive Officer andChairman
      of the Board of Directors(Principal
      Financial and Accounting
Officer)


27




MANGOSOFT,
INC. AND SUBSIDIARIES





INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                29Consolidated
      Balance Sheet as of December 31, 2008
                30Consolidated
      Statements of Operations For The Years Ended December 31, 2008 and
      2007
                31Consolidated
      Statements of Stockholders’ Equity For The Years Ended December 31, 2008
      and 2007
                32Consolidated
      Statements of Cash Flows For The Years Ended December 31, 2008 and
      2007
                33Notes
      to Consolidated Financial Statements
                34


28




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, 2008 and  2007 and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for the years ended December 31, 2008 and 2007. 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, 2008 and 2007, and the results of their
operations and their cash flows for the years ended December 31, 2008 and 2007,
in conformity with accounting principles generally accepted in the United States
of America.






/s/ Stowe
& Degon, LLC







Worcester,
MA


March 28,
2009  29




MANGOSOFT,
INC. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEET





AS
OF DECEMBER 31, 2008





December
                          31,
                        
                        
                        December
                          31,2008
                        
                        
                        2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                        
                        $
                        1,982,192
                        
                        
                        $
                        318,065Accounts
      receivable
                        
                        
                        23,356
                        
                        
                        
                        20,607Total
      assets
                        
                        $
                        2,005,548
                        
                        
                        $
                        338,672LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                        
                        $
                        153,177
                        
                        
                        $
                        114,566Accrued
      compensation
                        
                        
                        3,076
                        
                        
                        
                        7,788Other
      accrued expenses
                        
                        
                        83,979
                        
                        
                        
                        41,609Total
      current liabilities
                        
                        
                        240,232
                        
                        
                        
                        163,963Stockholders’
      Equity:Preferred
      stock - $.001 par value; authorized, 5,000,000 shares; issued and
      outstanding, 20,000
                        
                        
                        20
                        
                        
                        
                        20Common
      stock - $.001 par value, authorized 15,000,000 shares in December 2008 and
      December 2007; issued and outstanding, 5,443,157 in December 2008 and
      3,413,038 in December 2007
                        
                        
                        5,443
                        
                        
                        
                        3,413Additional
      paid-in capital
                        
                        
                        90,926,274
                        
                        
                        
                        89,904,757Accumulated
      deficit
                        
                        
                        (89,166,421
                        )
                        
                        
                        (89,733,481
                        )Total
      stockholders' equity
                        
                        
                        1,765,316
                        
                        
                        
                        174,709Total
      liabilities and stockholders' equity
                        
                        $
                        2,005,548
                        
                        
                        $
                        338,672





See notes
to the consolidated financial statements.


30




MANGOSOFT,
INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS





Year
      Ended December 31,2008
                                
                                
                                2007Service
      revenues
                                
                                $
                                268,783
                                
                                
                                $
                                250,813License
      revenues related to litigation settlement
                                
                                
                                2,300,000
                                
                                
                                
                                -2,568,783
                                
                                
                                
                                250,813Costs
      and expenses:Cost
      of services
                                
                                
                                259,475
                                
                                
                                
                                260,312Legal
      fees related to litigation settlement
                                
                                
                                763,000
                                
                                
                                
                                -General
      and administrative
                                
                                
                                998,648
                                
                                
                                
                                806,606Loss
      from operations
                                
                                
                                547,660
                                
                                
                                
                                (816,105
                                )Interest
      income
                                
                                
                                19,400
                                
                                
                                
                                26,622Interest
      expense
                                
                                
                                -
                                
                                
                                
                                (9
                                )Income
      from settlement of accrued legal fees
                                
                                
                                
                                
                                
                                
                                259Net
      income (loss)
                                
                                $
                                567,060
                                
                                
                                $
                                (789,233
                                )Net
      income (loss) per share – basic
                                
                                $
                                0.11
                                
                                
                                $
                                (0.24
                                )Net
      income (loss) per share - diluted
                                
                                $
                                0.11
                                
                                
                                $
                                (0.24
                                )Weighted
      average shares outstanding – basic
                                
                                
                                5,121,444
                                
                                
                                
                                3,347,285Weighted
      average shares outstanding - diluted
                                
                                
                                5,196,444
                                
                                
                                
                                3,347,285




See notes
to the consolidated financial statements.


31




MANGOSOFT,
INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


AdditionalConvertible Preferred Stock
                                          
                                          
                                          Common Stock
                                          
                                          
                                          Paid-in
                                          
                                          
                                          AccumulatedShares
                                          
                                          
                                          Amount
                                          
                                          
                                          Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Capital
                                          
                                          
                                          Deficit
                                          
                                          
                                          TotalBalance,
      January 1, 2007
                                          
                                          
                                          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
      Income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (789,233
                                          )
                                          
                                          
                                          (789,233
                                          )Balance,
      December 31, 2007
                                          
                                          
                                          20,000
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          3,413,038
                                          
                                          
                                          
                                          3,413
                                          
                                          
                                          
                                          89,904,757
                                          
                                          
                                          
                                          (89,733,481
                                          )
                                          
                                          
                                          174,709Shares
      issued
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2,030,119
                                          
                                          
                                          
                                          2,030
                                          
                                          
                                          
                                          1,021,517
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1,023,547Net
      income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          567,060
                                          
                                          
                                          
                                          567,060Balance,
      December 31, 2008
                                          
                                          
                                          20,000
                                          
                                          
                                          $
                                          20
                                          
                                          
                                          
                                          5,443,157
                                          
                                          
                                          $
                                          5,443
                                          
                                          
                                          $
                                          90,926,274
                                          
                                          
                                          $
                                          (89,166,421
                                          )
                                          
                                          $
                                          1,765,316


See notes
to the consolidated financial statements.


32




MANGOSOFT,
INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year
      Ended December 31,2008
                                
                                
                                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                                
                                $
                                567,060
                                
                                
                                $
                                (789,233
                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Increase
      (decrease) in cash from the change in:Accounts
      receivable
                                
                                
                                (2,749
                                )
                                
                                
                                293Accounts
      payable
                                
                                
                                38,611
                                
                                
                                
                                62,828Accrued
      compensation
                                
                                
                                (4,712
                                )
                                
                                
                                -Other
      accrued expenses and current liabilities
                                
                                
                                42,370
                                
                                
                                
                                (12,634
                                )Net
      cash provided by (used in) operating activities
                                
                                
                                640,580
                                
                                
                                
                                (738,746
                                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayment
      of note payable
                                
                                
                                -
                                
                                
                                
                                (250,000
                                )Proceeds
      from common stock issued
                                
                                
                                1,023,547
                                
                                
                                
                                1,181,463Net
      cash provided by financing activities
                                
                                
                                1,023,547
                                
                                
                                
                                931,463NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                
                                
                                1,664,127
                                
                                
                                
                                192,717CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                                
                                
                                318,065
                                
                                
                                
                                125,348CASH
      AND CASH EQUIVALENTS, END OF YEAR
                                
                                $
                                1,982,192
                                
                                
                                $
                                318,065





See notes
to the consolidated financial statements.


33




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.





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, 2008.





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 DateSystem
      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


34




Title
                  
                  Application No./Patent No.
                  
                  Filing Date/Issue DateDynamic
      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.





The
Company received gross proceeds of $1,023,546 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


35




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 37% of total sales during 2008.
Accounts receivable from these two customers represents 39% of total accounts
receivable at December 31, 2008.  Accounts receivable from a third
customer represents an additional 16% of total accounts receivable at December
31, 2008.





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”.


36




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 antidilutive. At
December 31, 2008, we had 75,000 stock options outstanding which have been
included in diluted common shares outstanding. These 75,000 shares were excluded
in the December 31, 2007 diluted common shares due to their antidilutive
effect.


37




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, 2008, and 2007:





Years Ended December 31,2008
                
                
                2007Cash
      paid for interest
                
                $
                -
                
                
                $
                -Cash
      paid for income taxes
                
                $
                -
                
                
                $
                -


38




MANGOSOFT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
Summary of Significant Accounting Policies (continued)





Recently Issued
Accounting Pronouncements





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.


39




MANGOSOFT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





3. Litigation settlement
income





On
December 4, 2008, Mangosoft, Inc. entered into an agreement to settle its patent
litigation with Skype Technologies SA, Skype Software SARL and eBay Inc. titled
Mangosoft Intellectual Property, Inc. V. Skype Technologies, S.A. et al., Civil
Action No. 2:06CV-390 TJW, which was pending in the United States District Court
for the Eastern District of Texas. Under the terms of the Agreement, eBay and
its affiliates and subsidiaries will receive a non-exclusive license to all of
the patents or patent applications now owned by the Company, or in which the
Company has a controlling interest, for a one time fee in the amount of
$2,300,000. The Agreement also provides for general releases and dismisses the
existing litigation between the parties.  There was $879,537
associated with the settlement, thus netting cash proceeds of
$1,420,463.





4.
Income Taxes





The
Company has federal and state tax net operating loss carryforwards available for
future periods of approximately $72,200,000. 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, 2008 is as follows:





2008Deferred
      tax assets:Net
      operating loss carryforwards
                        
                        $
                        24,500,000Research
      and development credits
                        
                        
                        518,00025,018,000Valuation
      allowance
                        
                        
                        (25,018,000
                        )Net
      deferred tax assets
                        
                        $
                        -


40


MANGOSOFT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





4.
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, 2008 and 2007.





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





2008
                        
                        
                        2007Federal
      statutory rate
                        
                        
                        34
                        %
                        
                        
                        34
                        %State
      tax, net of federal impact
                        
                        
                        6
                        
                        
                        
                        6Provision
      for valuation allowance on deferred tax assets
                        
                        
                        (40
                        )
                        
                        
                        (40
                        )Effective
      tax rate
                        
                        
                        -
                        %
                        
                        
                        -
                        %




5.
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 $
6,463 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.





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.





6.
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, 2008, there were 179,652 remaining options available for grant
under the Plan.


41


MANGOSOFT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




6.
Stock Option Plan (continued)





No
stock-based compensation is included in the Company’s 2008 or 2007 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 was
no stock option activity in 2008 and 2007.





Stock
options granted and outstanding under the predecessor 1995 Stock Option Plan,
was as follows:





Number of
                                Options
                              
                              Weighted
                                Exercise
      PriceOutstanding
      at December 31, 2008
                              
                              75,000
                              
                              $
                              1.73Exercisable
      at December 31, 2008 and 2007
                              
                              75,000




Options
      Outstanding
                                            
                                            
                                            Options ExercisableNumber of Options
                                            
                                            Range of
                                              Exercise Prices
                                            
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Life (in
                                              years)
                                            
                                            
                                            Weighted
                                              Average
                                              ExercisePrice
                                            
                                            
                                            Number
                                              Currently
                                              Exercisable37,037
                                            
                                            $
                                            1.00
                                            
                                            
                                            
                                            2.75
                                            
                                            
                                            $
                                            1.00
                                            
                                            
                                            
                                            37,03737,963
                                            
                                            $
                                            4.05
                                            
                                            
                                            
                                            6.5
                                            
                                            
                                            $
                                            4.05
                                            
                                            
                                            
                                            37,96375,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            75,000




7.
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 2008 or
2007.


42




MANGOSOFT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




8.
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 outcomes 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.





9.
Related Party Transactions




None





10.
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 2008 and 2007 revenues were
generated from sales to North American customers.




11.
Subsequent Event





On
January 29, 2009, MangoSoft, Inc. (the “Company” or “MangoSoft”) agreed to loan
$600,000 to Plaintiff Holding XI LLC, a newly formed wholly owned subsidiary
(the “Subsidiary”) of Plaintiff Funding Holding, Inc., d/b/a LawCash
(“LawCash”).  Such $600,000 loan (the “Loan”) is evidenced by a
secured promissory note issued by the Subsidiary to MangoSoft having a term of
one (1) year and bearing interest at the rate of 14% per annum (the “MangoSoft
Secured Note”).  LawCash, through its various subsidiaries, is in the
business of financing litigations, and the proceeds of the Loan will be used to
fund various plaintiffs’ receivables in the normal course of LawCash’s
business.  The Subsidiary’s obligations with respect to the MangoSoft
Secured Note are guaranteed by LawCash (the “LawCash Guarantee”), and in
addition, Mr. Selig Zises has agreed to guarantee up to $120,000 of losses
incurred by the Company in connection with the MangoSoft Secured Note (the “Loss
Guarantee”).





Each of
the Company and LawCash are directly or indirectly controlled by Mr. Selig Zises
and Mr. Jay Zises.