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================================================================================

                   U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC 20549

                                  FORM 10-KSB

[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
    1934.
                    For the Fiscal Year Ended December 31, 2001

                                      or

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

                        Commission File Number: 0-30781

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

<TABLE>
<S>                                              <C>
                     Nevada                                 87-0543565
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
                 organization)

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

                   Issuer's telephone number: (508) 871-7300
      Securities registered under Section 12(b) of the Exchange Act: None
        Securities registered under Section 12(g) of the Exchange Act:
                        Common Stock, $0.001 par value

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

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

   State issuer's revenues for the most recent fiscal year:     $330,946

   State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and ask price of such common equity, as of
a specified date within the past 60 days: $10,059,974. This amount reflects the
average bid and ask price of the Company's common stock on the OTCBB on March
22, 2002.

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

                 Common Stock           27,352,033 Shares
               $0.001 Par Value   (Outstanding on March 28, 2002)

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                                MANGOSOFT, INC.

                             INDEX TO FORM 10-KSB

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<CAPTION>
                                                                                                     Page
                                               PART I                                                ----
<S>                                                                                                  <C>
ITEM 1-- Description of Business....................................................................   3
ITEM 2-- Description of Property....................................................................   9
ITEM 3-- Legal Proceedings..........................................................................   9
ITEM 4-- Submission of Matters to a Vote of Security Holders........................................   9

                                              PART II
ITEM 5-- Market for Common Equity and Related Stockholder Matters...................................  10
ITEM 6-- Management's Discussion and Analysis of Financial Condition and Results of Operations......  11
ITEM 7-- Financial Statements.......................................................................  15
ITEM 8-- Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......  15

                                              PART III
ITEM 9-- Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a)
          of the Exchange Act.......................................................................  16
ITEM 10-- Executive Compensation....................................................................  17
ITEM 11-- Security Ownership of Certain Beneficial Owners and Management............................  17
ITEM 12-- Certain Relationships and Related Transactions............................................  18
ITEM 13-- Exhibits and Reports on Form 8-K..........................................................  18
Signatures..........................................................................................  19
</TABLE>


                                      2

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                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS

(A) BUSINESS DEVELOPMENT

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

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

   Pursuant to the terms of the Merger Agreement, all of the outstanding
capital stock of MangoSoft Corporation was converted into common stock of
MangoSoft, Inc., par value $0.001 per share (the "Common Stock"), in accordance
with the conversion rates specified in the Merger Agreement. In connection with
the Merger, MangoSoft, Inc. issued 15,008,998 shares of Common Stock to
security holders and certain debt holders of MangoSoft Corporation. As part of
the Merger, we completed a private placement of 3,000,000 shares of common
stock for net proceeds of approximately $3.1 million. We also issued 300,000
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.

(B) BUSINESS OF MANGOSOFT

GENERAL

   We develop Internet business software and services that improve the utility
and effectiveness of Internet-based business applications. We develop, market
and support software solutions to address the networking needs of small
businesses, workgroups and large enterprises. 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. We compete
primarily with general technology suppliers such as Microsoft Corporation,
Oracle Corporation and Novell, Inc., as well as emerging Internet collaboration
companies such as Groove Networks, Inc. and eRoom Technology, Inc. We
anticipate that we will encounter substantial competition from these companies
as well as others entering the Internet storage and collaboration markets.

BUSINESS STRATEGY

   Our objective is to become the leading provider of secure, easy-to-use
Internet-based storage and collaboration products and services. Our technology
advances have enabled us to develop software tools that

                                      3

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enable our customers to conduct business more efficiently. Our strategy is to
leverage our patented technology to (a) advance our existing products and
services; (b) establish more comprehensive distribution channels and business
partnerships; and (c) productize our Multi-user Internet Drive
("Mangomind/SM/") service as a customer-hosted software product.

   We are exploring additional applications for our technology in today's
marketplace. We are developing software products and services for use in the
areas of wireless and handheld devices, web services and XML.

PRODUCTS

   MangoSoft has significant expertise in the areas of clustering and
distributed systems technology. 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 creates software and services that make the Internet a better
place for business. Our customers use Mangomind 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.

   Cachelink(TM) is a software-based web-caching product that increases the
delivery speed of Internet and Intranet content to end-users. Cachelink
utilizes our peer-to-peer clustering technology to efficiently link together
the individual browser caches of multiple systems on a LAN into an aggregated,
super cache, resulting in much faster Internet access without the expense of a
dedicated hardware caching appliance or server. It is a pure peer-to-peer
architecture, including a completely decentralized directory.

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

    .  Simultaneous, multi-user file access. Mangomind is the only Internet
       file-sharing service 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.

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    .  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. Mangomind 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.

   Cachelink is a LAN-based web-caching software product that significantly
improves the performance of Internet access for any size company to commonly
viewed web pages. Cachelink stores web information within a local network, a
technique known as "caching." Cachelink aggregates the cache from all the PCs
on a LAN and makes it available to the entire network. Therefore, rather than
going "outside" to the Internet to collect information, Cachelink enables the
information to be gathered "inside" within the LAN. In addition to increasing
the delivery speed of downloading web sites, Cachelink also reduces a company's
Internet traffic, and as a result maximizes bandwidth.

MARKETING AND SALES

   Our marketing and sales strategy is multi-faceted and focuses on small to
medium size companies as well as enterprise accounts. Our public relations
efforts are geared towards generating publicity in trade press, business
newspapers and other similar publications. We engage in direct marketing and
sales activities and manage a reseller channel. Our internal marketing and
sales efforts are made through a direct sales force that consists of both
salaried and commissioned sales persons. In addition, we 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 marketing and sales
personnel, enter into qualified reselling agreements with value-added resellers
("VARs") and original equipment manufacturers ("OEMs") as well as the overall
market perception of our products and services.

   We are employing varying marketing and sales strategies for our two
offerings - the Mangomind service and the Cachelink product.

   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
3.0.

   We have identified financial services, consulting, manufacturing,
healthcare, real estate and architecture 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 their
need for an efficient and secure means of file sharing and project
collaboration. Our direct marketing programs are geared towards gaining
visibility with business end users and Information Technology ("IT") managers
across these key vertical markets. In addition to this general exposure, our
marketing programs are designed to gain direct sales. We offer 15-day risk-free
trials to participants responding to our marketing programs. These participants
have become valuable prospects for our direct sales efforts.

   We continue to increase our selling efforts for the Mangomind service. We
record modest recurring monthly revenues from the sale of the Mangomind service
to small and medium size customers, which are primarily

                                      5

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generated from our direct marketing programs. In 2001, we became committed to
developing a channel for the Mangomind service and have hired a channel manager
to develop these channels. We are now working with OEMs and Internet Service
Providers ("ISPs") to purchase bulk Mangomind resources for resale.

   Our primary sales focus is 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. We currently have three pilot enterprise
implementations with a Fortune 100 insurance company, a Fortune 500 financial
institution and a Fortune 500 manufacturer.

   Cachelink

   We believe that the success of our marketing and sales strategy for the
Cachelink product is dependent, among other things, on the relationships we
establish with OEMs and the channels we develop. In 2001, we concluded a
value-added reseller agreement with 3Com Corporation. The majority of our
revenues for the year ended December 31, 2001 were generated under the terms of
this agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

   We are currently seeking alternative channels to distribute the Cachelink
product. We have targeted the educational market as the key vertical market for
the Cachelink product. In addition, we believe that the Cachelink product will
sell internationally. In 2001, we entered into a foreign distribution agreement
with a Korean reseller.

PRODUCT SUPPORT

   We provide channel and technical support to our partners through Internet
communication, electronic mail and a traditional telephone support line. We
depend on our resellers 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. Analysis of
support calls is used to improve and enhance both the product and the web site
content.

   We provide our Mangomind customers with twenty-four hour customer support.
Customer support is available through a dedicated telephone line, e-mail or via
our web site.

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" 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.

                                      6

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   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, 2001, we had 39 full-time employees. Our success is
highly dependent on our ability to attract and retain qualified employees.
Competition for employees is intense in the software industry. To date, we
believe we have been successful in our efforts to recruit qualified employees,
but there is no assurance that we will continue to be as successful in the
future. None of our employees are subject to collective bargaining agreements.

RISK FACTORS

   An investment in our common stock is speculative and subject to a high
degree of risk. You may lose money by investing in our common stock so only
persons who can bear the risk of the loss of their entire investment should
invest. Prospective investors should carefully consider the following factors
in deciding whether to invest in our common stock.

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

   We have a history of substantial operating losses and an accumulated deficit
of approximately $81.1 million as of December 31, 2001. For the years ended
December 31, 2001, 2000 and 1999, our losses from operations, excluding the net
effects of stock-based compensation, were $10.5 million, $13.9 million and $7.1
million, respectively. We have historically experienced cash flow difficulties
primarily because our expenses have exceeded our revenues. We expect to incur
additional operating losses and expect cumulative losses to increase
substantially as we expand our marketing, sales and research and development
efforts. 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 will require substantial additional capital to finance our growth and
product development. We can provide no assurances that we will obtain
additional financing sufficient to meet our future needs on commercially
reasonable terms or otherwise. If we are unable to obtain the necessary
financing, our business, operating results and financial condition will be
materially and adversely affected.

Our Performance Depends on Market Acceptance of Our Products.

   We expect to derive a substantial portion of our future revenues from the
sales of Cachelink and Mangomind both of which are in the initial marketing
phase. 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 will be materially and adversely affected.

We Depend in Part 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.

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

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

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

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

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

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

Litigation Concerning Intellectual Property Could Adversely Affect Our Business.

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

Our Success Depends on Key Personnel.

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

  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,

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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.

ITEM 2.  DESCRIPTION OF PROPERTY

   Our engineering and development, sales and marketing, customer support and
administrative offices are located in Westborough, Massachusetts, and consist
of approximately 14,000 square feet of office space under a lease expiring on
August 31, 2003. Our offices are leased from Westborough Five, an independent,
third party lessor. In January 2002, we restructured our facility lease to
eliminate approximately 14,000 square feet from our lease agreement. As a
condition of this facility lease restructuring, we are obligated to make
advanced lease payments to our lessor and contribute a portion of necessary
build out costs (approximately $130,000). Under this amended lease agreement,
our 2002 base facility rent will decrease from $704,000 to $429,000.

   The total rent expense on this facility in 2001 was approximately $704,000.
Our offices currently in use have the capacity to accommodate approximately 45
employees.

ITEM 3.  LEGAL PROCEEDINGS

   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, 2001 to a vote of our security holders, through the solicitation
of proxies or otherwise.

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                                    PART II

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

(A) Market Information

   As of December 31, 2001, we had a total of 27,002,033 shares of common stock
issued and outstanding. We first registered the majority of our outstanding
common stock on Form SB-2, Commission File No. 333-41886, which became
effective on November 28, 2000. On August 31, 2001, we amended that
registration statement on Form S-2, which became effective on September 17,
2001.

   Our common stock has been trading on the Over-The-Counter Bulletin Board
Market ("OTCBB") under the symbol "MNGX." Public trading of the common stock of
MangoSoft, Inc. commenced in October 1999. 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:

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                          2001            High   Low
                          ----           ------ -----
                          <S>            <C>    <C>
                          First Quarter. $ 2.84 $0.78
                          Second Quarter   1.58  0.58
                          Third Quarter.   1.23  0.37
                          Fourth Quarter   1.01  0.40

                          2000            High   Low
                          ----           ------ -----
                          First Quarter. $28.00 $8.13
                          Second Quarter  19.25  6.25
                          Third Quarter.  18.38  4.06
                          Fourth Quarter   8.13  0.97
</TABLE>

   On March 22, 2002, the last reported sale price of our common stock on the
OTCBB was $0.48 per share.

(B) Holders

   As of March 22, 2002, there were approximately 380 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 the development of our business.

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

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

   Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read together with our financial statements and related
notes included elsewhere in this Annual Report on Form 10-KSB. This Annual
Report on Form 10-KSB, including the following discussion, contains trend
analysis and other forward-looking statements within the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Any statements in this
Annual Report on Form 10-KSB that are not statements of historical facts are
forward-looking statements. These forward-looking statements are based on a
number of assumptions and involve risks and uncertainties. Actual results may
differ materially from those set forth in such forward-looking statements as a
result of factors set forth elsewhere in this Annual Report on Form 10-KSB,
including under "Risk Factors."

OVERVIEW

   We develop Internet business software and services that improve the utility
and effectiveness of Internet-based business applications. We develop, market
and support software solutions to address the networking needs of small
businesses, workgroups and large enterprises. Our products and services enhance
the performance of PC networks and deliver improved service utilizing existing
equipment.

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

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

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:

   Revenue Recognition--The majority of our revenues from current operations
are derived from sales of our Cachelink product, for which sales under our July
13, 2000 Value Added Reseller Agreement with 3Com Corporation ("3Com") have
amounted to approximately $212,000 in 2001 and $45,000 in 2000. We recognize
revenue generated from the sale of Cachelink when persuasive evidence of an
arrangement exists, the price is fixed and determinable, delivery has occurred
and collection is probable. We concluded this agreement with 3Com in 2001. We
began marketing and selling our Mangomind service to professional service
organizations and other business organizations in January 2001 and have
generated approximately $81,000 in revenues to date. We recognize revenue
generated from the sale of the Mangomind service as the service is provided.

   In February 2002, we executed a purchase and sale agreement with FleetBoston
Financial Corporation ("FleetBoston") whereby we acquired FleetBoston's
fileTRUST/SM/ online data storage service and related assets for approximately
$175,000 in cash, 350,000 shares of our common stock and 150,000 warrants to
purchase our common stock at $0.53 per share. We have entered into a two-year
enterprise license agreement with FleetBoston's for their continued use of
fileTRUST. In addition, FleetBoston will continue marketing fileTRUST on our
behalf. We will recognize revenue generated from the sale of the fileTRUST
service as the service is provided.

                                      11

<PAGE>

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

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

COSTS AND EXPENSES

   Cost of software license revenues and cost of services--Cost of software
license revenues primarily consist of disk replication costs and other costs we
incur in connection with sales of Cachelink. Cost of services consist solely of
the expenses we incur to administer the Mangomind service. These expenses
consist primarily of salaries and related personnel costs, the cost of our
outsourced data center, and the license royalties we pay to our e-security
software provider for the encryption used in the Mangomind service.

   Engineering and Development Expenses--Engineering and development expenses
consist primarily of salaries and related personnel costs and other costs
related to the design, development, testing, deployment and enhancement of our
products and services. We have expensed our engineering and development costs
as incurred. The engineering, research and development we perform is essential
to providing the most robust, reliable and secure products and services to our
end customers to meet their requirements and those of a changing market.

   Other Operating Expenses--Selling and marketing expenses consist primarily
of salaries and related personnel costs and additional costs incurred to market
our products and services such as the costs of attending and presenting at
trade shows. General and administrative expenses consist primarily of salaries
and related personnel costs and other general corporate costs such as facility
costs, commercial and general liability insurance, accounting and legal
expenses and other costs typical of a publicly held corporation.

   Reduction in Force--Effective April 23, 2001, we implemented an approximate
40% reduction in our work force due to adverse economic conditions and our need
to conserve capital. We believe that this reduction was necessary to reduce our
overhead and enable us to position ourselves for greater long-term success. We
incurred approximately $400,000 in severance and other personnel related costs
in connection with this action. Of this total, approximately $205,000 was
charged to engineering and development expenses, $175,000 was charged to
general and administrative expenses and $20,000 was charged to selling and
marketing expenses. At December 31, 2001, all but approximately $50,000 of
these expenses was fully paid.

RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 2001 AND 2000

   Revenue increased $270,408 from $60,538 in 2000 to $330,946 in 2001, an
increase of approximately 447%. We recognized $250,285 from the sale of the
Cachelink product and $80,661 from the sale of the Mangomind service. In 2000,
all of our revenues were generated from the sale of Cachelink; Mangomind was
not made commercially available until January 2001. The increase in revenues
was primarily attributable to the revenue we generated for the sale of
Cachelink under our agreement with 3Com. As a percentage of revenue, sales of
Cachelink to 3Com amounted to approximately 64% of our revenues. In 2000, our
largest customers

                                      12

<PAGE>

included 3Com and Premio Computer, Inc., which represented 74% and 18% of our
revenues, respectively. No other customer represented 10% or more of revenue in
either period.

   Cost of software license revenues represents the disk replication costs we
incurred in connection with our sales of Cachelink under an agreement with
3Com. Cost of software license revenues increased $28,056 from $8,955 in 2000
to $37,011 in 2001. This increase is consistent with the overall increase in
Cachelink sales made under this agreement.

   Cost of services for the year ended December 31, 2001 consisted primarily of
managed storage service costs and the salaries and related personnel costs of
our dedicated technical support on Mangomind operations teams. There were no
such costs incurred in 2000 as the Mangomind service was not made available
commercially until 2001.

   Engineering and development expenses decreased approximately 41% or
$2,273,941 from $5,513,467 in 2000 to $3,239,526 in 2001. The decrease in
engineering and development expenses was primarily attributable to a decrease
in our engineering and development personnel headcount and its related effect
on salaries and related personnel costs. A significant portion of our April 23,
2001 work force reduction was made to our engineering and development
departments.

   Other operating expenses including selling and marketing and general and
administrative expenses decreased approximately 22% or $1,830,679 to $6,443,179
in 2001 from $8,273,858 in 2000. The decrease in other operating expenses is
primarily attributable to our commitment to an aggressive cost savings plan
that began in early 2001 that, in effect, curtailed our mass marketing and
advertising campaigns that had begun in the third quarter of 2000.

   Stock-based compensation expense of $1,177,824 was recorded in 2001 compared
to a benefit of $15,098,350 in 2000. The significant fluctuation in this
expense is attributable to the fluctuations in the market price of our common
stock and the related effect on stock-based compensation recorded in employee
stock options accounted for as variable awards. See Note 6 to the consolidated
financial statements.

   Excluding the effects of stock-based compensation, our loss from operations
decreased approximately 24% or $3,351,010 to $10,546,020 in 2001 from
$13,897,030 in 2000 as a result of the above factors.

   Interest income decreased $592,485 to $510,389 in 2001 compared to
$1,102,874 in 2000. The decrease was attributable to the reduced balances of
our interest-bearing cash accounts as a result of our use of cash in operations
as well as a decrease in the rate of return on our investments in 2001 as
compared to 2000.

RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 2000 AND 1999

   Revenue increased $23,331 from $37,207 in 1999 to $60,538 in 2000, an
increase of approximately 63%. The increase was attributable principally to the
commercial release of Cachelink 3.0. All of our 2000 revenues were the result
of Cachelink sales, while in 1999, all of our revenues were generated from the
sale of the Medley product, which we have since discontinued. As a percentage
of revenue, our largest customers in 2000 included 3Com and Premio Computer,
Inc., which represented approximately 74% and 18% of our net revenues,
respectively. In 1999, Hitachi, Ltd. was the only customer that represented
more than 10% or our net revenues. No other customer represented 10% or more of
revenue in either period.

   Cost of revenues increased to $8,955 from $363 in 1999. The 2000 cost of
sales represented disk replication costs incurred in connection with our sales
to 3Com.

   Engineering and development expenses increased approximately 25% or
$1,092,564 to $5,513,467 in 2000 from $4,420,903 in 1999. The increase in
engineering and development expenses was primarily attributable to our on-going
development of the Mangomind service.

                                      13

<PAGE>

   Other operating expenses including selling and marketing and general and
administrative expenses increased approximately 215% or $5,650,970 to
$8,273,858 in 2000 from $2,622,888 in 1999. The increase in other operating
expenses was primarily attributable to (i) our increased selling and marketing
activities, which included a mass marketing campaign, (ii) an increase in
general and administrative staff and (iii) an increase in professional fees
associated with the registration of the majority of our common stock.

   We recorded a stock-based compensation benefit of $15,098,350 in 2000
compared to an expense of $20,734,695 in 1999. The significant fluctuation in
this expense is attributable to the fluctuations in the market price of our
common stock and the related effect on stock-based compensation recorded in
employee stock options accounted for as variable awards. See Note 6 to the
consolidated financial statements.

   Excluding the effects of stock-based compensation, our loss from operations
increased approximately 97% or $6,825,195 to $13,897,030 in 2000 from
$7,071,835 in 1999 as a result of the above factors.

   Interest income increased $1,089,332 from $13,542 in 1999 to $1,102,874 in
2000. The increase was attributable to interest earned on the investment of
proceeds we received from the sale of our common stock and Convertible
Preferred Stock, Series A, in March and April of 2000.

   Total interest expense decreased from $5,228,657 in 1999 to $10,224 in 2000.
Included in our 1999 total interest expense was $4,860,000 in interest expense
incurred as a result of a beneficial conversion feature on our February 1999
issuance of 12% convertible notes. The remaining decrease was attributable to
the conversion of our then outstanding debt into common stock in conjunction
with our Merger.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

   We were formed in June 1995 and since our formation have raised
approximately $74.2 million in financing from private placements of debt and
equity securities. The table below summarizes our financing activities:

<TABLE>
<CAPTION>
                                                                                       Aggregate Proceeds
      Date                                    Description                                (in millions)
      ----                                    -----------                              ------------------
<C>              <S>                                                                   <C>
  August 1995    MangoSoft Corporation Series A Convertible Preferred Stock...........       $ 1.5
 December 1995   MangoSoft Corporation Series B Convertible Preferred Stock...........         2.0
   June 1996     MangoSoft Corporation Series C Redeemable Convertible Preferred
                   Stock..............................................................         9.0
   April 1997    MangoSoft Corporation Series D Redeemable Convertible Preferred
                   Stock..............................................................         6.4
 December 1997   MangoSoft Corporation Series E Redeemable Convertible Preferred
                   Stock..............................................................        13.1
  October 1998   MangoSoft Corporation Demand Notes Issued to Related Parties.........         2.0
 February 1999   MangoSoft Corporation 12% Convertible Notes..........................         4.0
 September 1999  MangoSoft, Inc. Common Stock.........................................         3.8
 December 1999   MangoSoft, Inc. Demand Notes Issued to Related Parties...............         0.2
   March 2000    MangoSoft, Inc. Series A Preferred Stock (subsequently converted into
                   Common Stock)......................................................        10.0
March/April 2000 MangoSoft, Inc. Common Stock.........................................        21.0
    May 2000     MangoSoft, Inc. Common Stock.........................................         1.2
                                                                                             -----
                 Total................................................................       $74.2
                                                                                             =====
</TABLE>

                                      14

<PAGE>

   In addition to the financing we received through the sale of our securities,
we have, at times, depended on bank debt, loans from stockholders and directors
and credit from suppliers to meet our interim financing needs. Borrowings from
stockholders and directors have generally been refinanced with new debt
instruments or converted into additional equity. At December 31, 2001,
approximately $1.2 million in additional financing was provided through
accounts payables, accrued expenses and other trade credit.

   At December 31, 2001, we had a cash balance of approximately $6.9 million
and working capital of approximately $5.9 million. Excluding our facility lease
and other minor equipment leases, we do not have any commercial commitments or
off balance sheet financing. Our commitments under our operating leases are
described in Note 8 to our consolidated financial statements.

   Capital expenditures amounted to approximately $0.3 million in 2001 and
pertained primarily to the purchase of computer hardware, software and
communications equipment for our outsourced data center and customer support
infrastructure.

   During the year ended December 31, 2001, we emerged from the development
stage when we began recording commercial sales on both our Cachelink product
and Mangomind service.

   We intend to complete a private placement during 2002. Based upon our
current forecasted expense and cash flows, we believe this financing will be
adequate to fund continuing operations. However, we can provide no assurances
that we will be able to obtain this additional financing to meet our future
needs.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

ITEM 7.  FINANCIAL STATEMENTS

   Our consolidated financial statements and related notes, which are attached
to this Annual Report on Form 10-KSB beginning on page 23, are incorporated by
reference.

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

   None.

                                      15

<PAGE>

                                   PART III

ITEM9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
    COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

   Set forth below is a list of our directors and executive officers and their
principal occupations for the past five years. All of our officers provide
services to the Company on a full-time basis.

<TABLE>
<CAPTION>
   Name                Age Position
   ----                --- --------
   <C>                 <C> <S>
   Dale Vincent        57  Director, President and Chief Executive Officer
   Paul C. O'Brien (1) 62  Director and Non-Executive Chairman
   Tony Coelho (1)     58  Director
   Dr. Ira Goldstein   53  Director
   Dr. Nick Tredennick 55  Director
   Selig Zises         59  Director
   Donald A. Gaubatz   57  Senior Vice President and Chief Operating Officer
   Scott H. Davis      44  Vice President and Chief Technology Officer
   Robert E. Parsons   51  Vice President and Chief Financial Officer
</TABLE>
--------
(1)Member of the Audit Committee and the Compensation Committee.

   Dale Vincent was appointed President, Chief Executive Officer and elected a
Director following the Merger in September 1999. Previously, he served as the
Chief Executive Officer of MangoSoft Corporation since May 1999, as its Chief
Financial Officer from September 1998 to May 1999, and as a Director of
MangoSoft Corporation since July 1995. Mr. Vincent has over 25 years of senior
financial and business management experience, with the last 10 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.

   Paul C. O'Brien was elected a Director and Non-Executive Chairman following
the Merger in September 1999. He previously served MangoSoft Corporation in the
same capacity from June 1999 to September 1999. Mr. O'Brien has over 30 years
experience in the telecommunications industry. He has been the President of
Pan-Asia Development, an investment firm concentrating on Asian ventures, since
1995. In December 1994, Mr. O'Brien founded The O'Brien Group, Inc., a
telecommunications investment and consulting firm that provides pro bono
consulting services for a wide variety of non-profit organizations
concentrating on fund-raising and public policy issues. Prior to founding his
firm, he was employed by New England Telephone where he was appointed President
and Chief Executive Officer in 1988 and Chairman of the Board in 1993. Mr.
O'Brien serves as a Director of NETOPTIK and Renaissance Worldwide, and is
non-executive Chairman of the Board of View Tech and Cambridge Neuroscience. He
is also a Director of several private companies.

   Tony Coelho was elected a Director in February 2001. Previously, Mr. Coelho
served as a United States Congressman from 1978 to 1989. He has been the
Chairman of the President's Committee on Employment of People with Disabilities
since his appointment in 1994 by President Clinton and was appointed as Vice
Chair of the National Task Force on Employment of Adults with Disabilities in
1998. Mr. Coelho currently serves as a Director of the Epilepsy Foundation of
America, the National Organization on Disability, the National Rehabilitation
Hospital and VSA (formerly Very Special Arts).

   Dr. Ira Goldstein was elected a Director following the Merger in September
1999. He previously served MangoSoft Corporation in the same capacity from June
1999 to September 1999. Dr. Goldstein has been the Chief Scientist at the
LaserJet Imaging Division of Hewlett-Packard Company ("HP") for the past three
years. Prior to his current position, he served HP as Chief Technology Officer
for two years. Previously, he managed a research center at HP Laboratories and
various product divisions in the areas of software development, networking,
imaging and security.

                                      16

<PAGE>

   Dr. Nick Tredennick was elected a Director in February 2000. He previously
served on the MangoSoft Corporation Board of Advisors since the Merger. Dr.
Tredennick has served as President of Tredennick, Inc., a technical consulting
company, since 1989. He served as Chief Scientist for Altera and currently
serves as Chief Scientist for QuickSilver Technology. Dr. Tredennick holds nine
patents in microprocessor logic design and reconfigurable computing. Dr.
Tredennick was named a Fellow of the IEEE for his contributions in
microprocessor design and recently was nominated as an IEEE representative to
the Engineering Accreditation Commission. Dr. Tredennick is on the Board of
Directors of OpenReach.

   Selig Zises was elected a Director following the Merger in September 1999.
He previously served MangoSoft Corporation in the same capacity from July 1995
to September 1999. Mr. Zises has served as a Managing Director and Treasurer of
ACAP, Inc., the general partner of Associated Capital L.P. since April 1990. In
this capacity, he consults with Associated Capital L.P. with respect to its
trading and investment activities. He was a co-founder of Integrated Resources,
Inc. and served as its Chairman and Chief Executive Officer from 1969 through
early 1989. Mr. Zises is the Chairman of the Board of Associated Venture
Management, a venture capital and merchant-banking firm.

   Dr. Donald A. Gaubatz was appointed Senior Vice President and Chief
Operating Officer in January 2000. He previously served on the Board of
Advisors since the Merger. Previously, Dr. Gaubatz was an independent investor
and consultant, working with development stage companies in the fields of
video, optical and wireless networking. From 1978 to 1994, Dr. Gaubatz held
numerous positions at Digital Equipment Corporation.

   Scott H. Davis was appointed Vice President and Chief Technology Officer
following the Merger in September 1999. He previously served MangoSoft
Corporation in the same capacity since October 1998. From September 1995
through September 1998, he served MangoSoft Corporation as the Director of
Software Development. Prior to joining MangoSoft Corporation in September 1995,
Mr. Davis was employed at Digital Equipment Corporation where he held a variety
of engineering and management positions over a 16-year period.

   Robert E. Parsons was appointed Vice President and Chief Financial Officer
following the Merger in September 1999. He previously served MangoSoft
Corporation in the same capacity since August 1999. From 1992 through August
1999, he was employed by Advanced Modular Solutions, Inc., a privately held
technology company that develops networked client/server computing systems,
high availability/fault tolerant computing systems, network attached storage
systems and fully integrated streaming video solutions. He served Advanced
Modular Solutions, Inc. as its Chief Financial Officer from 1997 to August
1999, as Director of Manufacturing during 1996 and 1997, and as Controller from
1992 to 1996.

Additional Information

   Additional information required by this item is incorporated by reference to
the information set forth in the Proxy Statement for our 2002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year ended December 31, 2001.

ITEM 10.  EXECUTIVE COMPENSATION

   The information required by this item is incorporated by reference to the
information set forth in the Proxy Statement for our 2002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year ended December 31, 2001.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this item is incorporated by reference to the
information set forth in the Proxy Statement for our 2002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year ended December 31, 2001.

                                      17

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is incorporated by reference to the
information set forth in the Proxy Statement for our 2002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days of the end of our fiscal year ended December 31, 2001.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:


<TABLE>
<CAPTION>
Exhibit
Number  Description of Exhibit
------  ----------------------
<S>     <C>
 2.1    Agreement and Plan of Merger by and among First American Clock Co., MangoSoft Corporation
        and MangoMerger Corp., dated as of August 27,1999. (1)
 3.1    Articles of Incorporation, as amended. (2)
 3.2    By-laws. (2)
 10     Lease of Westborough Office Park, Building Five, dated November 10, 1995. (3)
 16     Letter on Change in Certifying Accountant. (4)
 21     Subsidiary of the Registrant. (2)
 23.1   Consent of Deloitte & Touche.
 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   Value Added Reseller Agreement, dated July 14, 2000, between MangoSoft, Inc. and 3Com
        Corporation. (5)
</TABLE>
--------
(1)Filed as an exhibit to our Current Report on Form 8-K for an event dated
   September 7, 1999 and hereby incorporated by reference thereto.

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

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

(4)Filed as an exhibit to our Current Report on Form 8-K/A for an event dated
   January 11, 2000 and hereby incorporated by reference thereto.

(5)Filed as an exhibit to our Registration Statement on Form 10-SB/A, filed
   August 30, 2000, and hereby incorporated by reference thereto.

                                      18

<PAGE>

                                  SIGNATURES

   In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form 10-KSB and authorized this Annual
Report to be signed on its behalf by the undersigned, in Westborough,
Massachusetts, on the 29/th/ day of March 2002.

                                          MANGOSOFT, INC.

                                          By:
                                                   /S/  ROBERT E. PARSONS
                                             ----------------------------------
                                                     Robert E. Parsons
                                             Vice President and Chief Financial
                                                          Officer
                                                 (chief accounting officer)

   In accordance with the requirements of the Securities Act of 1933, this
Annual Report has been signed by the following persons in the capacities and on
the dates stated:

         Signature                         Title                      Date
         ---------                         -----                      ----
    /S/   DALE VINCENT     President and Chief Executive         March 29, 2002
 -------------------------
       Dale Vincent        Officer (Principal executive officer)

  /S/   ROBERT E. PARSONS  Vice President and Chief Financial    March 29, 2002
 -------------------------
     Robert E. Parsons     Officer (Principal financial and
                           accounting officer)

     /S/   TONY COELHO     Director                              March 29, 2002
 -------------------------
        Tony Coelho

  /S/   DR. IRA GOLDSTEIN  Director                              March 29, 2002
 -------------------------
     Dr. Ira Goldstein

   /S/   PAUL C. O'BRIEN   Director                              March 29, 2002
 -------------------------
      Paul C. O'Brien

 /S/   DR. NICK TREDENNICK Director                              March 29, 2002
 -------------------------
    Dr. Nick Tredennick

     /S/   SELIG ZISES     Director                              March 29, 2002
 -------------------------
        Selig Zises


                                      19

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
Independent Auditors' Report..............................................................  21
Consolidated Balance Sheets as of December 31, 2001 and 2000..............................  22
Consolidated Statements of Operations For The Years Ended December 31, 2001, 2000 and 1999  23
Consolidated Statements of Stockholders' Equity (Deficiency) For The Years Ended
  December 31, 2001, 2000 and 1999........................................................  24
Consolidated Statements of Cash Flows For The Years Ended December 31, 2001, 2000 and 1999  26
Notes to Consolidated Financial Statements................................................  27
</TABLE>








                                      20

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of MangoSoft, Inc.
and subsidiary (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of MangoSoft, Inc. and
subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

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

/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 22, 2002

                                      21

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                            --------------------------
                                                                                2001          2000
                                                                            ------------  ------------
<S>                                                                         <C>           <C>
ASSETS
Current Assets:
 Cash and cash equivalents................................................. $  6,911,906  $ 17,354,025
 Accounts receivable.......................................................       41,925        10,639
 Prepaid expenses and other current assets.................................      199,653       155,445
                                                                            ------------  ------------
   Total current assets....................................................    7,153,484    17,520,109
Property and Equipment - Net...............................................      875,533     1,164,916
Other Assets...............................................................        2,400         2,400
                                                                            ------------  ------------
       Total............................................................... $  8,031,417  $ 18,687,425
                                                                            ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accrued expenses to related parties....................................... $      6,985  $     10,000
 Accounts payable..........................................................      765,934     1,285,614
 Accrued compensation......................................................      309,426       286,552
 Other accrued expenses....................................................      141,624       228,955
 Deferred revenue..........................................................       13,059        55,000
                                                                            ------------  ------------
   Total current liabilities...............................................    1,237,028     1,866,121
                                                                            ------------  ------------
Commitments and Contingencies (Note 8)
Stockholders' Equity:
 Preferred stock--$0.001 par value; authorized, 5,000,000 shares;
   issued and outstanding, none............................................           --            --
 Common stock--$0.001 par value; authorized, 100,000,000 shares; issued and
   outstanding, 27,002,033 shares in 2001 and 26,956,842 shares in 2000....       27,002        26,957
 Additional paid-in capital................................................   89,560,431    90,431,502
 Deferred compensation.....................................................   (1,678,303)   (3,735,869)
 Accumulated deficit.......................................................  (81,114,741)  (69,901,286)
                                                                            ------------  ------------
   Total stockholders' equity..............................................    6,794,389    16,821,304
                                                                            ------------  ------------
       Total............................................................... $  8,031,417  $ 18,687,425
                                                                            ============  ============
</TABLE>


              See notes to the consolidated financial statements.

                                      22

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                        ----------------------------------------
                                                            2001               2000               1999
                                                        ------------       ------------       ------------
<S>                                                     <C>                <C>                <C>
Software license revenues.............................. $    250,285       $     60,538       $     37,207
Service revenues.......................................       80,661                 --                 --
                                                        ------------       ------------       ------------
       Total revenues..................................      330,946             60,538             37,207
Costs and expenses:
   Cost of software license revenues...................       37,011              8,955                363
   Cost of services (1)................................    1,037,765                 --                 --
   Engineering and development (1).....................    3,239,526          5,513,467          4,420,903
   Selling and marketing (1)...........................    1,944,196          3,546,272            412,842
   General and administrative (1)......................    4,498,983          4,727,586          2,210,046
   Stock-based compensation expense....................    1,177,824        (15,098,350)        20,734,695
   Consulting fees paid to related parties.............      119,485            161,288             64,888
                                                        ------------       ------------       ------------
       (Loss) income from operations...................  (11,723,844)         1,201,320        (27,806,530)
Interest income........................................      510,389          1,102,874             13,542
Interest expense (2)...................................           --             10,224          5,228,657
                                                        ------------       ------------       ------------
Net (loss) income......................................  (11,213,455)         2,293,970        (33,021,645)
Accretion of preferred stock...........................           --          9,627,147          1,884,923
                                                        ------------       ------------       ------------
Net loss applicable to common stockholders............. $(11,213,455)      $ (7,333,177)      $(34,906,568)
                                                        ============       ============       ============
Net loss per share applicable to common stockholders -
  basic and diluted.................................... $      (0.42)      $      (0.29)      $      (5.44)
Weighted average shares outstanding - basic and diluted   26,970,377         25,045,079          6,414,178
--------
(1)  Excludes stock-based compensation expense as follows:
     Cost of services.................................. $     71,492       $         --       $         --
     Engineering and development.......................      334,192         (9,150,884)        10,085,922
     Selling and marketing.............................      208,360           (606,575)         1,303,333
     General and administrative........................      563,780         (5,340,891)         9,345,440
                                                        ------------       ------------       ------------
                                                        $  1,177,824       $(15,098,350)      $ 20,734,695
                                                        ============       ============       ============
</TABLE>

(2)Includes $4,860,000 in interest relating to a beneficial conversion feature
   in 1999; $3,027,375 pertained to related parties and $1,832,625 pertained to
   unrelated third parties.


              See notes to the consolidated financial statements.

                                      23

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
                                                            Convertible         Convertible
                                                         Preferred Stock,     Preferred Stock,
                                                             Series A             Series B          Common Stock
                                                       --------------------  -----------------  -------------------

                                                         Shares     Amount    Shares   Amount     Shares    Amount
                                                       ----------  --------  --------  -------  ----------  -------
<S>                                                    <C>         <C>       <C>       <C>      <C>         <C>
Balance, January 1, 1998..............................  2,250,000  $ 22,500   750,002  $ 7,500     761,250  $   761
Accretion of redeemable preferred stock...............         --        --        --       --          --       --
Purchase and retirement of common stock from related
 party at $0.50 per share.............................         --        --        --       --    (200,000)    (200)
Adjustment to reflect the exchange of common stock in
 connection with the reverse merger, at $0.001 par
 value................................................         --        --        --       --    (460,381)    (460)
Issuance of common stock in exchange for preferred
 stock................................................ (2,250,000)  (22,500) (750,002)  (7,500)  5,908,129    5,908
Conversion of 12% senior secured convertible notes
 payable and related accrued interest at $0.71 per
 share................................................         --        --        --       --   9,000,000    9,000
Beneficial conversion feature of 12% convertible notes         --        --        --       --          --       --
Common stock held by First American Clock Co.
 shareholders, converted into $0.001 par value
 common stock.........................................         --        --        --       --   1,575,000    1,575
Issuance of common stock to placement agent, valued at
 $1.25 per share......................................         --        --        --       --     300,000      300
Issuance of common stock at $1.25 per share, net of
 $651,173 in offering costs...........................         --        --        --       --   3,000,000    3,000
Stock-based compensation..............................         --        --        --       --      40,129       40
Net loss..............................................         --        --        --       --          --       --
                                                       ----------  --------  --------  -------  ----------  -------
Balance, December 31, 1999............................         --        --        --       --  19,924,127   19,924
                                                       ----------  --------  --------  -------  ----------  -------
Issuance of convertible preferred stock, Series A at
 $4.00 per share, net of $947,129 in issuance costs...  2,500,000     2,500        --       --          --       --
Conversion of accounts payable at various prices
 ranging from $5.00 to $8.00 per share................         --        --        --       --      71,500       72
Issuance of common stock at prices ranging from $4.00
 to $5.00 per share, net of $44,000 in issuance costs.         --        --        --       --   4,386,222    4,386
Conversion of preferred stock to common stock......... (2,500,000)   (2,500)       --       --   2,500,000    2,500
Stock options exercised...............................         --        --        --       --      41,200       41
Stock-based compensation (benefit)....................         --        --        --       --      33,793       34
Net income............................................         --        --        --       --          --       --
                                                       ----------  --------  --------  -------  ----------  -------
Balance, December 31, 2000............................         --  $     --        --  $    --  26,956,842  $26,957
                                                       ----------  --------  --------  -------  ----------  -------
</TABLE>
<TABLE>
<CAPTION>



                                                        Additional
                                                         Paid-In       Deferred   Accumulated
                                                         Capital     Compensation   Deficit        Total
                                                       ------------  ------------ ------------  ------------
<S>                                                    <C>           <C>          <C>           <C>
Balance, January 1, 1998.............................. $         --  $        --  $(37,288,688) $(37,257,927)
Accretion of redeemable preferred stock...............           --           --    (1,884,923)   (1,884,923)
Purchase and retirement of common stock from related
 party at $0.50 per share.............................      (99,800)          --            --      (100,000)
Adjustment to reflect the exchange of common stock in
 connection with the reverse merger, at $0.001 par
 value................................................          460           --            --            --
Issuance of common stock in exchange for preferred
 stock................................................   33,872,709           --            --    33,848,617
Conversion of 12% senior secured convertible notes
 payable and related accrued interest at $0.71 per
 share................................................    6,368,409           --            --     6,377,409
Beneficial conversion feature of 12% convertible notes    4,860,000           --            --     4,860,000
Common stock held by First American Clock Co.
 shareholders, converted into $0.001 par value
 common stock.........................................       (1,575)          --            --            --
Issuance of common stock to placement agent, valued at
 $1.25 per share......................................      374,700           --            --       375,000
Issuance of common stock at $1.25 per share, net of
 $651,173 in offering costs...........................    3,095,827           --            --     3,098,827
Stock-based compensation..............................   23,714,998   (2,980,343)           --    20,734,695
Net loss..............................................           --           --   (33,021,645)  (33,021,645)
                                                       ------------  -----------  ------------  ------------
Balance, December 31, 1999............................   72,185,728   (2,980,343)  (72,195,256)   (2,969,947)
                                                       ------------  -----------  ------------  ------------
Issuance of convertible preferred stock, Series A at
 $4.00 per share, net of $947,129 in issuance costs...    9,761,600           --            --     9,764,100
Conversion of accounts payable at various prices
 ranging from $5.00 to $8.00 per share................      329,928           --            --       330,000
Issuance of common stock at prices ranging from $4.00
 to $5.00 per share, net of $44,000 in issuance costs.   22,376,895           --            --    22,381,281
Conversion of preferred stock to common stock.........           --           --            --            --
Stock options exercised...............................      120,209           --            --       120,250
Stock-based compensation (benefit)....................  (14,342,858)    (755,526)           --   (15,098,350)
Net income............................................           --           --     2,293,970     2,293,970
                                                       ------------  -----------  ------------  ------------
Balance, December 31, 2000............................ $ 90,431,502  $(3,735,869) $(69,901,286) $ 16,821,304
                                                       ------------  -----------  ------------  ------------
</TABLE>

 Consolidated Statement of Stockholders' Equity (Deficiency) continued on next
                                     page

                                      24

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY


         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)


<TABLE>
<CAPTION>
                             Convertible      Convertible
                           Preferred Stock, Preferred Stock,
                               Series A         Series B        Common Stock
                           ---------------- ---------------- ------------------
                                                                                Additional
                                                                                 Paid-In       Deferred   Accumulated
                           Shares   Amount  Shares   Amount    Shares   Amount   Capital     Compensation   Deficit
                           ------  -------  ------  -------  ---------- ------- -----------  ------------ ------------
<S>                        <C>     <C>      <C>     <C>      <C>        <C>     <C>          <C>          <C>
Balance, December 31, 2000   --    $    --    --    $    --  26,956,842 $26,957 $90,431,502  $(3,735,869) $(69,901,286)
 Stock options exercised..   --         --    --         --      45,191      45       8,671           --            --
 Stock-based
   compensation...........   --         --    --         --          --      --    (879,742)   2,057,566            --
 Net loss.................   --         --    --         --          --      --          --           --   (11,213,455)
                             --    -------    --    -------  ---------- ------- -----------  -----------  ------------
Balance,
  December 31, 2001.......   --    $    --    --    $    --  27,002,033 $27,002 $89,560,431  $(1,678,303) $(81,114,741)
                             ==    =======    ==    =======  ========== ======= ===========  ===========  ============
</TABLE>
<TABLE>
<CAPTION>






                              Total
                           ------------
<S>                        <C>
Balance, December 31, 2000 $ 16,821,304
 Stock options exercised..        8,716
 Stock-based
   compensation...........    1,177,824
 Net loss.................  (11,213,455)
                           ------------
Balance,
  December 31, 2001....... $  6,794,389
                           ============
</TABLE>





              See notes to the consolidated financial statements



                                      25

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                  ----------------------------------------
                                                                      2001          2000          1999
                                                                  ------------  ------------  ------------
<S>                                                               <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................ $(11,213,455) $  2,293,970  $(33,021,645)
Adjustments to reconcile net (loss) income to net cash used in
  operating activities:..........................................
   Depreciation and amortization.................................      541,602       356,711       115,752
   Stock-based compensation......................................    1,177,824   (15,098,350)   20,734,695
   Beneficial conversion feature of 12% convertible notes........           --            --     4,860,000
   Accrued interest converted into paid-in-capital in connection
     with the conversion of the 12% convertible notes............           --            --       377,409
   Loss on the disposal of equipment.............................        6,647            --            --
   Increase (decrease) in cash from the change in:...............
       Accounts receivable.......................................      (31,286)      (10,639)        9,458
       Prepaid expenses and other current assets.................      (44,208)      (27,290)       11,799
       Accounts payable..........................................     (519,680)      (18,012)     (209,468)
       Accrued compensation......................................       22,874        94,361        49,357
       Accrued expenses to related parties.......................       (3,015)     (702,683)       64,888
       Other accrued expenses....................................      (87,331)     (111,141)       (9,422)
       Deferred revenue..........................................      (41,941)       55,000       (19,160)
                                                                  ------------  ------------  ------------
          Net cash used in operating activities..................  (10,191,969)  (13,168,073)   (7,036,337)
                                                                  ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............................     (258,866)   (1,373,738)      (57,377)
Decrease in other long-term assets...............................           --         3,543            --
Merger costs.....................................................           --       (77,893)     (198,280)
                                                                  ------------  ------------  ------------
          Net cash used in investing activities..................     (258,866)   (1,448,088)     (255,657)
                                                                  ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes to related parties...........           --            --     2,232,500
Proceeds from other debt financings..............................           --            --     2,000,000
Repayments of notes issued to related parties....................           --      (232,500)           --
Repayments of other debt financings..............................           --       (92,904)     (793,184)
Stock options exercised..........................................        8,716       120,250
Net proceeds from the issuance of common and preferred shares....                 32,145,381     3,750,000
Purchase of common stock from related party......................           --            --      (100,000)
                                                                  ------------  ------------  ------------
          Net cash provided by financing activities..............        8,716    31,940,227     7,089,316
                                                                  ------------  ------------  ------------
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS....................................................  (10,442,119)   17,324,066      (202,678)
CASH AND CASH EQUIVALENTS, BEGINNING OF
  PERIOD.........................................................   17,354,025        29,959       232,637
                                                                  ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, END OF YEAR........................... $  6,911,906  $ 17,354,025  $     29,959
                                                                  ============  ============  ============
</TABLE>

              See notes to the consolidated financial statements.

                                      26

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Nature of Business and Operations

   MangoSoft, Inc. and subsidiary (the "Company") develops Internet business
software and services that improve the utility and effectiveness of
Internet-based business applications. The Company develops, markets and
supports software solutions to 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.

   On September 7, 1999, MangoMerger Corp., a wholly-owned subsidiary of First
American Clock Co. ("First American"), merged with and into MangoSoft
Corporation, pursuant to an Agreement and Plan of Merger (the "Merger") dated
August 27, 1999. Following the Merger, the business to be conducted by First
American was the business conducted by MangoSoft Corporation prior to the
Merger. In conjunction with the Merger, First American, which is the legal
acquirer and surviving legal entity, changed its name to MangoSoft, Inc

   Immediately after the Merger, the former common and preferred stockholders
of MangoSoft Corporation held 6,008,998 shares of the Company's common stock,
while the former common stockholders of First American held 1,575,000 shares of
the Company's common stock. In addition, the 12% Senior Secured Convertible
Notes (the "12% convertible notes") in the aggregate of $6,000,000 held by
creditors of MangoSoft Corporation were converted into an aggregate of
9,000,000 shares of the Company's common stock. As part of the Merger, the
Company completed a Private Placement (the "Private Placement") of 3,000,000
shares of common stock for net proceeds of $3,098,827. The Company also issued
300,000 shares of common stock to the placement agent in respect of such
Private Placement.

   At the time of the Merger, the common shares issued to the former
stockholders of MangoSoft Corporation represented a majority of the Company's
common stock, enabling them to retain voting and operating control of the
Company. Because First American was a nonoperating entity and the closing of
the Private Placement was contingent upon the closing of the Merger, the Merger
was accounted for as a capital transaction and was treated as a reverse
acquisition, as the shareholders of MangoSoft Corporation received the larger
portion of the voting interests in the combined enterprise. Estimated costs of
the Merger of $276,173 and the value ($375,000) of the 300,000 shares of common
stock issued to the placement agent have been recorded as issuance costs of the
Private Placement.

   Through December 31, 2001, the Company was considered to be a development
stage company because it had not generated significant revenues from products
and had not commercially launched its principal product line. In January 2001,
the Company launched its principal product and began to recognize revenues for
the sale of this product. As such, effective January 1, 2001, the Company was
deemed to have exited the development stage.

   As shown in the consolidated financial statements, during each of the three
years in the period ended December 31, 2001, the Company incurred net income
(loss) of $(11,213,455), $2,293,970 and $(33,021,645), respectively. Absent the
reversal of stock-based compensation expense in 2000, the net loss would have
been $(12,804,380). Cash used in operations during each of the three years in
the period ended December 31, 2001 was $10,191,969, $13,168,073 and $7,036,337,
respectively. These factors, among others, raise significant doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow and meet its obligations on a timely basis and
ultimately attain profitability.

2.  Summary of Significant Accounting Policies

   Principles of Consolidation--As described in Note 1, the Company completed
the Merger on September 7, 1999 that has been accounted for as a reverse
acquisition. Accordingly, the Company's consolidated financial statements for
periods prior to September 7, 1999 represent those of MangoSoft Corporation,
which is considered

                                      27

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2.  Summary of Significant Accounting Policies (continued)

to be the acquirer for accounting purposes. The consolidated financial
statements for periods subsequent to September 7, 1999 include the accounts of
the Company and its wholly-owned subsidiary after the elimination of all
significant intercompany balances.

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

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

   Property and Equipment--Property and equipment consists primarily of
computer equipment and is recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives
(generally three to five years) of the related assets. The Company periodically
evaluates the recoverability of its long-lived assets based on the expected
undiscounted cash flows and recognizes impairments, if any, based on discounted
cash flows. The Company has recognized no such impairments.

   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 using the intrinsic value method in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and complies with the disclosure provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."

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

   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.

                                      28

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Summary of Significant Accounting Policies (continued)

   Comprehensive Income--Comprehensive income (loss) was equal to net income
(loss) for each year presented.

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

   A reconciliation of net (loss) per common share and the weighted average
shares used in the net (loss) per share calculations is as follows:

<TABLE>
<CAPTION>
                                 Net Loss
                           Applicable to Common
                               Stockholders        Shares     Per Share
                               (Numerator)      (Denominator)  Amount
                           -------------------- ------------- ---------
        <S>                <C>                  <C>           <C>
        2001
         Basic............     $(11,213,455)     26,970,377    $(0.42)
         Effect of options               --              --        --
                               ------------      ----------    ------
         Diluted..........     $(11,213,455)     26,970,377    $(0.42)
                               ============      ==========    ======
        2000
         Basic............     $ (7,333,177)     25,045,079    $(0.29)
         Effect of options               --              --        --
                               ------------      ----------    ------
         Diluted..........     $ (7,333,177)     25,045,079    $(0.29)
                               ============      ==========    ======
        1999
         Basic............     $(34,906,568)      6,414,178    $(5.44)
         Effect of options               --              --        --
                               ------------      ----------    ------
         Diluted..........     $(34,906,568)      6,414,178    $(5.44)
                               ============      ==========    ======
</TABLE>

   Basic and diluted loss per common share are the same for 2001, 2000 and 1999
as potentially dilutive stock options totaling 5,654,110 in 2001, 5,763,971 in
2000 and 3,150,428 in 1999 have not been included in calculations of diluted
net loss per common share available to common stockholders, as their inclusion
would have been antidilutive.

   Reclassifications--Certain reclassifications have been made to the 2000 and
1999 amounts to conform to the 2001 presentation.

                                      29

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)


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, 2001, 2000
and 1999:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                                  -----------------------------
                                                                   2001      2000       1999
                                                                  ------- ---------- ----------
<S>                                                               <C>     <C>        <C>
Cash paid for interest........................................... $    -- $   10,224 $   18,964
NON CASH FINANCING ACTIVITIES:
    Accretion of preferred stock.................................      --  9,627,147  1,884,923
    Conversion of accounts payable into common stock.............      --    330,000         --
   Fair value of warrants issued in connection with the sale of
     the convertible preferred stock, Series A...................      --    711,229         --
</TABLE>

   Recently Issued Accounting Pronouncements--In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires recognition of all derivatives as either assets or
liabilities on the balance sheet and measurement of those instruments at fair
value. The Company adopted SFAS No. 133 on January 1, 2001. SFAS No. 133 has
had no impact on the Company, as it does not engage in derivative or hedging
activities.

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 was effective
immediately and SFAS No. 142 will be effective January 2002. The new standards
are not expected to have a significant impact on the Company's consolidated
financial statements.

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

3.  Property and Equipment

   Property and equipment at December 31, 2001 and 2000 consists of the
following:

<TABLE>
<CAPTION>
                                             2001        2000
                                          ----------  -----------
             <S>                          <C>         <C>
             Computer equipment.......... $1,621,859  $ 2,904,597
             Furniture and fixtures......     96,319      330,959
             Leasehold improvements......     27,449      216,813
                                          ----------  -----------
             Total.......................  1,745,627    3,452,369
             Accumulated depreciation....   (870,094)  (2,287,453)
                                          ----------  -----------
             Property and equipment - net $  875,533  $ 1,164,916
                                          ==========  ===========
</TABLE>

                                      30

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3.  Property and Equipment (continued)

   In connection with the reduction in work force in 2001 and exiting the space
it occupied under a facility lease, approximately $1,954,000 in fully
depreciated assets were disposed of.

4.  Income Taxes

   The Company has federal and state tax net operating loss carryforwards
available for future periods of approximately $65,188,000. The federal tax net
operating loss carryforwards expire beginning in 2010, and state tax net
operating loss carryforwards began expiring in 2000. As a result of the changes
in the ownership of the Company, there may be limitations on the amounts of net
operating loss carryforwards that may be utilized in any one year. The Company
also has research and development credits for federal and state tax purposes of
approximately $1,448,000 and $1,041,000, respectively, which expire beginning
in 2011.

   The tax effect of significant items comprising the Company's deferred tax
assets at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                               2001          2000
                                           ------------  ------------
         <S>                               <C>           <C>
         Deferred tax assets:
          Net operating loss carryforwards $ 26,190,000  $ 22,245,000
          Stock-based compensation........    2,006,000     1,533,000
          Research and development credits    2,346,000     2,162,000
          Depreciation and amortization...      221,000       248,000
          Organization costs and software.       11,000        18,000
          Accrued vacation................       34,000        39,000
                                           ------------  ------------
                                             30,808,000    26,245,000
         Valuation allowance..............  (30,808,000)  (26,245,000)
                                           ------------  ------------
          Net deferred tax assets......... $         --  $         --
                                           ============  ============
</TABLE>

   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 of these assets as of December 31, 2001 and 2000.

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

<TABLE>
<CAPTION>
                                                            2001  2000  1999
                                                            ----  ----  ----
   <S>                                                      <C>   <C>   <C>
   Federal statutory rate.................................. (34)%   34% (34)%
   State tax, net of federal impact........................  (6)     6   (6)
   Stock-based compensation expense (benefit)..............  --   (205)  21
   Provision for valuation allowance on deferred tax assets (40)   165   19
                                                            ---   ----  ---
   Effective tax rate...................................... -- %   -- %  -- %
                                                            ===   ====  ===
</TABLE>

                                      31

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5.  Stockholders' Equity

   Common Stock--At December 31, 2001, the Company had 100,000,000 authorized
shares of common stock, $0.001 par value per share, of which 27,002,033 were
issued and outstanding.

   Preferred stock--At December 31, 2001, the Company had 5,000,000 authorized
shares of preferred stock, $0.001 par value per share, of which no shares were
issued and outstanding.

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

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

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

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

   In connection with the Merger in September 1999, as described in Note 1, all
shares of MangoSoft Corporation common stock and Preferred Stock were converted
into common stock of MangoSoft, Inc. In addition, all outstanding options and
warrants to purchase MangoSoft Corporation common stock were terminated and new
options to purchase MangoSoft, Inc. common stock were issued in their place.

                                      32

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.  Stock Option Plan

   In connection with the Merger, MangoSoft Corporation's 1995 Stock Option
Plan was terminated and the Company adopted the 1999 Incentive Compensation
Plan (the "Plan"). As amended, the Plan provides for the issuance of up to
8,000,000 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, 2001, there
were 2,180,077 remaining options available under the Plan.
   As discussed in Note 2, the Company accounts for stock options granted to
employees in accordance with APB No. 25. Options granted in 1999 included stock
appreciation rights ("SARs") that permit the employee to receive the
appreciation in shares of common stock in lieu of exercising the option. At
December 31, 2001, 2000 and 1999, there were 2,683,611, 2,883,356 and 3,150,428
outstanding options, respectively, to purchase the Company's common stock that
included SARs.

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

   On April 3, 2001, the Company's Board of Directors resolved to reprice
options to purchase 2,584,167 shares of the Company's common stock. The options
were originally issued between October 1999 and December 2000 and had exercise
prices ranging from $1.88 to $5.00 per share. The exercise price for these
options was reduced to $1.03, the closing market value of the Company's common
stock as of the repricing date. The repriced options are now accounted for as
variable awards, similar to the SARs. At December 31, 2001, there were
2,061,163 outstanding options to purchase the Company's common stock that were
repriced and subject to variable plan accounting as a result of the repricing.

   The Company records stock-based compensation when it grants options to
purchase its common stock to non-employees. The Company granted 171,230,
175,000 and 405,590 options to non-employees in 2001, 2000 and 1999,
respectively. All options granted to non-employees were fully vested at the
date of grant. The Company recorded stock-based compensation of $183,035,
$630,047 and $162,317 in 2001, 2000 and 1999, respectively, related to these
grants. The fair value of the stock options awarded to non-employees is
calculated using the Black-Scholes option-pricing model.

   In 2000, the Company granted employees 2,563,115 options to purchase its
common stock at prices less than the current market price of its common stock
on the grant date. Stock-based compensation of $991,212 and $4,184,385 is
included in the Company's 2001 and 2000 results of operations in connection
with these grants, respectively.


                                      33

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.  Stock Option Plan (continued)

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

<TABLE>
<CAPTION>
                                                      Weighted Average
                                          Number of   Exercise  Fair
                                           Options     Price    Value
                                          ----------  -------- -------
         <S>                              <C>         <C>      <C>
         Outstanding at January 1, 1999..  1,994,737   $3.02
          Granted........................  3,235,993    1.27     0.41
          Exercised......................    (40,129)   1.25
          Forfeited...................... (2,040,173)   2.98
                                          ----------
         Outstanding at December 31, 1999  3,150,428    1.27
          Granted........................  2,905,615    4.42    10.08
          Exercised......................    (80,855)   2.10
          Forfeited......................   (211,217)   1.30
                                          ----------
         Outstanding at December 31, 2000  5,763,971    2.85
          Granted........................    910,730    1.49     1.21
          Exercised......................    (45,303)   0.20
          Forfeited......................   (975,288)   1.09
                                          ----------
         Outstanding at December 31, 2001  5,654,110
                                          ==========
         Exercisable at December 31, 2001  4,364,862
         Exercisable at December 31, 2000  4,023,341
         Exercisable at December 31, 1999  2,622,876
</TABLE>

<TABLE>
<CAPTION>
            Options Outstanding                       Options Exercisable
--------------------------------------------   ---------------------------------
                              Weighted Average
Number of   Range of Exercise  Remaining Life  Weighted Average Number Currently
 Options         Prices          (in years)     Exercise Price    Exercisable
---------   ----------------- ---------------- ---------------- ----------------
<S>         <C>               <C>              <C>              <C>
   62,523        $0.01              9.65            $0.01             62,523
5,171,587    $0.83 to $1.59         8.08             1.15          4,082,339
  420,000    $2.50 to $5.00         8.94             3.21            220,000
---------                                                          ---------
5,654,110                                                          4,364,862
=========                                                          =========
</TABLE>

   Pro Forma Disclosure--SFAS No. 123 requires the disclosure of pro forma
information as if the Company adopted the fair value method for grants or
awards made to employees. For purposes of the pro forma disclosures, the fair
value of options on their grant date was measured using the Black-Scholes
option pricing model. Forfeitures are recognized as they occur.

                                      34

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. Stock Option Plan (continued)

   Had compensation expense been determined based on the fair values at the
grant dates for awards in accordance with SFAS No. 123, the Company's net loss
applicable to common stockholders and net loss per common share would have been
as follows:

<TABLE>
<CAPTION>
                                                            2001          2000          1999
                                                        ------------  ------------  ------------
<S>                                                     <C>           <C>           <C>
Net loss applicable to common stockholders as reported. $(11,213,455) $ (7,333,177) $(33,021,645)
Pro forma net loss applicable to common stockholders...  (13,812,596)  (20,700,008)  (33,959,725)
Basic and diluted net loss per common share as reported        (0.42)        (0.29)        (5.44)
Pro forma net loss per common share....................        (0.51)        (0.83)        (5.59)
</TABLE>

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

<TABLE>
<CAPTION>
                                                2001     2000     1999
                                               -------  -------  -------
       <S>                                     <C>      <C>      <C>
       Risk-free interest rate................     4.0%    5.0 %     6.0%
       Expected life of option grants......... 4 years  4 years  2 years
       Expected volatility of underlying stock    148 %    164 %     50 %
</TABLE>

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 2001, 2000 or
1999.

8.  Commitments and Contingencies

   The Company has a noncancelable operating lease for office space, which
expires in 2003. The Company also leases various office equipment under
cancelable operating leases. Total rent expense was approximately $710,000,
$596,000 and $549,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. The Company restructured its operating lease on its principal
offices in January 2002. Future minimum rental payments under the noncancelable
office space lease are approximately $429,000 in 2002 and $168,000 in 2003.

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

9.  Reduction in Force

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

   The Company recorded approximately $400,000 in severance and other related
personnel costs associated with this reduction in force. Of this total,
approximately $205,000 was charged to engineering and development expenses,
$175,000 was charged to general and administrative expenses and $20,000 was
charged to selling and marketing expenses. As of December 31, 2001,
approximately $50,000 remained unpaid and accrued.

                                      35

<PAGE>

                        MANGOSOFT, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


10.  Related Party Transactions

   Technical Consulting Services - During 2001 and 2000, a member of the
Company's Board of Directors provided the Company with part-time technical
consulting services. Amounts recorded for such services were $108,000 and
$126,000 in 2001 and 2000, respectively.

   Administrative Services--During 2001, 2000 and 1999, a stockholder provided
administrative assistance to the Company. Amounts recorded for such services
were $11,485, $35,288 and $64,888 in 2001, 2000 and 1999, respectively.

   Notes Payable--In connection with the Merger in 1999, outstanding principal
and accrued interest on the Company's 12% convertible notes were converted into
the Company's common stock. Principal totaling $4,000,000 was held by certain
Company stockholders prior to this conversion. In December 1999, two
stockholders provided the Company with $232,500 of interim financing under
demand notes, bearing interest at 8.0% annually.

   Repurchase of Common Stock--In connection with the Merger in 1999, 200,000
shares of common stock were repurchased from a former executive for $100,000.

11.  Geographic Sales Information and Major Customers

   The Company generates the majority of its revenues from the sale of its
products and services in North America. Approximately 92% and 97% of the
Company's 2001 and 2000 revenues were generated from sales to North American
customers, respectively. In 1999, sales to one Japanese customer accounted for
67% of the Company's revenues, while sales to North American customers
comprised the remainder of 1999 revenues.

   One customer accounted for approximately 64% of the Company's 2001 revenues.
The two largest customers accounted for approximately 92% of the Company's 2000
revenues. In 1999, one customer accounted for approximately 67% of the
Company's revenues.

12.  Subsequent Event

   Effective February 11, 2002, the Company acquired the fileTRUST online data
storage service and related assets from FleetBoston Financial Corporation
("FleetBoston") for aggregate consideration totaling approximately $357,000. As
part of the transaction, FleetBoston and the Company entered into a two-year
enterprise license agreement for the internal use of fileTRUST by FleetBoston's
employees. Additionally, the Company and FleetBoston will continue to market
fileTRUST under a cooperative marketing agreement. Terms of the agreement
include cash, shares of common stock and warrants to purchase common stock.

                                      36