Mango Capital 10QSB 2007 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-QSB

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Quarterly Period Ended September 30, 2006

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Transition Period From      To

Commission File Number: 000-30781

MANGOSOFT, INC.

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

Nevada	87-0543565
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)
12 Technology Way
Nashua, NH	03060
(Address of principal executive offices)	(Zip code)

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

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

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

Common Stock	1,013,038 Shares
$0.001 Par Value	(Outstanding on November 14, 2006)

Transitional Small Business Disclosure Format (check one) Yes o No x

MANGOSOFT, INC. AND SUBSIDIARY

INDEX TO FORM 10-QSB

	Page
PART I. FINANCIAL INFORMATION
ITEM 1 - Condensed Consolidated Financial Statements (unaudited):
Balance Sheets as of September 30, 2006 and December 31, 2005	3
Statements of Operations for the Three Months Ended September 30, 2006 and 2005	4
Statements of Operations for the Nine Months Ended September 30, 2006 and 2005	5
Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	6
Notes to the Condensed Consolidated Financial Statements	7
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
ITEM 3 - Controls and Procedures	15
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings.	16
ITEM 6 - Exhibits and reports on form 8-K.	17
Signature	18
Officer Certification	19

2

MANGOSOFT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2006			2005
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	219,027		$	480,662
Accounts receivable		21,261			17,407
Short-term investments		-			3,538
Total current assets	$	240,288		$	501,607
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	729,970		$	736,037
Accrued compensation		779			7,788
Other accrued expenses and current liabilities		100,496			101,054
Total current liabilities		831,245			844,879
Commitments and contingencies
Stockholders’ Deficit:
Preferred stock - $.001 par value; authorized, 5,000,000 shares; issued and outstanding, 20,000		20			20
Common stock - $.0001 par value, authorized 3,703,704 shares, issued and outstanding 1,013,038		1,013			1,013
Additional paid-in capital		88,725,694			88,725,694
Accumulated deficit		(89,317,684	)		(89,069,999	)
Total stockholders’ deficit		(590,957	)		(343,272	)
Total liabilities and stockholders’ deficit	$	240,288		$	501,607

See notes to the unaudited condensed consolidated financial statements.

3

MANGOSOFT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,
	2006			2005
	(Unaudited)
Service revenues	$	67,845		$	80,918
Costs and expenses:
Cost of services		65,201			66,604
General and administrative expense		78,112			82,567
Loss from operations		(75,468	)		(68,253	)
Interest income		2,462			3,162
Net loss	$	(73,006	)	$	(65,091	)
Net loss per share - basic and diluted	$	(0.07	)		(0.06	)
Weighted average shares outstanding - basic and diluted		1,013,038			1,013,038

See notes to the unaudited condensed consolidated financial statements.

4

MANGOSOFT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine Months Ended September 30,
	2006			2005
	(Unaudited)
Service revenues	$	210,919		$	260,158
Costs and expenses:
Cost of services		197,237			201,214
General and administrative (1)		269,941			271,149
Stock-based compensation expense		-			428
Loss from operations		(256,259	)		(212,633	)
Interest income		8,574			14,130
Net loss	$	(247,685	)	$	(198,503	)
Net loss per share - basic and diluted	$	(0.24	)	$	(0.19	)
Weighted average shares outstanding - basic and diluted		1,013,038			1,013,038

(1) Excludes stock-based compensation expense of: $ - $ 428

See notes to the unaudited condensed consolidated financial statements.

5

MANGOSOFT, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2006			2005
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(247,685	)	$	(198,503	)
Adjustments to reconcile net loss to net cash used by operating activities:
Stock-based compensation		-			428
Increase (decrease) in cash from the change in:
Accounts receivable		(3,854	)		(3,993	)
Accounts payable		(6,067	)		805
Accrued compensation		(7,009	)		(6,179	)
Other accrued expenses		(558	)		1,100
Deferred revenue		-			(20,467	)
Net cash used by operating activities		(265,173	)		(226,809	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment maturities		2,403			321,446
Interest receivable		1,135			21,524
Net cash provided by investing activities		3,538			342,970
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(261,635	)		116,161
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		480,662			458,032
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	219,027		$	574,193

See notes to the unaudited condensed consolidated financial statements.

6

MANGOSOFT, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

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

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, all significant adjustments, which are normal, recurring in nature and necessary for a fair presentation of the financial position, cash flows and results of the operations of the Company, have been consistently recorded. The operating results for the interim periods presented are not necessarily indicative of expected performance for the entire year.

Certain amounts from the prior year have been reclassified to conform to the current year presentation.

The unaudited information should be read in conjunction with the audited financial statements of the Company and the notes thereto for the year ended December 31, 2005 included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.

As shown in the unaudited condensed consolidated financial statements, during the nine months ended September 30, 2006 and 2005, the Company incurred net losses of $247,685 and $198,503 respectively. Cash used in operations during the nine months ended September 30, 2006 and 2005 was $265,173 and $226,809, respectively. These factors, among others, raise significant doubt about the Company’s ability to continue as a going concern. The unaudited condensed 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.

On July 27, 2006, in order to optimize the Company's flexibility in undertaking new business opportunities, the Company decided to manage its patent portfolio and intellectual property assets through a new wholly-owned subsidiary Mangosoft Intellectual Property, Inc. The new Company is authorized to issue up to 1,000 shares of $.01 par value common stock. Mangosoft Intellectual Property, Inc. issued 100 of these shares of stock to Mangosoft Corp. None of the remaining 900 authorized shares have been issued at September 30, 2006.

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

Title	Application No./Patent No.	Filing Date/Issue Date
System For Tracking Data	08/848,970	05/02/97
Method For Scheduling Thread Execution On A Limited Number Operating System	09/069,352	04/29/98
Internet-Based Shared File Service With Native PC Client Access And Semantics And Distributed Access Control	09/704,050	11/01/00
Internet-Based Shared File Service With Native PC Client Access And Semantics	09/704,262	11/01/00
Dynamic Directory Service	10/704,327	11/07/03
Internet-Based Shared File Service With Native PC Client Access And Semantics And Distributed Version Control	11/285,423	11/21/05
System and Method For Providing Highly Available Data Storage Using Globally Addressable Memory	5,909,540	06/01/99
Remote Access And Geographically Distributed Computers In A Globally Addressable Storage Environment	5,987,506	11/16/99
Shared Client-Side Web Caching Using Globally Addressable Memory	6,026,474	02/15/00
Dynamic Directory Service	6,647,393	11/11/03
Distributed Virtual Web Cache Implemented Entirely in Software	6,760,756	07/06/04
Internet-Based Shared File Service With Native PC Client Access And Semantics	7,058,696	06/06/06

7

2. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects, in addition to the weighted average number of common shares, the potential dilution if stock options and warrants outstanding were exercised and/or converted into common stock, unless the effect of such equivalent shares was antidilutive.

For the nine months ended September 30, 2006 and 2005, the effect of stock options and other potentially dilutive shares were excluded from the calculation of diluted net loss per common share as their inclusion would have been antidilutive.

3. REVENUE RECOGNITION

The Company records revenue upon delivery if pervasive evidence of an arrangement exists, the price is fixed and determinable, delivery has occurred and collection is probable. Revenue for sales to distributors is recognized upon sales to end-users. Service revenue is recognized as services are performed.

4. STOCK-BASEDCOMPENSATION

The Company currently has one stock-based compensation plan, which is described more fully in Note 8 in the Company’s Annual Report on Form 10-KSB for the period ended December 31, 2005, as filed on March 31, 2006. As amended, this plan provides for the issuance of up to 296,297 shares of common stock to employees, officers, directors and consultants in the form of nonqualified and incentive stock options, restricted stock grants or other stock-based awards, including stock appreciation rights. The stock options are exercisable as specified at the date of grant and expire no later than ten years from the date of grant. As of September 30, 2006, there were 179,652 remaining options available under this plan.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (‘SFAS”) No. 123(R), Share-Based Payment (“SFAS 123R”), using the modified-prospective-transition method. Under this transition method, compensation cost recognized for the nine months ended September 30, 2006 include: (a) compensation cost for all stock-based payments granted, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock Based Compensation, and (b) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based in the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Results for prior periods have not been restated. There were no unvested stock based payments at January 1, 2006 and there were no stock based payments granted during the nine months ended September 30, 2006.

The following table illustrates the effect on net loss and net loss per share if the Company applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation for the nine months ended September 30, 2005.

Net loss as reported	$	(198,503	)
Add back stock-based compensation included in the determination of net loss as reported		428
Less stock-based compensation had all options been recorded at fair value		(1,243	)
Adjusted net loss	$	(199,318	)
Weighted average shares outstanding, basic and Diluted		1,013,038
Net loss per share, basic and diluted, as reported	$	(0.19	)
Adjusted net loss per share, basic and diluted	$	(0.20	)

8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

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

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

FileTRUST^SM is an online data storage service FileTRUST^SM users can access their stored files from any Internet-connected system. The fileTRUST^SM service complements our Mangomind^SM service by providing customers with a lower cost online storage system.

Critical Accounting Policies

Our accounting policies are described in our Annual Report on Form 10-KSB for the period ended December 31, 2005 filed with the Securities and Exchange Commission. The following describes the application of accounting principles that have a significant impact on our consolidated financial statements:

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

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

9

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. Through December 31, 2005 compensation for stock options issued to employees was 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. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS 123R”), using the modified-prospective-transition method. Under this transition method, compensation cost recognized for the nine months ended September 30, 2006 include: (a) compensation cost for all stock-based payments granted, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock Based Compensation, and (b) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

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.

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

Costs and Expenses

Cost of services - Cost of services consist solely of the expenses we incur to administer and service the Mangomind^SM and fileTRUST^SM services. These expenses consist primarily of the cost of our outsourced data center, the fees we pay to Built Right Networks to manage our billable services infrastructure, internet and telephone charges.

Other Operating Expenses -- General and administrative expenses consist primarily of salaries and related personnel costs and other general corporate costs such as facility costs, commercial and general liability insurance, accounting and legal expenses and other costs typical of a publicly held corporation. At September 30, 2006, there were no full time employees performing selling and marketing activities. Effective April 1, 2005, we have outsourced our general and administrative personnel activities to Built Right Networks. Our one remaining employee is performing some general and administrative activities.

Reduction in Force - We have reduced our work force on four occasions since April 23, 2001 due to adverse economic conditions and our need to conserve capital. At September 30, 2006, we had one employee working in a general and administrative capacity.

Results of Operations - Three Months Ended September 30, 2006 and 2005

Revenues for the three months ended September 30, 2006 decreased $13,073 or 16% to $67,845 from $80,918 for the comparable period in 2005. The decrease in our revenues was primarily due to a $13,073 decrease in software license revenue. No customer accounted for more than 10% of our revenues for the three-month period ended September 30, 2006.

We recognized $64,852 from the sale of our Mangomind^SM service and $2,993 from the sale of our fileTRUST^SM service during the three months ended September 30, 2006. During the comparable period in 2005, we recognized $72,855 from the sale of our Mangomind^SM service, and $8,063 from the sale of our fileTRUST^SM service.

Cost of services for the three months ended September 30, 2006 decreased $1,403 or approximately 2% to $65,201 compared to $66,604 for the comparable period in 2005. The decrease in the cost of delivering our services was primarily a result of our continued reductions and our switch to a lower cost data center Built Right Networks.

10

For the three-month period ended September 30, 2006, general and administrative expenses decreased $4,455 or approximately 5% to $78,112 compared with $82,567 for the comparable period in 2005. The decrease in general and administrative expenses was primarily due to decreases in professional, and legal fees, travel and travel related expenses. For the three-month period ended September 30, 2006, we had one (1) full-time employee working in a general and administrative capacity.

Our loss from operations increased $7,215 to $75,468 for the three-month period ended September 30, 2006 compared with a loss from operations of $68,253 for the comparable period in 2005 as a result of the above factors.

Interest income decreased $700 to $2,462 for the three months ended September 30, 2006 compared to $3,162 for the three months ended September 30, 2005 primarily as a result of a reduction in our cash balances available for investment.

Results of Operations - Nine Months Ended September 30, 2006 and 2005

Revenues for the nine months ended September 30, 2006 decreased $49,239 or 19% to $210,919 from $260,158 for the comparable period in 2005. The decrease in our revenues was primarily due to a $32,056 decrease in software license revenue. No customers accounted for more than 10% of our revenues for the nine-month period ended September 30, 2006.

We recognized $198,916 from the sale of our Mangomind service and $12,003 from the sale of our fileTRUST service during the nine months ended September 30, 2006. During the same period in 2005, we recognized $238,975 from the sale of our Mangomind service and $21,183 from the sale of our fileTRUST service.

Cost of services for the nine months ended September 30, 2006 decreased $3,977 or 2% to $197,237 from $201,214 for the comparable period in 2005. The decrease in the cost of delivering our services was primarily a result of continued overhead reductions and our switch to a lower cost data center Built Right Networks.

For the nine-month period ended September 30, 2006, general and administrative expenses decreased $1,208 or 1% to $269,941 compared with $271,149 for the comparable period in 2005. The decrease in general and administrative expenses was primarily due to decreases in professional, and legal fees, travel and travel related expenses. During the nine month period ended September 30, 2006, we had one (1) full-time employee working in a general and administrative capacity.

Our loss from operations increased $43,626 to $256,259 for the nine-month period ended September 30, 2006 compared with a loss from operations of $212,633 for the comparable period in 2005 as a result of the above factors.

Interest income decreased $5,556 to $8,574 for the nine months ended September 30, 2006 compared to $14,130 for the nine months ended September 30, 2006, primarily as a result of a reduction in our cash balances available for investment.

Financial Condition, Liquidity and Capital Resources

We were formed in June 1995 and since our formation have raised approximately $74,250,000 in financing from private placements of debt and equity securities. In addition to the financing we received through the sale of our securities, we have, at times, depended on 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 September 30, 2006, approximately $831,000 in additional financing was provided through accounts payables, accrued expenses and other trade credit, a significant portion of which is past due.

11

At September 30, 2006, we had a cash balance of approximately $219,000 and a working capital deficiency of approximately $591,000. We do not have any commercial commitments or off balance sheet financing. Our commitments under our operating leases are described in Note 10 to our consolidated financial statements filed on Form 10-KSB for the period ended December 31, 2005, as reported to the Securities and Exchange Commission.  

We did not make any capital expenditures during the nine months ended September 30, 2006.

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

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

As shown in the unaudited condensed consolidated financial statements, during the nine months ended September 30, 2006 and 2005, we incurred net losses of $247,685 and $198,503, respectively. Cash used in operations during the nine months ended September 30, 2006 and 2005 was $265,173 and $226,809, respectively. The factors, among others, raise significant doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow and meet our obligations on a timely basis and ultimately attain profitability.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any commercial commitments or off-balance sheet financing. Our commitments under our operating leases are described in Note 10 to our consolidated financial statements filed on Form 10-KSB for the period ended December 31, 2005, as reported to the Securities and Exchange Commission.

Risk Factors

We Have A Limited Operating History And A History Of Substantial Operating Losses.

We have a history of substantial operating losses and an accumulated deficit of $89,317,684 as of September 30, 2006. For the nine months ended September 30, 2006 and the year ended December 31, 2005, our losses from operations were $256,259 and $364,389, respectively. We have historically experienced cash flow difficulties primarily because our expenses have exceeded our revenues. We expect to incur additional operating losses. These factors, among others, raise significant doubt about our ability to continue as a going concern. If we are unable to generate sufficient revenue from our operations to pay expenses or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially and adversely affected.

We Will Need Additional Financing.

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

12

Our Success Depends On Our Outsourced Services Agreement.

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

Our Performance Depends On Market Acceptance Of Our Products.

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

We Depend On Strategic Marketing Relationships.

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

There May Be Limited Liquidity In Our Common Stock And Its Price May Be Subject to Fluctuation.

Our common stock is currently traded on the OTC Bulletin Board and there is only a limited market for our common stock. We can provide no assurances that we will be able to have our common stock listed on an exchange or quoted on Nasdaq in the future 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 ten 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.

13

Litigation Concerning Intellectual Property Could Adversely Affect Our Business.

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

Defects In Our Software Products May Adversely Affect Our Business.

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

We Have Limitations On The Effectiveness Of Our Internal Controls.

We have one (1) full-time employee engaged in general and administrative capacities. A complete set of internal controls is not possible in an organization of this size. Management does not expect that its disclosure controls or its internal controls will prevent all errors and intentional misrepresentations. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the organization have been detected.

14

ITEM 3.CONTROLS AND PROCEDURES

We have significantly reduced our work force on several occasions during 2001 and 2002. At September 30, 2006 we had one (1) employee, Mr. Dale Vincent, our President, Chief Executive Officer and sole director. A complete set of internal controls including segregation of duties is not possible in an organization of this size. However, we have implemented control procedures surrounding the maintenance of our accounting and financial systems and the safeguarding of our assets. Further, all transactions entered into outside the normal course of our day-to-day operations must be approved by Mr. Vincent.

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

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

15

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

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

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

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

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

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

16

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

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

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

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

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

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

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

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

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

(b) Reports on Form 8-K:

There were no notifications filed on Form 8-K during the three months ended September 30, 2006.

17

SIGNATURE

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

	MANGOSOFT, INC.
November 14, 2006	By:	/s/ Dale Vincent
		Dale Vincent
		Chief Executive Officer (Principal Financial and Accounting Officer)

18