UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the Quarterly Period Ended March 31, 2010
Commission File Number: 000-30781
MANGOSOFT, INC.
(Exact name of registrant as specified in its charter)
| Nevada | | 87-0543565 |
| (State or other jurisdiction | | (IRS Employer Identification No.) |
| of incorporation or organization) | | |
| | | |
108 Village Square, Suite 315 Somers, NY | | 10589 |
| (Address of principal executive offices) | | (Zip code) |
Issuer’s telephone number: (603) 324-0400
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer (Do not check if a smaller reporting company) ¨ | Smaller reporting company x |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 15, 2010 5,443,157 shares of the Registrant’s common stock, par value $0.001 per share, were outstanding.
MANGOSOFT, INC. AND SUBSIDIARIES
INDEX
| | Page |
| PART I. FINANCIAL INFORMATION | |
| | |
| ITEM 1 – Condensed Consolidated Financial Statements (Unaudited): | |
| | |
| Balance Sheets as of March 31, 2010 and December 31, 2009 | 3 |
| Statements of Operations for the Three Months Ended March 31, 2010 and 2009 | 4 |
| Statements of Cash Flows for the Three months Ended March 31, 2010 and 2009 | 5 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 |
| | |
| ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
| | |
| ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk | 12 |
| | |
| ITEM 4 – Controls and Procedures | 12 |
| | |
| PART II. OTHER INFORMATION | |
| | |
| ITEM 1 – Legal Proceedings | 13 |
| ITEM 1a. – Risk Factors | |
| ITEM 6 – Exhibits and Reports on Form 8-K | 14 |
| | |
| Signature | 16 |
| | |
| Officer Certification | |
MANGOSOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | March 31, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 617,703 | | | $ | 677,581 | |
| Accounts receivable | | | 928 | | | | 2,677 | |
| Prepaid Compensation | | | 5,397 | | | | - | |
| Note receivable - related party | | | 600,000 | | | | 600,000 | |
| Investments | | | 503,673 | | | | 502,312 | |
| Interest receivable | | | 7,233 | | | | 7,233 | |
| Total assets | | $ | 1,734,934 | | | $ | 1,789,803 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | - | | | $ | 33,931 | |
| Other accrued expenses | | | 39,840 | | | | 45,215 | |
| Total current liabilities | | | 39,840 | | | | 79,146 | |
| | | | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
| Preferred stock - $.001 par value; authorized, 5,000,000 shares; issued and outstanding, 20,000 | | | 20 | | | | 20 | |
| Common stock - $.001 par value, authorized 15,000,000 shares; issued and outstanding, 5,443,157 shares. | | | 5,443 | | | | 5,443 | |
| Additional paid-in capital | | | 90,930,406 | | | | 90,927,406 | |
| Accumulated deficit | | | (89,240,775 | ) | | | (89,222,212 | ) |
| Total stockholders' equity | | | 1,695,094 | | | | 1,710,657 | |
| Total liabilities and stockholders' equity | | $ | 1,734,934 | | | $ | 1,789,803 | |
See notes to the unaudited condensed consolidated financial statements.
MANGOSOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | Three Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Service revenues | | $ | — | | | $ | 53,973 | |
| Costs and expenses: | | | | | | | | |
| Cost of services | | | — | | | | 58,838 | |
| General and administrative | | | 54,892 | | | | 94,075 | |
| Loss from operations | | | (54,892 | ) | | | (98,940 | ) |
| Investment income: | | | | | | | | |
| Gain on sale of investments | | | 3,463 | | | | — | |
| Unrealized investment gain (loss) | | | 10,977 | | | | (12,173 | ) |
| Interest income | | | 21,889 | | | | 20,073 | |
| Net Investment income | | | 36,329 | | | | 7,900 | |
| Net income (loss) | | $ | (18,563 | ) | | $ | (91,040 | ) |
| | | | | | | | | |
| Net income (loss) per share – basic and diluted | | $ | (0.01 | ) | | $ | (0.02 | ) |
| | | | | | | | | |
| Weighted average shares outstanding – basic and diluted | | | 5,443,157 | | | | 5,443,157 | |
See notes to the unaudited condensed consolidated financial statements.
MANGOSOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNADUDITED)
| | | Three Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| CASH FLOWS USED IN OPERATING ACTIVITIES: | | | | | | |
| | | | | | | |
| Net loss | | $ | (18,563 | ) | | $ | (91,040 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities: | | | | | | | | |
| Unrealized loss (gain) in marketable securities | | | (4,436 | ) | | | 12,173 | |
| Stock based compensation | | | 3,000 | | | | - | |
| Gain on sale of investments | | | (3,463 | ) | | | — | |
| Increase (decrease) in cash from the change in: | | | — | | | | | |
| Accounts receivable | | | 1,749 | | | | 10,744 | |
| Accounts payable | | | (33,931 | ) | | | (125,894 | ) |
| Other accrued expenses | | | (5,377 | ) | | | (54,274 | ) |
| Net cash used in operating activities | | | (61,021 | ) | | | (248,291 | ) |
| | | | | | | | | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | | | | | | | | |
| Note receivable | | | — | | | | (600,000 | ) |
| Interest receivable | | | | | | | (8,133 | ) |
| Prepaid compensation | | | (5,397 | ) | | | | |
| Proceeds from sale of investments | | | 14,546 | | | | — | |
| Investments in marketable securities | | | (8,006 | ) | | | (71,673 | ) |
| Net cash used in investing activities | | | 1,143 | | | | (679,806 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Net proceeds from private placement of common stock | | | — | | | | — | |
| Net cash provided by financing activities | | | — | | | | — | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (59,878 | ) | | | (928,097 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 677,581 | | | | 1,982,191 | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 617,703 | | | $ | 1,054,094 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid for interest | | NONE | | | NONE | |
| Cash paid for income taxes | | NONE | | | NONE | |
See notes to the unaudited condensed consolidated financial statements.
MANGOSOFT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | NATURE OF BUSINESS AND BASIS OF PRESENTATION |
Through December 31, 2009, Mangosoft (the “ Company”) marketed, sold and supported Internet business software and services that improve the utility and effectiveness of Internet-based business applications. Our software solutions address the networking needs of small businesses, workgroups and large enterprises. We have leveraged our patented technology known as “Pooling” to develop our suite of software solutions. Pooling is a peer-to-peer clustering technology that utilizes the network and resources of client personal computers (“PCs”) and workstations to deliver easy-to-use advanced software services. Mangosoft’s proprietary software applications help businesses gain a competitive advantage by improving collaboration with customers, partners and colleagues through smarter, faster Internet communications.
As of January 1, 2010, we entered into a Hosting Licensing Agreement with Built Right Networks (“Built Right”) under which Built Right provides our software and services to existing Mangosoft customers and new Built Right customers for their own account. Built Right will provide services, maintain the software offering and manage the existing Mangosoft website for the benefit of their customers. Mangosoft retains all intellectual property rights for its software including Mangomind™ and fileTrust™. The Hosting Licensing Agreement grants a non-exclusive license to Built Right and is cancelable under certain conditions. We are evaluating alternate applications for our intellectual property. We believe that the current offerings did not provide sufficient growth opportunity for the Company and were more suited to companies such as Built Right with active technology service business models.
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.
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, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
As shown in the unaudited condensed consolidated financial statements, during the three months ended March 31, 2010 and 2009, the Company incurred net losses of $18,563 and $91,040 respectively. Cash used in operations during the three months March 31, 2010 and 2009 was $61,021 and $248,291, 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.
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 three months ended March 31, 2010 and 2009, 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.
The Company records revenue upon delivery if pervasive evidence of an arrangement exists, the price is fixed and determinable, and collection is probable. Revenue for sales to distributors is recognized upon sales to end users. Service revenue is recognized as services are performed.
During the three months ended March 31, 2010, there was no revenue recognized.
| 4. | STOCK-BASED COMPENSATION |
As part of our compensation programs offered to our employees, we grant stock options. In addition, we have engaged third-party consultants and advisors and have compensated them in the form of stock options. The Company accounts for stock-based employee compensation arrangements based on estimated fair value. Stock based compensation expense for the quarter ended March 31, 2010 was $3,000 and for the year ended December 31, 2009 was $1,132.
The Company currently has one stock-based compensation plan, which is described more fully in Note 6 in the Company’s Annual Report on Form 10-K for the period ended December 31, 2009, as filed on March 31, 2010. As amended, this plan provides for the issuance of up to 750,000 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 March 31, 2010, there were 396,691 remaining options available for grant under this plan.
The Company records stock based compensation based on the estimated grant-date fair value.
In November 2009, 272,150 options were issued to Dennis Goett, Chief Operating Officer. These options had a fair value at the date of grant of $0.12.
In February 2010 Options to purchase a total of 75,000 shares of common stock were issued to two of the Company’s directors. The estimated fair value of these options on the grant date is $0.17 and was determined using the Black-Scholes option pricing model. The assumptions used in the model were an estimated life of 6.25 years, volatility of 249%, dividend yield of 0.0% and a risk free interest rate of 3.14%,
| 5. | RELATED PARTY TRANSACTIONS |
Note receivable – related party represents an amount pursuant to an agreement entered into on January 29, 2009. Under this agreement MangoSoft, Inc. (the “Company” or “MangoSoft”) agreed to loan $600,000 to Plaintiff Holding XI LLC, a newly formed wholly owned subsidiary (the “Subsidiary”) of Plaintiff Funding Holding, Inc., d/b/a LawCash (“LawCash”). Such $600,000 loan (the “Loan”) is evidenced by a secured promissory note issued by the Subsidiary to MangoSoft having a term of one (1) year and bearing interest at the rate of 14% per annum (the “MangoSoft Secured Note”). LawCash, through its various subsidiaries, is in the business of financing litigations, and the proceeds of the Loan will be used to fund various plaintiffs’ receivables in the normal course of LawCash’s business. The Subsidiary’s obligations with respect to the MangoSoft Secured Note are guaranteed by LawCash (the “LawCash Guarantee”), and in addition, Mr. Selig Zises has agreed to guarantee up to $120,000 of losses incurred by the Company in connection with the MangoSoft Secured Note (the “Loss Guarantee”). Each of the Company and LawCash are directly or indirectly controlled by Mr. Selig Zises and Mr. Jay Zises.
During the three months ended March 31, 2010, the Company paid consulting fees in the amount of $15,000 to the widow of Dale Vincent, a stockholder and sole employee and director of the Company until he passed away on April 22, 2009.
Investments include certain marketable securities with a fair value of $168,642 at March 31, 2010, which are held in a brokerage account. Fair value is determined for this investment using quoted prices in an active market. This pricing methodology applies to Level 1 investments in the fair value hierarchy.
On May 22, 2009, the Company purchased from Plaintiff Funding Holding, Inc., d/b/a LawCash (“LawCash”), for the sum of $400,000 (the “Purchase Price”), all of LawCash’s rights, title and interest in certain specified litigations that had been funded by LawCash (the “Cases”). LawCash, through its various subsidiaries, is in the business of financing personal injury litigations, such as the Cases, and in connection therewith, receives a contingent interest in the proceeds of the potential recovery by a personal injury claimant or litigant. In accordance with the bill of sale entered into on May 22, 2009 by the Company and LawCash pursuant to which the Company acquired the Cases (the “Bill of Sale”), LawCash will service the Cases pursuant to a master services agreement dated May 22, 2009 (the “Master Services Agreement”) and the Company is entitled to receive from the disposition of the Cases (i) the return of the Purchase Price, and (ii) a return on the Purchase Price of 14% per annum. This investment, valued at $335,031 at March 31, 2010, is recorded at fair value using significant observable inputs other than quoted market prices and is considered to be level 2 investments in the fair value hierarchy.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q 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-Q, including under “Risk Factors.” You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements for the periods specified and the related notes included herein. Further reference should be made to our Annual Report on Form 10-K for the period ended December 31, 2009 filed with the Securities and Exchange Commission.
Overview
We marketed, sold and supported 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. As of January 1, 2010, we entered into a hosting Licensing Agreement with Built Right Networks which transferred all existing customer accounts to Built Right Networks for their own account. The agreement grants a non-exclusive license to Built Right Networks for our Mangomind and fileTrust™ products. We are no longer actively marketing, selling or supporting these products on a direct basis. However, we have retained all intellectual property rights and intend to evaluate alternative business opportunities for our intellectual property.
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.
Costs and Expenses
Cost of services - Cost of services consist solely of the expenses we incur to administer and service the Mangomind SM and fileTRUST SM services. These expenses consist primarily of salaries and related personnel costs, the cost of our outsourced data center, the license royalties we pay to our e-security software provider for the encryption used in the Mangomind SM service and the fees we pay to Built Right Networks to manage our billable services infrastructure. These costs will be recognized for the account of Built Right Networks or eliminated going forward under the terms of our Hosting Licensing Agreement.
During the three months ended March 31, 2010, there were no costs of service incurred by the Company.
Other Operating Expenses - General and administrative expenses consisted 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 March 31, 2010, there were no full time employees performing selling and marketing 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 March 31, 2010 we had one employee and outsourced most functions.
Results of Operations – Three Months Ended March 31, 2010 and 2009
There was no revenue for the three months ended March 31, 2010, as compared to $53,973 for the comparable period in 2009. The decrease was related to the new hosting agreement.
We did not recognize any income from the sale of our Mangomind SM or fileTRUST SM service during the three months ended March 31, 2010. During the comparable period in 2009, we recognized $51,199 from the sale of the Mangomind SM service and $2,774 from the sale of our fileTRUST SM service.
There was no cost of service for the three months ended March 31, 2010, as compared to $58,838 for the comparable period in 2009. The decrease was related to the new hosting agreement.
For the three months ended March 31, 2010, other operating expenses including selling and marketing and general and administrative expenses decreased $39,183 or 42% to $54,892 compared with $94,075 for the comparable period in 2009. The decrease in other operating expenses was due primarily to a decrease in legal costs incurred in pursuit and defense of our patents combined with a reduction of public relations, legal and other corporate consultants. For the three months ended March 31, 2010 and 2009, we had one (1) full-time employee who was working in a general and administrative capacity.
Our loss from operations decreased $44,048 to $54,892 for the three months ended March 31, 2010 compared with a loss from operations of $98,940 for the comparable period in 2009, as a result of the above factors.
For the three months ended March 31, 2010, there was $3,463 in realized gains on the sale of investments and $10,977 in unrealized gains from investments held at Ladenburg Thalmann.
Interest income increased $1,816 to $21,889 for the three months ended March 31, 2010 compared to $20,073 for the comparable period in 2009 due to the availability of working capital and addition of the note receivable.
Financial Condition, Liquidity and Capital Resources
We were formed in June 1995 and, since our formation, have raised approximately $76,449,000 in financing from private placements of debt and equity securities. In addition to the financing we received through the sale of our securities, we have, at times, depended upon loans from stockholders and directors and credit from suppliers to meet interim financing needs. Borrowings from stockholders and directors have generally been refinanced with new debt instruments or converted into additional equity. At March 31, 2010, approximately $40,000 in additional financing was provided through accounts payable, accrued expenses and other trade credit.
On January 29, 2009, Form 8-K was filed indicating that Mangosoft agreed to loan $600,000 to Plaintiff Holding XI LLC, a newly formed wholly owned subsidiary (the “Subsidiary”) of Plaintiff Funding Holding, Inc., d/b/a LawCash. Such loan is evidenced by a secured promissory note issued by the Subsidiary to Mangosoft having a term of one year and bearing interest at the rate of 14% per annum.
At March 31, 2010, we had a cash balance of $617,703 and working capital of approximately $1,695,094. We do not have any commercial commitments or off balance sheet financing. Our commitments are described in Note 8 in the Company’s Annual Report on Form 10-K for the period ended December 31, 2009, as filed on March 30, 2010.
We did not make any capital expenditures during the three months ended March 31, 2010.
We have significantly modified our operations and reduced our work force on four separate occasions since April 2001. We outsourced the management of our billable services infrastructure, software code base, customer support and reseller channel management to Built Right Networks through December 31, 2009. Built Right Networks received a fee based on the percentage of monthly income earned plus an administration fee. The outsourcing arrangement with Built Right Networks was terminated as of December 31, 2009 under the terms of our Hosting Licensing Agreement with Built Right under which Built Right Networks will maintain product and customer support for their own account. With the transition of all our existing accounts to Built Right Networks under this new agreement as of January 1, 2010, our billable infrastructure services are no longer necessary.
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.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any commercial commitments or off-balance sheet financing. Our commitments are described in Note 8 to our consolidated financial statements filed on Form 10-K for the period ended December 31, 2009, as reported to the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The accompanying unaudited consolidated financial statements include estimated fair value information as of March 31, 2010 as required by SFAS No. 107, “Disclosure About Fair Value of Financial Instruments”. Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments.
CASH
The carrying amounts approximate fair market value at March 31, 2010.
NOTE RECEIVABLE
The carrying amounts approximate fair market value at March 31, 2010.
INVESTMENTS
The carrying amounts approximate fair market value at March 31, 2010.
In accordance with SFAS 159, the company is recording unrealized gains/(losses) on the Statement of Operations.
ITEM 4. CONTROLS AND PROCEDURES
At March 31, 2010, we had one employee and outsourced all functions. 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. Dennis Goett, Chief Executive Officer.
Our Chief Executive Officer and President, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure.
We have identified deficiencies in the design or operation of the Company’s internal controls that we consider to be material weaknesses in the effectiveness of the Company’s internal controls pursuant to standards established by the Public Company Accounting Oversight Board. A “material weakness” is a deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Specifically, we found that the Company has an overall lack of segregation of duties as well as a lack of necessary corporate accounting resources related to the financial reporting process and accounting functions as the Company does not have any full time accounting personnel. The Company’s President serves as both Chief Executive Officer and Chief Financial Officer of the Company. Accordingly, certain functional and monitoring controls do not exist.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
| 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:
| (1) | On January 22, 2008, Form 8-K was filed indicating that its Board of Directors has extended the expiration date of its previously announced rights offering from January 29, 2008 to February 18, 2008. |
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| (2) | On January 29, 2008, Form 8-K was filed indicating that its Board of Directors has extended the expiration date of its previously announced rights offering from February 18, 2008 to February 19, 2008. |
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| (3) | On February 27, 2008, Form 8-K was filed indicating the closing and the results of its rights offering which ended as of the close of business on February 19, 2008. The Company received gross proceeds of approximately $1,023,672 and will issue approximately 2,047,344 shares of its common stock to its stockholders who properly exercised their rights in the rights offering. The Company expects to commence issuing the shares of common stock on or about February 27, 2008. |
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| (4) | On May 14 2008, Form 8-K was filed indicating that the United States Court of Appeals for the Federal Circuit issued an opinion in the case Mangosoft, Inc. et al. v. Oracle Corporation. The opinion affirmed the District Court’s claim construction order of September 21, 2004 and the District Court’s decision granting defendant’s motion for summary judgment on non-infringement entered by the District Court on March 28, 2007. |
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| (5) | On December 4, 2008, Form 8-K was filed indicating that Mangosoft, Inc. entered into an agreement to settle its patent litigation with Skype Technologies SA, Skype Software SARL and eBay Inc. titled Mangosoft Intellectual Property, Inc. V. Skype Technologies, S.A. et al., Civil Action No. 2:06CV-390 TJW, which was pending in the United States District Court for the Eastern District of Texas. Under the terms of the Agreement, eBay and its affiliates and subsidiaries will receive a non-exclusive license to all of the patents or patent applications now owned by the Company, or in which the Company has a controlling interest, for a one time fee in the amount of $2,300,000. The Agreement also provides for general releases and dismisses the existing litigation between the parties. |
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| (6) | On January 29, 2009, Form 8-K was filed indicating that Mangosoft agreed to loan $600,000 to Plaintiff Holding XI LLC, a newly formed wholly owned subsidiary (the “Subsidiary”) of Plaintiff Funding Holding, Inc., d/b/a LawCash. Such loan is evidenced by a secured promissory note issued by the Subsidiary to Mangosoft having a term of one year and bearing interest at the rate of 14% per annum. Each of the Company and LawCash are directly or indirectly controlled by Mr. Selig Zises and Mr. Jay Zises. |
| (7) | On April 22, 2009, Dale Vincent, the Chief Executive Officer and President and sole Director and sole employee of MangoSoft, Inc. (the “Company”), passed away. As a result of the vacancy created by the death of Mr. Vincent, on April 28, 2009, Selig Zises was elected as a Director of the Company by written consent of a majority of the stockholders of the Company in lieu of a stockholders’ meeting. Thereafter, Mr. Zises appointed himself as Interim Chief Executive Officer and Interim Secretary of the Company. Mr. Zises will not receive any compensation as an officer or director of the Company. Mr. Zises is 67 years of age and has been a private investor for the past five (5) years. There is no family relationship between Selig Zises and any other former executive officer or director of the Company, and there is no arrangement or understanding under which Selig Zises was appointed Director, Interim Chief Executive Officer or Interim Secretary. |
| (8) | On May 22, 2009, MangoSoft, Inc. (the “Company” or “MangoSoft”) agreed to purchase from Plaintiff Funding Holding, Inc., d/b/a LawCash (“LawCash”), for the sum of $400,000 (the “Purchase Price”), all of LawCash’s rights, title and interest in certain specified litigations that had been funded by LawCash (the “Cases”). LawCash, through its various subsidiaries, is in the business of financing personal injury litigations, such as the Cases, and in connection therewith, receives a contingent interest in the proceeds of the potential recovery by a personal injury claimant or litigant. In accordance with the bill of sale entered into on May 22, 2009 by the Company and LawCash pursuant to which the Company acquired the Cases (the “Bill of Sale”), LawCash will service the Cases pursuant to a master services agreement dated May 22, 2009 (the “Master Services Agreement”) and the Company is entitled to receive from the disposition of the Cases (i) the return of the Purchase Price, and (ii) a return on the Purchase Price of 14% per annum.. |
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(9) | Mangosoft, Inc. (OTC BB: MGOF.OB) Mangosoft Inc. announced the appointment of Dennis M. Goett as Chief Operating Officer and Chief Financial Officer of the Company as well as his election to the Board of Directors. The Company also announced the transition of its offices to New York. The Company’s new mailing address is 108 Village Square, Suite 315, Somers, New York 10589. The telephone number for the new executive offices is 914-669-5333. |
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| (10) | Effective December 31, 2009, the Company and Built Right Networks, LLC (“Built Right”) entered into a Hosting License Agreement. Under the terms of this new non-exclusive license, commencing January 1, 2010, Built Right will independently maintain, host and support the Company suite of software offerings and service the Company’s existing customers. Built Right will have the rights to and responsibility for these former client accounts and collect any and all fees related thereto. The Company retains all intellectual property rights. Built Right retains the right to use the Company’s trademarks under the terms of the hosting agreement and will maintain the Company’s web-site for the purposes of continuing these services. |
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| (11) | Effective February 24, 2010, Selig Zises resigned his interim roles as Chairman and CEO of the Company. Dennis Goett replaces Mr. Zises as Chairman and CEO. At that same time, Elliott H. Singer and Joseph Luminoso, were elected to the Company’s Board of Directors. Mr. Singer brings experience in both corporate development and board service. He founded A+ Communications, a telecommunications company, and built it into a $100 million enterprise. He serves on two other boards; Neurologix Inc. and Ameritrans Capital Corporation and is a founding principal of Fairview Advisors, a middle market merchant bank. Mr. Luminoso is a seasoned software and services senior executive who manages Technical Solutions for 3Par, a manufacturer of systems and software for data storage and information management. He has a long history of successful IT management having previously served at SoftNet Technologies, NetApp and Computer Associates. Mr. Luminoso also served on the board of SoftNet Technologies. |
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.
| May 17, 2010 | | MANGOSOFT, INC. |
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| | | /S/ Dennis Goett |
| | | Dennis Goett Chief Executive Officer |
