MANGOSOFT INC, 10SB12G/A, 2000-09-27

MANGOSOFT INC
10SB12G/A, 2000-09-27
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

As filed with the Securities and Exchange Commission on September 27, 2000

Registration No. 0-30781

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM 10-SB

GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS

UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

MANGOSOFT, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)

Nevada 87-0543565
----------------------------------------------------- -----------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)

1500 West Park Drive, Suite 190, Westborough, MA 01581
----------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (508) 871-7397
-------------------------

Securities to be registered pursuant to Section 12(b) of the Act.

Title of each class Name of each exchange on which registered

None None
---------------------------------- -----------------------------------------

---------------------------------- -----------------------------------------

Securities to be registered pursuant to Section 12(g) of the Act.

Common Stock, par value $.001 per share
-----------------------------------------------------
(Title of class)

<PAGE>

MANGOSOFT, INC.

INDEX TO FORM 10-SB

<TABLE>
<CAPTION>
PAGE
INFORMATION REQUIRED IN REGISTRATION STATEMENT

<S> <C>
Item 1. Description of Business....................................................... 1
Item 2. Management's Discussion and Analysis.......................................... 7
Item 3. Description of Property....................................................... 12
Item 4. Security Ownership of Certain Beneficial Owners and Management................ 12
Item 5. Directors and Executive Officers, Promoters and Control Persons............... 14
Item 6. Executive Compensation........................................................ 16
Item 7. Certain Relationships and Related Transactions................................ 18
Item 8. Description of Securities..................................................... 19

PART II

Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.............................................. 20
Item 2. Legal Proceedings............................................................. 21
Item 3. Changes in and Disagreements with Accountants................................. 21
Item 4. Recent Sales of Unregistered Securities....................................... 22
Item 5. Indemnification of Officers and Directors..................................... 23

PART F/S

Independent Auditors' Report.................................................................. 25
Consolidated Statements of Operations for the Years Ended December 31, 1999
and 1998 and Cumulative for the Period from June 15, 1995
(Inception) To December 31, 1999.......................................................... 26
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................. 27
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years
Ended December 31, 1999 and 1998 and Cumulative for the Period
From June 15, 1995 (Inception) to December 31, 1999....................................... 28
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999
and 1998 and Cumulative for the Period From June 15, 1995
(Inception) to December 31, 1999.......................................................... 29
Notes to Consolidated Financial Statements................................................... 30
Unaudited Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 and Cumulative for the Period from June 15, 1995
(Inception) to March 31, 2000............................................................. 41
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999......................................................................... 42
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 and Cumulative for the
Period from June 15, 1995 (Inception) to March 31, 2000....................... 43
Notes to Unaudited Condensed Consolidated Financial Statements................................ 44

PART III

Items 1 and 2. Exhibits...................................................................... 48

SIGNATURE..................................................................................... 50

EXHIBIT INDEX ............................................................................... 51
</TABLE>

iii
<PAGE>

MANGOSOFT, INC.

FORM 10-SB

INFORMATION REQUIRED IN REGISTRATION STATEMENT

ITEM 1. DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT

MangoSoft, Inc., a Nevada corporation (the "Company" or the
"Registrant"), was incorporated on May 17, 1995 as First American Clock Co.
First American Clock registered a public offering of 187,800 shares of its
common stock (as adjusted for stock splits) on Form SB-2, Commission File No.
33-93994, which became effective on October 25, 1995, raising gross proceeds of
$54,150. The Company used the net proceeds from that offering to acquire antique
clocks for resale. The Company did not generate any significant revenues from
its operations and ceased such operations at the end of 1998. However, First
American Clock continued to file periodic reports with the Securities and
Exchange Commission (the "Commission").

Pursuant to an Agreement and Plan of Merger by and among
MangoSoft Corporation, MangoMerger Corp. and First American Clock Co., dated
August 27, 1999 (the "Merger Agreement"), MangoSoft Corporation, a Delaware
software development company, merged with MangoMerger Corp., a wholly-owned
subsidiary of First American Clock, which changed its name to MangoSoft, Inc.,
so that MangoSoft Corporation became the wholly-owned operating 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 the Company, par value $.001 per share (the "Common Stock"), in
accordance with the conversion rates specified in the Merger Agreement. In
connection with the Merger, the Company issued 15,008,998 shares of Common Stock
to security holders and certain debt holders of MangoSoft Corporation. As part
of the Merger, the Company completed a private placement of 3,000,000 shares of
Common Stock for net proceeds of approximately $3,098,827. The Company also
issued 300,000 shares of Common Stock to the placement agent in respect of such
private placement. Because First American Clock 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 Clock. Accordingly, unless otherwise specified, historical
references to the operations of the Company are references to the operations of
MangoSoft Corporation.

BUSINESS OF THE REGISTRANT

Overview. The Company develops, markets and supports computer
software solutions to address the networking needs of small and large
businesses. The Company leveraged its patented technology known as "Pooling" to
develop its suite of software solutions. Pooling is a clustered caching
technology that utilizes the network and resources of client personal computers
("PCs") and workstations to deliver easy-to-use advanced software services
normally associated with servers.

1
<PAGE>

The Company's products enhance the performance of PC networks and deliver
improved service utilizing existing equipment. The Company competes primarily
with general technology suppliers such as Microsoft Corporation, Oracle
Corporation and Novell, Inc., as well as emerging Internet storage companies
such as Xdrive, Inc. The Company anticipates that it will encounter substantial
competition from these companies as well as others entering the Internet storage
market.

The Company is a development stage company and has had limited
revenues since its inception. Those revenues that the Company has received have
come from a small number of customers. See "Management's Discussion and
Analysis."

The Company's objective is to become the leading provider of
software-based service solutions that enable its customers to maximize the
return on their computer networks. The Company intends to leverage its Pooling
technology with customer desktops and networks to deliver software based
solutions for Local Area Networks ("LANs"), Internet file services and web cache
appliances. The Company's strategy is to advance its existing products,
establish more comprehensive distribution channels, including strategic
partnerships, commercialize the MangoSoft Internet Drive ("Mangomind"), a new
Internet service, and extend its current technology to additional software
solutions.

Technology. The Company is using its highly adaptable Pooling
technology to develop additional software solutions based on the underlying
concept of aggregating the excess memory and disk resources of networked
computers. The Company's current initiative is to deliver an easy-to-use
Internet file service, which provides universal native data access and sharing
from any disparate location. Since its inception, the Company has invested more
than $24 million of its capital in the aggregate in research and development
activities.

The Company's core technology is based on patented, clustered
cache technology that unifies memory and disk resources across multiple systems
to provide a single shared resource accessible by all connected PC users. The
Company has identified this technology as "Pooling" and has filed applications
for nine patents, four of which have been granted. The Pool's caching and
virtual memory techniques are made possible by a piece of software that creates
the notion of virtual storage. Virtual storage refers to the unification of
memory and disk resources of all systems on the network into a single, dynamic
Pool. The technology that makes this possible is the Company's "Distributed
Storage Engine." It manages both memory and disk resources across systems as a
unified shared virtual memory which is treated as a large, coherent cache. The
global memory and disk managers are integrated so that both access data using
the same set of global shared addresses.

The Distributed Storage Engine also eliminates any fixed home
for data. Data migrates to the most appropriate location based upon access
patterns and availability requirements. The cache is also implemented, meaning
that many of the control structures exhibit the same homeless behavior.
Frequently referenced data is stored close to where it is used, improving
performance of the entire system. Users can access data faster than if the data
were statically stored on another computer.

2
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Products. The Company's current products include CacheLink,
Medley and Mangomind. CacheLink is a software-based LAN-wide web-caching product
designed to increase the delivery speed of Internet or Intranet content for any
size business. CacheLink stores frequently viewed web pages for rapid retrieval
by all PCs connected to the LAN. It complements the browser cache in each PC by
linking them together into a single cache Pool. Access from any LAN-connected PC
enables a cached copy to be available to all other users. As CacheLink attempts
to be transparent and non-intrusive, it benefits LAN segments of all sizes,
from as few as two nodes to an entire LAN segment with hundreds of users. The
resulting system provides a faster-than-normal Internet experience for
users and allows web page fragments to be retrieved from the local LAN instead
of from the Internet or Intranet.

Medley creates a software-based file server by aggregating
idle capacity from connected PC's. Medley stores multiple copies of data and
automatically recovers information from system failures and maintains data
access. The Company's virtual server, referred to as a Pool, functions as
another local hard drive and is visible on every system in the Pool.

Mangomind, which is currently under development, will adapt
Pooling technology to deliver a virtual file service for the Internet that
enables universal native data access and sharing from any disparate location.
The Company plans to offer the service through Internet Service Providers
("ISPs"), Application Service Providers ("ASPs"), and Internet community sites
and portals. Since the intended virtual file service is an extended local file
system, all programs operate directly on the files and data, which essentially
extends all Windows applications to the Internet.

Marketing and Sales. The Company is pursuing a multi-faceted
marketing strategy, which includes: (i) the formation of strategic relationships
with leading technology companies that can provide distribution and co-marketing
efforts for the Company's software and products; (ii) the internal development
of an in-house sales and marketing team; (iii) the formation of a distribution
channel with manufacturer's representative organizations ("MROs"); and (iv) the
engagement of both an outside advertising agency and public relations firm. In
addition, the Company intends to establish technology partnerships to explore,
develop, market and distribute other applications related to its Pooling
technology.

Strategic partnerships being pursued by the Company include the
following: ISPs, who sell the Company's CacheLink product to the enterprise
market; original equipment manufacturers ("OEMs") of network hardware, such as
communications devices that enable shared Internet access throughout companies;
and ASPs to act as distribution partners for Mangomind. Through these
relationships the Company intends to commercialize bundled products and
establish distribution channels. The Company has entered into an agreement with
3Com Corporation, the terms of which are discussed below. The Company's ability
to retain this and other strategic partners and align itself with other similar
technology companies will greatly impact the future operations and financial
position of the Company.

The Company has successfully recruited and employed an in-house
marketing team. A Vice President of Sales for the Mangomind product has been
recently hired and is responsible for the development of a direct sales force.
The success of the Company's in-house sales and marketing team will depend on
its ability to attract and retain qualified personnel as well as the overall
market perception of the Company's products.

3
<PAGE>

The Company's market strategy includes the formation of business
alliances with MROs. The MROs will market the Company's products to their
network of customers, further enhancing the Company's position within the
market. The Company recently entered into a distribution agreement with
Marketlink Technologies, LLC, the terms of which are discussed below, to market
and sell the CacheLink product to computer resellers, independent software
vendors, integrators and other computer service providers. The Company can
provide no assurances that its relationship with Marketlink or any other MRO
will contribute to increased sales of its products.

The Company has engaged both an outside advertising agency and
public relations firm to assist the Company in its marketing. The Company
believes that the services these firms provide to the Company will enhance the
Company's image within the market; however, the Company can provide no
assurances that the services provided by these firms will result in increased
sales.

On July 5, 2000, the Company executed a Manufacturer's
Representative Agreement with Marketlink Technologies, LLC ("Marketlink"), under
which Marketlink agreed to act as designated selling agent for the Company's
CacheLink software product. Marketlink is a national manufacturer's
representative organization specializing in the sales of technology products.
Pursuant to such agreement, Marketlink will receive a monthly retainer of
$55,000 and commissions equal to 5% of all sales of CacheLink made in the U.S.
excluding sales to certain pre-existing accounts of the Company. The agreement
is for a one-year term with automatic annual renewals thereafter subject to
termination on 90 days' notice and certain termination provisions relating to
Marketlink's sales performance. The Company has not received any revenues to
date under the Marketlink agreement. The Company expects that Marketlink will
begin marketing CacheLink 3.0 Pro in September 2000.

On July 14, 2000, the Company executed a Value Added Reseller
Agreement with 3Com Corporation ("3Com"), under which the Company agreed to
license CacheLink 3.0 Pro to 3Com for use in 3Com's Office Connect(R) LAN Modem
product line. Pursuant to such agreement, 3Com agreed to pay the Company: (i) a
fee for each 3Com unit containing CacheLink shipped by 3Com based on an annual
sliding scale of $4.50 per unit for the first 150,000 units shipped to $2.50 per
unit for 450,000 units shipped and above; and (ii) an advance payment of
$100,000 credited against the first 22,222 units shipped regardless of the time
period required to ship such units. The term of the 3Com agreement is perpetual
subject to termination on 30 days' notice after July 14, 2001. The Company has
not received any revenues to date under the 3Com agreement.

Product Support. The Company provides technical support to its
partners through Internet communication, electronic mail and a traditional
telephone support line. The Company depends on its resellers and strategic
partners to provide end-user support and troubleshooting. The Company maintains
a specific reseller area on its web site that includes a frequently asked
questions sheet and regularly updated support information. Analysis of support
calls is used to improve and enhance both the product and the web site content.

4
<PAGE>

Intellectual Property. To date, the Company has been granted
four 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); and (iv) Shares client-side Web Caching
Using Globally Addressable Memory (February 15, 2000). The Company's Distributed
Storage Engine is not covered by a single patent. The Company's issued patents
cover various inventions incorporated into the Distributed Storage Engine or
improvements in such inventions. In addition, the Company previously filed two
provisional patent applications. One of these provisional patent applications
expired and one is still pending. The Company has applied for five other U.S.
patents which applications are still pending. The Company has also filed patent
applications outside of the U.S. that are counterparts to the issued patents and
pending applications. The Company also owns trademarks on "Cachelink," "Medley,"
"Mango," "MangoSoft," "Pool" and "Pooling."

The Company considers elements of its software and its Pooling
technology to be proprietary. It relies on a combination of trade secrets,
copyright and trademark law, contractual provisions, confidentiality agreements,
and certain technology and security measures to protect its intellectual
property, proprietary technology and know-how. The Company's future results of
operations are highly dependent on the proprietary technology that it has
developed internally. Consequently, the Company has taken actions to secure its
proprietary technology in the form of patent protection. If the Company is
denied its patent requests, either individually or as a group, management
believes that there would be a material adverse impact on the Company.

The Company is actively seeking an external solution for its
data encryption needs. The Company expects to enter into an agreement with an
encryption technology company. Such agreement will most likely require that the
Company make limited royalty payments to such company based on the volume of
sales.

Employees. As of December 31, 1999, the Company had 46 full-time
employees, of which 41 were in product research, development and support, 2 were
in sales and marketing and 3 were in finance and administration. None of the
Company's employees is subject to employment or collective bargaining
agreements.

RISK FACTORS

The Company Has a Limited Operating History and Substantial
Cumulative Operating Losses. The Company's current operations substantially
commenced in May 1997. Accordingly, the Company's prospects should be evaluated
based on the expenses and operating results typically experienced by any early
stage business. The Company has a history of substantial operating losses and an
accumulated deficit of approximately $96.4 million as of March 31, 2000. For the
fiscal years ended December 31, 1999 and 1998, the Company's losses from
operations were $27.8 million and $13.1 million, respectively. For the three
months ended March 31, 2000 the Company's loss from operations was $24.2
million. The Company has historically experienced cash flow difficulties
primarily because its expenses exceed its revenues. The Company expects to incur
additional operating losses over the foreseeable future and expects cumulative
losses to increase substantially as the Company expands its marketing, sales and
research and development efforts. If the Company is unable to generate
sufficient revenue from its operations to pay its expenses or is unable to
obtain additional financing on commercially reasonable terms, the Company's
business, financial condition and results of operations will be materially and
adversely affected.

5
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The Company's Performance Depends on Market Acceptance of the
Company's Products. The Company expects to derive a substantial portion of its
future revenues from the sales of CacheLink, MIND and its updated Medley
products, none of which the Company has previously marketed. If markets for the
Company's products fail to develop, develop more slowly than expected or are
subject to substantial competition, the Company's business, financial condition
and results of operations will be materially and adversely affected.

The Company Has an Evolving Market Strategy. The Company expects
its future marketing efforts will focus on developing strategic relationships
with technology companies that seek to augment their business by offering the
Company's products to their customers. The inability of the Company to enter
into and retain strategic relationships, or the inability of such technology
companies to effectively market the Company's products, could materially and
adversely affect the Company's business, operating results and financial
condition.

The Company Will Need Additional Financing. The Company will
require substantial additional capital to finance its growth and product
development. The Company can provide no assurances that it will obtain
additional financing sufficient to meet its future needs on commerically
reasonable terms or otherwise. If the Company is unable to obtain the necessary
financing, the Company's business, operating results and financial condition
will be materially and adversely affected.

There May Be Limited Liquidity in the Common Stock and Its Price
May Be Subject to Fluctuation. The Common Stock is currently traded on the
Nasdaq Bulletin Board ("OTCBB"). There is no established market for the Common
Stock and the Company may be required to have this Registration Statement
declared effective by the Commission to continue having the Common Stock quoted
on the OTCBB. The Company can provide no assurances that the Company will be
able to have the Common Stock listed on an exchange or quoted on Nasdaq or that
it will continue to be quoted on the OTCBB. If there is no trading market, the
market price of the Common Stock will be materially and adversely affected. In
addition, the Company is obligated to register with the Commission the Common
Stock issued in connection with the Merger and the March and April 2000
financings. Although this may increase the number of market participants for the
Common Stock, the increased supply of freely tradeable shares may materially and
adversely affect the market price of the Common Stock.

Rapidly Changing Technology and Substantial Competition May
Adversely Affect the Company's Business. The Company's business is subject to
rapid changes in technology. The Company can provide no assurances that research
and development by the Company's competitors will not render the Company's
technology obsolete or uncompetitive. The Company competes with a number of
computer hardware and software design companies which have technologies and
products similar to those offered by the Company and have greater resources,
including more extensive research and development, marketing and capital than
the Company. The Company can provide no assurances that it will be successful in
marketing its existing products and developing and marketing new products in
such a manner as to be effective against such competition. If the Company's
technology is rendered obsolete or the Company is unable to compete effectively,
the Company's business, operating results and financial condition will be
materially and adversely affected.

6
<PAGE>

Litigation Concerning Intellectual Property Could Adversely
Affect the Company's Business. The Company relies on a combination of trade
secrets, copyright and trademark law, contractual provisions, confidentiality
agreements and certain technology and security measures to protect its
trademarks, patents, proprietary technology and know-how. However, the Company
can provide no assurances that its rights in its intellectual property will not
be infringed upon by competitors or that competitors will not similarly make
claims against the Company for infringement. If the Company is required to be
involved in litigation involving intellectual property rights, the Company's
business, operating results and financial condition will be materially and
adversely affected.

The Company's Success Depends On Key Personnel. The success of
the Company is dependent upon the efforts of its senior management including:
Dale Vincent, President and Chief Executive Officer; Donald A. Gaubatz, Senior
Vice President and Chief Operating Officer; Scott H. Davis, Vice President and
Chief Technology Officer; Daniel J. Dietterich, Vice President, Engineering; and
Robert E. Parsons, Vice President and Chief Financial Officer; as well as other
members of senior management. The loss of Mr. Vincent, Mr. Gaubatz, Mr. Davis,
Mr. Dietterich or Mr. Parsons, or of any of the Company's senior management,
could have a material and adverse affect on the Company's business. In addition,
competition for qualified personnel in the computer software industry is
intense, and the Company can provide no assurances that the Company will be able
to retain existing personnel or attract and retain additional qualified
personnel necessary for the development of its business. The inability of the
Company to attract and retain such personnel would have a material and adverse
effect on the Company's business, financial condition and results of operations.

Defects in the Company's Software Products May Adversely Affect
Its Business. Complex software such as the software developed by the Company may
contain defects when introduced and also when updates and new versions are
released. The introduction by the Company 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 the Company's products or claims by
customers or others against the Company. Such problems or claims may have a
material and adverse effect on the Company's business, financial condition and
results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.

FORWARD-LOOKING STATEMENTS

Certain non-historical statements contained in this Registration
Statement are forward-looking statements, which involve known and unknown risks
and uncertainties. The Company is including this statement for the express
purpose of availing itself of the protections of the safe harbor provided by the
Private Securities Litigation Reform Act of 1995, as amended, with respect to
all such forward-looking statements. Examples of forward-looking statements
include but are not limited to: (i) projections of capital expenditures,
revenues, growth, prospects, financial resources and other financial matters;
(ii) statements of plans or objectives of the Company; and (iii) statements
using the words "anticipate," "expect," "may," "intend" or similar expressions.

7
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The Company's ability to predict results or the effects of
certain events on the Company's operations is inherently uncertain. Therefore,
the Company cautions readers of this Registration Statement to carefully
consider the matters set forth under the caption "Risk Factors" below and
certain other matters discussed herein and in other publicly available
information. Such factors and many other factors beyond the control of the
Company's management could cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievement that may be expressed or implied by such forward-looking
statements. See "Risk Factors" below. This discussion should also be read in
conjunction with the consolidated financial statements and the associated notes
for the periods specified contained in Part F/S below.

RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999 AND 1998

As described above and in Note 2 to the Consolidated Financial
Statements included in Form 10-KSB for the fiscal year ended December 31, 1999,
the Merger qualified for reverse acquisition accounting, and thus the historical
financial results of the Company are those of MangoSoft Corporation. The Company
is considered to be a development stage company since it has not generated
significant revenues from the products that it has developed to date.

Revenue decreased from $245,406 in 1998 to $37,207 in 1999 due
to the Company's decision to defer sales and marketing efforts and focus on
product quality following a recall in 1998. A single customer, Hitachi, Ltd.,
represented 67% of the 1999 revenue, while another customer, Nippon Telephone &
Telegraph, represented 85% of the 1998 revenue. No other customer represented
10% or more of revenue in 1999 or 1998. Cost of revenues decreased to $363 from
$91,529 due to the lower level of revenue. In 1999, products sold were delivered
over the Internet and the Company incurred no disk replication costs as in 1998.

Operating expenses, excluding stock-based compensation costs,
decreased 46.4% to $7,103,132 in 1999 from $13,259,855 in 1998. The decrease is
attributable to the Company's change in sales distribution strategy from a
retail approach to using value added resellers, the consolidation of corporate
functions and a reduction in total personnel. Operating expenses, including
stock-based compensation costs, increased 110.0% to $27,837,827 in 1999 from
$13,259,855 in 1998.

Stock-based compensation costs were $20,734,695 in 1999. Of this
total, $10,085,922 related to research and development, $1,303,333 related to
selling and marketing and $9,345,440 related to general and administrative
activities. The stock-based compensation costs represent the excess of the fair
value of the Common Stock over the exercise price of the variable stock option
grants made during the year. There were no stock-based compensation costs in
1998.

A summary of the operating expenses and the (decreases)
increases between 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------ -------------------------------
1999 1998 AMOUNT ($) PERCENTAGE
------------------------ -------------------------------

<S> <C> <C> <C> <C>
Research and development........................... $4,420,903 $6,615,558 $(2,194,655) (33.2)
Selling and marketing.............................. 412,842 2,608,190 (2,195,348) (84.2)
General and administrative......................... 2,204,499 3,388,312 (1,183,813) (34.9)
Consulting fees paid to related party.............. 64,888 647,795 (582,907) (90.0)
----------- ----------- ----------- -----
Subtotal........................................... 7,103,132 13,259,855 (6,156,723) (46.4)
Stock-based compensation........................... 20,734,695 -- 20,734,695 100.0
----------- ----------- ----------- -----
Total.............................................. $27,837,827 $13,259,855 $14,577,972 110.0
=========== =========== =========== =====
</TABLE>

8
<PAGE>

Interest income declined from $168,498 in 1998 to $13,542 in
1999 due to generally lower average cash balances in 1999, because only $6.0
million was raised during 1998 and 1999 through debt offerings, versus $13.1
million raised at the end of 1997 through the sale of the MangoSoft Corporation
Series E Redeemable Convertible Preferred Stock.

Interest expense increased from $69,233 in 1998 to $5.2 million
in 1999 due to the issuance of the MangoSoft Corporation 12% Senior Secured
Convertible Notes (the "12% Notes") in February 1999. Approximately $4.9 million
of the interest cost in 1999 represents the value of a beneficial conversion
feature of the 12% Notes. Pursuant to the Merger, the 12% Notes converted at a
price of $.71 per share, which was lower than the fair value of the Common
Stock. The difference between the $.71 price and the fair value, which
constitutes a beneficial conversion feature, was recorded as interest expense.
Since the accrued interest on the 12% Notes also converted to Common Stock in
conjunction with the Merger, virtually none of the interest expense required a
cash outlay in 1999.

The loss from operations increased from $13.1 million in 1998 to
$27.8 million in 1999, or 112.1%, due to stock-based compensation costs. The net
loss increased 152.6% to $33,021,645 in 1999 from $13,073,913 in 1998 due
primarily to the stock-based compensation costs and the beneficial conversion
feature of the 12% Notes.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999

Revenue was $1,335 in the three months ended March 31, 2000 on
sales of the CacheLink product. There was no revenue in the three months ended
March 31, 1999. A single customer, Ramp Networks, Inc., represented 20% of the
revenue in the three months ended March 31, 2000. No other customer represented
10% or more of revenue.

Cost of revenues in the three months ended March 31, 1999
represent the write-off of disk replication costs. In the three months ended
March 31, 2000, the products sold were delivered over the Internet and the
Company incurred no disk replication costs.

Operating expenses, excluding stock-based compensation costs,
increased 14.7% to $2,080,384 in the three months ended March 31, 2000 due
primarily to development of the Company's reseller network. A summary of the
operating expenses and the increases (decreases) is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE (DECREASE)
---------------------------- ----------------------------
2000 1999 AMOUNT ($) PERCENTAGE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Research and development........................... $ 1,141,781 $ 1,177,272 $ (35,491) (3.0)
Selling and marketing.............................. 271,933 18,004 253,929 1410.4
General and administrative......................... 666,670 611,028 55,642 9.1
Consulting fees paid to related party.............. -- 7,582 (7,582) 100.0
------------ ----------- ------------ ------
2,080,384 1,813,886 266,498 14.7
Stock-based compensation........................... 22,166,009 -- 22,166,009 100.0
------------ ----------- ------------ ------
Total.............................................. $ 24,246,393 $ 1,813,886 $ 22,432,507 1236.7
============ =========== ============ ======
</TABLE>

9
<PAGE>

Stock-based compensation costs were $22,166,009 in the three
months ended March 31, 2000. Of this total, $11,119,266 related to research and
development, $1,480,859 related to selling and marketing and $9,565,884 related
to general and administrative activities. The stock-based compensation costs
primarily represent the excess of the fair value of the Common Stock over the
exercise price of the variable stock option grants. There were no stock-based
compensation costs in the three months ended March 31, 1999.

The loss from operations increased from $1,896,722 in the three
months ended March 31, 1999 to $24,243,083 in the three months ended March 31,
2000 primarily due to the stock-based compensation costs.

Interest income increased from $2,749 in 1999 to $13,225 in the
three months ended March 31, 2000 due to the $18.1 million received from the
sale of the Series A Convertible Preferred Stock and Common Stock in February
and March 2000.

Interest expense decreased from $86,091 to $9,783 due to the
conversion of the notes issued in 1998 and 1999 into Common Stock in conjunction
with the Merger.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

MangoSoft Corporation was formed in June 1995 and, as part of
its formation, its founder was issued 134,925 shares of Common Stock (as
adjusted for stock splits and the Merger) for $750. Through May 25, 2000, the
Company raised approximately an additional $74 million in financing from the
private placement of debt and equity securities as follows:

<TABLE>
<CAPTION>
AGGREGATE
PROCEEDS
DATE DESCRIPTION (IN MILLIONS ($))

<S> <C> <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 9.0
Preferred Stock........................................................................
April 1997 MangoSoft Corporation Series D Redeemable Convertible 6.4
Preferred Stock........................................................................
December 1997 MangoSoft Corporation Series E Redeemable Convertible 13.1
Preferred Stock........................................................................
October 1998 MangoSoft Corporation demand notes issued to related
parties................................................................................ 2.0
February 1999 MangoSoft Corporation 12% Notes........................................................ 4.0
September 1999 Sale of 3 million shares of Common Stock of the Company................................ 3.8
March 2000 Sale of 2.5 million shares of Series A Preferred Stock of the
Company (subsequently converted to Common Stock on a 1 to 1
basis)................................................................................. 10.0
March/April 2000 Sale of 4.2 million shares of Common Stock of the Company.............................. 21.0
May 2000 Sale of 252,000 shares of Common Stock of the Company.................................. 1.2
--------------
Total.................................................................................. $74.0
</TABLE>

In addition to the above, the Company has, at times, depended
upon bank debt, loans from stockholders and directors and credit from suppliers
to meet interim financing needs. In 1998, the Company incurred bank debt of
$750,000 to purchase capital equipment. Such bank debt was repaid in February
1999 using a portion of the proceeds from the issuance of the 12% Notes.
Borrowing from stockholders and directors have generally been converted to
equity. At March 31, 2000, an additional $2.0 million in financing was provided
through notes payable to an insurance company, accounts payable, accrued expense
and other trade credit, a significant portion of which was past due.

10
<PAGE>

The proceeds raised have been used in the development of the
Company's current products with approximately $24.1 million invested in research
and development and $9.8 million in sales and marketing, principally due to an
earlier attempt to distribute the Company's products through traditional retail
software channels. The remaining proceeds have been used for working capital and
general corporate purposes.

To date, product sales have provided a minor source of
liquidity. From inception through March 31, 2000, the Company generated $0.3
million in sales and incurred cumulative net losses of $93.4 million, including
losses of $24.2 million in the three months ended March 31, 2000 and $33.0
million during the year ended December 31, 1999.

Since inception, the Company has satisfied its working capital
and other liquidity needs principally through private issuances of equity and
debt securities, loans from stockholders and directors, trade credit and bank
debt. Unless the Company can generate a significant level of on-going revenue
and attain adequate profitability, the Company will be required to seek
additional private or public equity or debt financing. Although the Company has
been successful in raising funds in the past, management can provide no
assurances that additional financing will be available to the Company on
commercially reasonable terms or at all. The Company's inability to obtain
additional financing will have a material and adverse effect on the Company's
business, operating results and financial condition, requiring the Company to
significantly curtail or possibly cease its operations. In addition, any
additional equity financing may involve substantial dilution to the Company's
stockholders.

During the three months ended March 31, 2000, the Company
received $18.1 million from the sale of 2.5 million shares of Series A
Convertible Preferred Stock (the "Preferred Stock") to accredited investors (as
defined in Rule 501 of Regulation D) for $4.00 per share and approximately 1.6
million shares of Common Stock to accredited investors for $5.00 per share. In
April 2000, the Company received an additional $12.9 million from the sale of an
additional 2.6 million shares of Common Stock at $5 per share. In May 2000, the
Company received approximately $1.2 million from the sale to accredited
investors of an additional 200,000 shares of Common Stock at $5.00 per share and
52,500 shares of Common Stock at $4.00 per share.

Under the terms of the Preferred Stock issuance, the Preferred
Stock automatically converted to Common Stock on a one-for-one basis when $10
million or greater was raised in the subsequent sale of Common Stock. The offer
and sale of the Common and Preferred Stock were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Regulation D promulgated thereunder. Management believes the $32.2
million in proceeds from the sale of the Common and Preferred Stock will be
adequate to fund the Company's operations for the next 12 months. The Company
can provide no assurances, however,

11
<PAGE>

that such amount will adequately fund its operations for such period, and it may
be necessary for the Company to obtain additional financing.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for hedging
activities and derivative instruments, including certain derivative instruments
embedded in other contracts. The provisions of SFAS No. 133 are effective for
periods beginning after June 15, 2000. The Company is currently evaluating the
effect, if any, SFAS No. 133 will have on the Company's financial position and
its results of operations. The Company will adopt this accounting standard on
January 1, 2001, as required.

ITEM 3. DESCRIPTION OF PROPERTY.

The Company's offices are located at 1500 West Park Drive, Suite
190, Westborough, Massachusetts 01581, and consist of approximately 23,000
square feet of office space under a lease expiring on August 31, 2001. The
Company's offices are leased from Westborough Five, an independent, third-party
lessor. The lease terms include an annual base rent of approximately $511,000
per year plus a proportionate share of certain operating costs, such as common
area maintenance. The total rent expense on this facility in 1999 was
approximately $540,697. The Company's offices have the capacity to accommodate
approximately 100 employees.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The table below sets forth the beneficial ownership of Common
Stock as of May 25, 2000 by (i) each director, (ii) each of the named executive
officers, (iii) all directors and executive officers of the Company as a group,
and (iv) all persons known by the Board of Directors to be beneficial owners of
more than five percent of the outstanding Common Stock.

12
<PAGE>

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OF COMMON STOCK
NAME COMMON STOCK OWNED OWNED
------------------------------------------------------------------------ ---------------------- --------------
<S> <C> <C>
Craig D. Goldman ....................................................... 280,000 (1)(2) *
Paul C. O'Brien ........................................................ 225,000 (1)(2) *
Robert E. Parsons ...................................................... 130,000 (1)(2) *
Dr. Ira Goldstein ...................................................... 125,000 (1)(2) *
Selig Zises............................................................. 2,874,692 (2)(3) 9.4%
Dr. Nick Tredennick..................................................... 100,000 (1)(2) *
Donald A. Gaubatz....................................................... 91,797 (1)(2) *
All directors and executive officers as a group......................... 5,353,624 (4) 17.6%
Jay Zises............................................................... 3,088,577 (5)(6) 10.1%
Palisade Private Partnership, L.P....................................... 5,525,000 (5)(7) 18.1%
</TABLE>

--------------------

* Less than one percent.

(1) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of stock options within 60
days of May 25, 2000, as follows: Dale Vincent, 1,000,000; Scott H. Davis,
250,000; David J. Dietterich, 250,000; Craig D. Goldman, 230,000; Paul C.
O'Brien, 200,000; Robert E. Parsons, 130,000; Dr. Ira Goldstein, 100,000;
Dr. Nick Tredinnick, 100,000; and Donald A. Gaubatz, 91,797. Does not
include shares of Common Stock which the directors and officers did not
have the right to acquire through the exercise of options not exercisable
within 60 days of May 25, 2000, as follows; Donald A. Gaubatz, 158,203 and
Robert E. Parsons, 30,000.

(2) Address is c/o MangoSoft, Inc., 1500 West Park Drive, Suite 190,
Westborough, Massachusetts 01581.

(3) Total shares of Common Stock beneficially owned by Selig Zises include the
following: 2,692,606 shares owned by Selig Zises; 113,287 shares owned by
Guarantee & Trust Co. TTEE FBO Selig Zises R-IRA DTD 5-20-96 (a
self-directed IRA); and 68,799 shares owned by his daughter, Lynn Zises.
Selig Zises is the brother of Jay Zises, both of whom are principal
stockholders of the Company. Other than the Zises family relationships
referenced in this table and the related footnotes, there are no
affiliations between Selig Zises and any other persons or entities
identified in such table or footnotes.

(4) Includes or excludes, as the case may be, shares of Common Stock as
indicated in the preceding footnotes.

(5) Addresses are as follows: Jay Zises: 767 3rd Avenue, 16th Floor, New York,
New York 10017; Palisade Private Partnership, L.P.: One Bridge Plaza,
Suite 695, Fort Lee, New Jersey 07024.

(6) Total shares of Common Stock beneficially owned by Jay Zises, the brother
of Selig Zises, include the following: 63,928 shares owned by Jay Zises;
2,652,375 shares owned by Delaware Guarantee & Trust TTEE FBO Jay Zises
IRA (a self-directed IRA); 40,478 shares owned by Jay Zises and Nancy
Zises JTWROS; 169,932 shares owned by Guarantee & Trust TTEE FBO Jay Zises
IRA DTD 7-9-92 (a self-directed IRA); 67,458 shares owned by Associated
Capital LP; and 94,406 shares owned by Associated Capital Offshore LP.
Nancy Zises is the wife of Jay Zises. Jay Zises is a limited partner in
Associated Capital LP and Associated Capital Offshore LP, and has voting
and dispositive power in respect of the Common Stock owned by such
entities. Other than such limited partnerships and the Zises family
relationships referenced in this table and the related footnotes, there
are no affiliations between Jay Zises and any other persons or entities
identified in such table or footnotes.

(7) Total shares of Common Stock beneficially owned by Palisade Private
Partnership, L.P. include 3,125,000 shares owned by Palisade Private
Partnership, L.P.; 1,200,000 shares registered in the name of Clippership
& Co.; and 1,200,000 shares registered in the name of Pitt & Co.

13
<PAGE>

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

The following is a list of the Company's directors and executive officers
and their respective positions. All of the Company's officers provide services
to the Company on a full-time basis.

NAME: POSITION:

Dale Vincent Director, President and Chief Executive Officer
Craig D. Goldman Director and Non-Executive Co-Chairman
Paul C. O'Brien Director and Non-Executive Co-Chairman
Dr. Ira Goldstein Director
Selig Zises Director
Dr. Nick Tredennick Director
Donald A. Gaubatz Senior Vice President and Chief Operating
Officer

Scott H. Davis Vice President and Chief Technology Officer
Daniel J. Dietterich Vice President, Engineering
Robert E. Parsons Vice President and Chief Financial Officer

Dale Vincent was appointed President, Chief Executive Officer
and elected a Director following the Merger. Mr. Vincent has served as a
Director of MangoSoft Corporation since July 1995, as its Chief Executive
Officer from May 1999 to September 1999, and as its Chief Financial Officer from
September 1998 to May 1999. Since April 1990, Mr. Vincent has served as a
Managing Director of ACAP, a private investment company and the general partner
of Associated Capital LP, a private investment company, and consults with
Associated Capital LP on its investment and marketing activities. He has also
served as a Director of MaMaMedia Inc. since 1996.

Craig D. Goldman was elected a Director and Non-Executive
Co-Chairman following the Merger. Mr. Goldman served MangoSoft Corporation in
the same capacities since June 1999. Mr. Goldman founded Cyber Consulting
Services Corporation and has been its President and Chief Executive Officer
since 1996. Cyber Consulting Services provides strategic, business and
technology consulting services to Fortune 500 and startup companies. Mr. Goldman
also serves as a director of CMGI Inc., Engage Technology, Inc., NaviSite, Inc.
and PRT Group, Inc.

Dr. Ira Goldstein was elected a Director following the Merger.
He 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 for the past 2 years. Prior to that position
he served Hewlett-Packard as Chief Technology Officer for 2 years. Dr. Goldstein
received his Ph.D. in applied mathematics from Massachusetts Institute of
Technology and his bachelor's degree in pure mathematics from Harvard
University.

Paul C. O'Brien was elected a Director and Non-Executive
Co-Chairman following the Merger. He previously served MangoSoft Corporation in
the same capacities from June 1999 to September 1999. Since 1995 Mr. O'Brien
served as the President of Pan-Asia Development, an

14
<PAGE>

investment firm concentrating on Asian ventures. 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. 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. Mr. O'Brien is also a director of several private companies.

Selig Zises was elected a Director following the Merger. He
previously served MangoSoft Corporation in the same capacity from July 1995 to
September 1999. Since April 1990 Mr. Zises has served as a Managing Director and
Treasurer of ACAP, Inc., the general partner of Associated Capital L.P. In this
capacity, he consults with Associated Capital L.P. on its trading and investment
activities. Mr. Zises is the Chairman of the Board of Associated Venture
Management, a venture capital and merchant banking firm. He also serves as a
Director of Collagenesis, Inc.

Dr. Nick Tredennick was elected a Director on February 8, 2000.
He has served on the MangoSoft Board of Advisors since the Merger. Dr.
Tredennick has served as President of Tredennick, Inc., a technical consulting
company, since 1988. He served as Chief Scientist for Altera and currently
serves as Chief Scientist for QuickSilver Technology. Dr. Tredennick is on the
Board of Directors of OpenReach. Dr. Tredennick has a Ph.D. in Electrical
Engineering from the University of Texas and an MSEE and BSEE from Texas Tech
University.

Donald A. Gaubatz was appointed Senior Vice President and Chief
Operating Officer on January 31, 2000. Prior to joining the Company, Mr. 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, Mr. Gaubatz held numerous positions at Digital Equipment Corporation. Mr.
Gaubatz holds a Ph.D. in Computer Science from Cambridge University in England
and a B.S. in Electrical Engineering from Washington University in St. Louis.

Scott H. Davis was appointed Vice President and Chief Technology
Officer following the Merger. 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 by
Digital Equipment Corporation where he held a variety of engineering and
management positions over a 16 year period.

Daniel J. Dietterich was appointed Vice President, Engineering
following the Merger. He previously served MangoSoft Corporation in the same
capacity since October 1998. From March 1997 through September 1998, he served
MangoSoft Corporation as its Director of Development. From October 1995 through
February 1997 he was a Consulting Engineer for MangoSoft Corporation.

Robert E. Parsons was appointed Vice President and Chief
Financial Officer following the Merger. He previously served MangoSoft
Corporation in the same capacity since August 1999. Mr. Parsons served Advanced
Modular Solutions, Inc., a privately held technology company, 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.

15
<PAGE>

ITEM 6. EXECUTIVE COMPENSATION.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth information about the
compensation paid, or payable, by the Company for services rendered in all
capacities by the Chief Executive Officer and each of the most highly paid
executive officers of the Company who earned more than $100,000 for each of the
fiscal years ended December 31, 1999, 1998 and 1997 in which such officers were
executive officers for all or part of such year.

<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------------------------------- ---------------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND ------------ ------ ------------- ------------- -------------- ------------
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
------------------------ ---- --- --- -------------- ------------- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dale Vincent (1) 1999 150,000 -- -- -- 400,000 --
President and Chief 1998 201,200 -- -- -- -- --
Executive Officer 1997 -- -- -- -- -- --

Mick Jardine (2) 1999 -- -- -- -- -- --
President 1998 -- -- -- -- -- --
1997 -- -- -- -- -- --

Scott H. Davis 1999 128,000 19,000 -- -- 250,000 --
Vice President and 1998 124,462 -- -- -- -- --
Chief Technology 1997 103,846 -- -- -- -- --
Officer

Daniel J. Dietterich 1999 119,139 6,050 -- -- 250,000 --
Vice President, 1998 113,692 -- -- -- -- --
Engineering 1997 106,462 -- -- -- -- --

Robert E. Parsons (3) 1999 43,269 25,000 (5) -- -- 160,000 --
Vice President and 1998 -- -- -- -- -- --
Chief Financial 1997 -- -- -- -- -- --
Officer

James M. Stark (3)(4) 1999 36,058 25,000 (5) -- -- 200,000 --
Senior Vice 1998 -- -- -- -- -- --
President, Sales and 1997 -- -- -- -- -- --
Marketing

</TABLE>

--------------
(1) From March 1998 to September 1998, Mr. Vincent served as the Chief
Financial Officer of MangoSoft Corporation pursuant to an agreement
between MangoSoft Corporation and Associated Venture Management ("AVM").
Selig Zises, a director and principal stockholder of the Company, is the
Chairman of the Board of AVM. The cost of Mr. Vincent's services was
$151,200, which was included in the $647,795 administrative fee charged to
MangoSoft Corporation by AVM during 1998. In September 1998, MangoSoft
Corporation negotiated an agreement with Mr. Vincent and his company RCG
Real Estate ("RCG") under which Mr. Vincent continued to serve MangoSoft
Corporation as its Chief Financial Officer, in consideration of which
MangoSoft Corporation paid RCG $12,500 per month. In May 1999, Mr. Vincent
was named the President and Chief Executive Officer of MangoSoft
Corporation. Mr. Vincent continued to be compensated under the terms of
the agreement with RCG through December 1999. On January 1, 2000, Mr.
Vincent became an employee of the Company and the agreement with RCG was
terminated. The Company believes the fees paid to AVM and RCG for Mr.
Vincent's services during the respective periods were on terms as
favorable as those available from non-affiliated persons.

<PAGE>

(2) Mr. Jardine was paid no compensation for his services to the Company. Mr.
Jardine resigned effective as of the Merger.

(3) The 1999 salary amounts reflect a partial year. Mr. Parsons began
employment in August 1999. Mr. Stark began employment in September 1999.

(4) Mr. Stark terminated his employment with the Company effective April 1,
2000.

(5) Bonus was earned in 1999 and paid in 2000.

EMPLOYMENT AGREEMENTS

The Company does not have employment agreements with any of its executive
officers.

STOCK OPTIONS

The following table provides information concerning grants of
stock options by the Company to the named executive officers during 1999.

OPTION GRANTS FOR FISCAL 1999

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS/SARS PRICE PER
OPTIONS/SARS GRANTED TO SHARES EXPIRATION
NAME GRANTED EMPLOYEES IN 1999 ($/SH) DATE
----------------------------- ---------------- -------------------- ------------ ------------
<S> <C> <C> <C> <C>
Dale Vincent 400,000 12.4% $1.25 9/07/09
Scott H. Davis 250,000 7.7% $1.25 9/07/09
Daniel J. Dietterich 250,000 7.7% $1.25 9/07/09
Robert E. Parsons 160,000 4.9% $1.25 9/07/09
James M. Stark 200,000 6.2% $1.25 9/07/09
</TABLE>

OPTION EXERCISES AND VALUES FOR 1999

The following table provides information concerning options exercised by
the named executive officers and the value of such officers' unexercised
options at December 31, 1999. The Value of the Unexercised In-The-Money Options
is based on the average bid and ask price of the Common Stock on the OTCBB on
December 31, 1999. There is no established market for the Common Stock and,
accordingly, such valuation may not necessarily reflect the actual market value
of the outstanding options.

<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
ON EXERCISE REALIZED --------------------------------- -------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dale Vincent -- -- 400,000 -- $3,400,000 --
Scott H. Davis -- -- 250,000 -- 2,125,000 --
Daniel J. Dietterich -- -- 250,000 -- 2,125,000 --
Robert E. Parsons -- -- 100,000 60,000 850,000 $510,000
James M. Stark -- -- 100,000 100,000 850,000 850,000
</TABLE>

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During 1998, AVM provided executive and administrative assistance to
MangoSoft Corporation, including services performed by Dale Vincent through
August 1998. Mr. Vincent was an employee of AVM and he served the Company as a
consultant. The cost of these services totaled $647,795 in 1998, including
$151,200 for Mr. Vincent's services. In addition, MangoSoft Corporation issued
warrants to AVM for services rendered to purchase 25,000 shares of its common
stock at an exercise price of $3.50 per share. These warrants were terminated
for no consideration in connection with the Merger. In 1999, AVM provided
administrative assistance to the Company at a total cost of $64,888. Selig
Zises, a director of the Company, is the Chairman of the Board of AVM. The
Company believes that the fees paid to AVM for its executive and administrative
services during 1999 and 1998 were on terms as favorable as those available from
non-affiliated persons.

In September 1998, MangoSoft Corporation established a consulting
relationship with Dale Vincent, a director, to serve as its interim Vice
President and Chief Financial Officer. The consulting relationship continued
when Mr. Vincent became President and Chief Executive Officer of MangoSoft
Corporation. For his services MangoSoft Corporation compensated Mr. Vincent
through his company, RCG, in the amount of $12,500 per month. These payments
were made through December 31, 1999 and were in lieu of salary paid to Mr.
Vincent by the Company. Mr. Vincent served the Company through RCG because it
was not clear at that time that he would join the Company on a permanent basis.
The Company believes that the fees paid to RCG for Mr. Vincent's services during
1999 and 1998 were on terms as favorable as those available from non-affiliated
persons.

In October 1998, MangoSoft Corporation issued a $1 million demand note to
each of Selig Zises and Jay Zises. Both Selig Zises and Jay Zises are principal
shareholders of the Company and Selig Zises is a director of the Company. Such
notes were unsecured, accrued interest at a rate of 8% per annum and were senior
to all obligations of MangoSoft Corporation. In February 1999, each of the notes
was converted into $1 million of the 12% Notes of MangoSoft Corporation. Over
the following six months, Selig and Jay Zises advanced in the aggregate an
additional $2,032,500 of interim financing, of which $2,000,000 represented the
purchase of additional 12% Notes, in order for MangoSoft Corporation to meet its
working capital needs. Also in February 1999, Palisade Private Partnership, L.P.
("Palisade") purchased $2 million principal of amount of 12% Notes. In September
1999, in connection with the Merger, the aggregate $6 million plus accrued
interest on the 12% Notes held by Selig Zises, Jay Zises and Palisade were
converted into 9,000,000 shares of Common Stock, so that 3,000,000 shares of
Common Stock were issued to each of Selig Zises, Jay Zises and Palisade.

Due to MangoSoft Corporation's continuing losses and lack of significant
revenue, in February 1999 MangoSoft Corporation encountered difficulty with the
issuance of the 12% Notes. Given the difficult market conditions at that time
for this type of security issuance, the 12% Notes contained a beneficial
conversion feature to make the investment more attractive to new investors. The
beneficial conversion feature allowed for conversion of the 12% Notes into
shares of Common Stock at 75% of the lowest cash price paid for any equity
offering during the period from the date of the issuance of the 12% Notes to
their conversion, subject to additional discounts for each month following the
initial six-month period that the 12% Notes remained unpaid, with a maximum
discount of 50%.

At the time of the Merger, the conversion rate was 65% of the lowest cash
price paid for Common Stock. However, to facilitate completion of the Merger in
September 1999, an agreement was negotiated with Selig and Jay Zises and
Palisade to convert the 12% Notes at 58% of the lowest price paid for the
Common Stock, or $0.71 per share. The Company believes the terms of its
borrowing arrangements with Selig and Jay Zises and Palisade were on terms as
favorable as those available from non-affiliated persons.

In December 1999, the Company issued to Selig Zises an 8%
18

<PAGE>

unsecured demand note for $200,000 principal amount which was senior to all
obligations of the Company. On March 28, 2000, the Company repaid the $232,500
principal, including $32,500 outstanding from earlier in the year, plus related
accrued interest owed to Selig and Jay Zises. The Company believes the terms of
its borrowing arrangements with Selig and Jay Zises were on terms as favorable
as those available from non-affiliated persons.

The Company has an agreement with Craig D. Goldman, a director of the
Company, pursuant to which Mr. Goldman shall receive grants of stock options
exercisable at the current market price of the Common Stock on the date of
grant equal to 1% of the voting securities of the Company on a fully-diluted
basis. The anti-dilution provision in respect of options granted to Mr. Goldman
in connection with his joining the Board of Directors is in recognition of his
knowledge, experience and extensive business relationships within the computer
software and e-business fields. Options granted to Mr. Goldman are adjusted
whenever there are significant new stock option grants or shares of Common Stock
issued to others. In the absence of significant new grants to others, Mr.
Goldman's options are adjusted on a quarterly basis. As of March 31, 2000, Mr.
Goldman has been granted options to purchase 230,000 shares of Common Stock at
exercise prices ranging from $1.25 to $4.00. Options granted to Mr. Goldman have
been included in the Company's issued and outstanding stock options granted to
employee and non-employees. See Notes 9 and 11 of the Company's consolidated
financial statements.

On May 27, 1999, MangoSoft Corporation and Steve Frank, MangoSoft
Corporation's former Chief Executive Officer, reached a settlement agreement and
general release of claims brought by both parties over the termination of Mr.
Frank. As part of the settlement agreement, MangoSoft Corporation agreed to
repurchase 200,000 shares of its common stock for the sum of $100,000 upon the
completion of financing in the aggregate amount of $3,000,000. In connection
with the Merger, the Company repurchased the 200,000 shares from Mr. Frank as
agreed.

ITEM 8. DESCRIPTION OF SECURITIES.

The Company's authorized capital stock consists of 105,000,000 shares,
100,000,000 of which are Common Stock and 5,000,000 of which are preferred
stock.

Common Stock. Under Nevada law and the Company's Articles of
Incorporation, holders of Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of legally available
funds. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.

Preferred Stock. The Company's Articles of Incorporation authorize the
issuance of 5,000,000 shares of preferred stock. The Board of Directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Issuance of preferred stock could have the
effect of making it more difficult for a third party to acquire, or could
discourage a third party from acquiring, a majority of the Company's
outstanding capital stock. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
Common Stock. All of the shares of Series A Convertible Preferred Stock issued
in the March 2000 financing have been converted into Common Stock and canceled.

Anti-takeover Effects of Provisions of the By-Laws. The Company's By-Laws
provide that stockholders may call a special meeting of stockholders only upon
a request of stockholders owning at least 10% of the Company's voting capital
stock. These provisions of the By-Laws and the existence of authorized, but
undesignated, preferred stock could discourage potential acquisition proposals
and could delay or prevent a change in control. These provisions enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and
discourage certain types of transactions that may involve an actual or
threatened change of control. Such provisions could have the effect of
discouraging others from

19
<PAGE>

making tender offers for the Common Stock and, as a consequence, may also
inhibit fluctuations in the market price of the Common Stock that could result
from actual or rumored takeover attempts.

Transfer Agent. The Transfer Agent for the Common Stock is Interwest
Transfer Company.

PART II

ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.

Market Information. As of May 25, 2000, the Company had a total of
26,711,093 shares of Common Stock issued and outstanding. The Company estimates
that approximately 1,575,000 shares of Common Stock are freely tradable,
including (i) 187,800 shares, as adjusted for the 1.734 for 1 stock split
effected pursuant to the Merger, registered on Form SB-2, Commission File No.
33-93994, which became effective on October 25, 1995 and (ii) 1,387,200 shares
previously restricted that are freely tradable under Rule 144(k) promulgated
under the Securities Act.

The Company estimates that approximately 25,136,093 shares of Common
Stock, or 94% of the total issued and outstanding shares, are restricted
securities under Rule 144 as follows:

Shares of Common Stock issued pursuant to the Merger......... 15,308,998
Shares of Common Stock sold to accredited investors.......... 9,786,966
Shares of Common Stock issued pursuant to the exercises of
employee stock options....................................... 40,129
-----------
Total........................................................ 25,136,093

The Common Stock is currently traded on the OTCBB under the ticker symbol
"MNGX". The following sets forth the range of the high and low bid price
quotations for each calendar quarter during which trading occurred during the
prior two fiscal years. Such quotations represent interdealer prices, without
retail markup, markdown or commission, and may not represent actual
transactions:

<PAGE>

HIGH LOW
2000
First Quarter $26.50 $8.25

1999
First Quarter $7.50 $1.73
Second Quarter 11.00 4.00
Third Quarter 13.13 4.50
Fourth Quarter 9.75 3.25

1998
First Quarter N/A N/A
Second Quarter $1.56 $1.50
Third Quarter 1.56 1.50
Fourth Quarter 1.25 1.25

Holders. As of May 25, 2000, there were approximately 450 record holders
of Common Stock. This number does not include stockholders for whom shares were
held in a nominee or street name.

Dividends. The Company has not previously paid any dividends on the Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
The only restrictions that limit the Company's ability to pay dividends on the
Common Stock are those imposed by Nevada law. Under Nevada law, no dividends or
other distributions may be made which would render the Company insolvent or
reduce the Company's assets to less than the sum of its liabilities plus the
amount needed to satisfy any liquidation preference.

ITEM 2. LEGAL PROCEEDINGS.

On August 30, 1999, one of the Company's stockholders filed suit in Orange
County, California Superior Court alleging damages for fraud in the sale of
securities under both federal and California law and seeking rescission of the
purchase price of such securities. The caption of the matter is Rafik Y.
Kammell, Plaintiff, v. Cachelink Corp., a Delaware corporation, Steven Frank,
individually, Leonard Davidson, individually, Value Investing Partners, Inc., a
corporation, Kevin R. Greene, individually, and Does 1 to 300, inclusive,
Defendants, and the case number OCSC 813867. The stockholder alleges
misrepresentations, both verbal and within a private placement memorandum, of
the Company's technology and product readiness, the state of the Company's
marketing and sales activities and the returns the stockholder expected from his
investment in the Company. The stockholder further alleges that these purported
misrepresentations induced the stockholder's investment in the Company. The
stockholder seeks damages in the amount of $50,000, the amount of the
stockholder's original investment, plus interest. The Company answered the
complaint, denied all material allegations and asserted various affirmative
defenses. Discovery has commenced. The Company believes that this litigation
will not have a material adverse effect on its business, financial condition and
results of operations.

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

On January 11, 2000, the Company dismissed its then current independent
accountant, David T. Thomson P.C. ("Thomson"). The decision to change
independent accountants was recommended by the Company's Audit Committee and
approved by the Board of Directors of the

<PAGE>

Company on October 14, 1999. The Company appointed Deloitte & Touche LLP as its
independent accountant as of January 11, 2000.

The Company's change in independent accountants was a result of the
Merger. Thomson was the accountant for First American Clock and Deloitte &
Touche had been the auditor for MangoSoft Corporation since its inception.
Following the Merger, the Company appointed Deloitte & Touche as its
independent accountant to ensure continuity.

Thomson's report on the financial statements of First American Clock for
the fiscal years ended December 31, 1997 and 1998 did not contain an adverse
opinion or disclaimer of opinion. Furthermore, such reports were not qualified
or modified as to uncertainty, audit scope or accounting principles. However,
Thomson's reports for the fiscal years ended December 31, 1997 and 1998
contained doubt about First American Clock's ability to continue as a going
concern.

During the fiscal years ended December 31, 1998 and 1999, there were no
disagreements between First American Clock and Thomson on any matter of
accounting principles or practices, financial statement disclosures, auditing
scope or procedure which, if not resolved to the satisfaction of Thomson, would
have caused Thomson to make reference to the subject matter of the disagreement
in connection with its reports.

During fiscal years ended December 31, 1998 and 1999, the Company
consulted with Deloitte & Touche regarding the application of accounting
principles involved in the Merger, subsequent events, and the Company's Form
10-QSB as filed with the Commission on November 19, 1999. The long-standing
relationship between MangoSoft Corporation and Deloitte & Touche and the advice
rendered by Deloitte & Touche to the Company in connection with the accounting
treatment of the Merger and related filings were important factors considered
by the Company in reaching a decision as to the respective accounting, auditing
or financial issues involved in these transactions and filings.

ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.

The following are the sales of unregistered securities made by the Company
since its inception:

<PAGE>

<TABLE>
<CAPTION>
FACE VALUE AGGREGATE
OF DEBT PROCEEDS
NUMBER OF (IN MILLIONS (IN MILLIONS
DATE DESCRIPTION SHARES ($)) ($))
--------------------------------- ------------------
<S> <C> <C> <C> <C>
June 1996 MangoSoft Corporation Series C
Redeemable Convertible Preferred
Stock.................................. 1,500,000 -- 9.0
April 1997 MangoSoft Corporation Series D
Redeemable Convertible Preferred
Stock.................................. 799,751 -- 6.4
December 1997 MangoSoft Corporation Series E
Redeemable Convertible Preferred
Stock.................................. 1,450,000 -- 13.1
October 1998 MangoSoft Corporation demand notes
issued to related parties.............. $2.0 2.0
February 1999 MangoSoft Corporation 12% Notes........ 4.0 4.0
September 1999 Common Stock of the Company............ 3,000,000 -- 3.8
March 2000 Series A Preferred Stock of the
Company (subsequently converted to
Common Stock on a 1 to 1 basis)........ 2,500,000 -- 10.0
March/April
2000 Common Stock of the Company............ 4,200,000 -- 21.0
May 2000 Common Stock of the Company............ 252,000 -- 1.2
---------- -------------
Total.................................. $6.0 $74.0
========== =============
</TABLE>

In addition, prior to the Merger, MangoSoft Corporation issued
approximately 270,000 warrants to purchase its common stock at various exercise
prices. These warrants were canceled in connection with the Merger. MangoSoft
Corporation executed warrant termination agreements with certain of the holders
of such warrants which agreements provided for the issuance to such holders of
warrants to purchase Common Stock. The Company is in the process of documenting
these and certain other issuances of warrants. Once documented, the Company will
issue approximately 120,000 warrants to purchase Common Stock at an exercise
price of $1.25 per share and approximately 85,000 warrants to purchase Common
Stock at an exercise price of $4.00 per share.

All sales of the Company's debt and equity securities were made to
sophisticated investors pursuant to Section 4(2) of the Securities Act or to
accredited investors as defined in Rule 501 of Regulation D. Accordingly, the
offers and sales of such securities were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or
Regulation D promulgated thereunder.

ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Company's Articles of Incorporation contain provisions that limit the
liability of directors in certain instances. As permitted by the Nevada General
Corporation Law, directors will not be liable to the Company for monetary
damages arising from a breach of their fiduciary duty as directors. Such
limitation does not affect liability for any breach of a director's duty to the
Company or its stockholders that involve (i) intentional misconduct, fraud or a
knowing violation of law or (ii) for the payment of dividends in violation of
Nevada Revised Statutes 78.300.

<PAGE>

PART F/S

INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report......................................................... 24
Consolidated Statements of Operations for the Years Ended December 31, 1999
and 1998 and Cumulative for the Period from June 15, 1995
(Inception) To December 31, 1999............................................. 25
Consolidated Balance Sheets as of December 31, 1999 and 1998......................... 26
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1999 and 1998 and Cumulative for the Period From
June 15, 1995 (Inception) to December 31, 1999............................... 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999
and 1998 and Cumulative for the Period From June 15, 1995
(Inception) to December 31, 1999............................................. 28
Notes to Consolidated Financial Statements.......................................... 29
Unaudited Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 and Cumulative for the Period from
June 15, 1995 (Inception) to March 31, 2000.................................. 40
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999............................................................ 41
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 and Cumulative for the
Period from June 15, 1995 (Inception) to March 31, 2000...................... 42
Notes to Unaudited Condensed Consolidated Financial Statements....................... 43
</TABLE>

<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 (a development stage company) (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for the years then ended and
cumulative for the period from June 15, 1995 (inception) to December 31, 1999.
The consolidated 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended and cumulative for the period from
June 15, 1995 (inception) to December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 2, during 1999, the Company merged with MangoSoft
Corporation in a transaction to be accounted for as a reverse acquisition.
Following the merger, the business to be conducted by the Company is the
business previously conducted by MangoSoft Corporation.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company is a development stage
enterprise engaged in the development of computer network technology. 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

March 3, 2000
(April 11, 2000 as to the first three paragraphs of Note 14;
May 19, 2000 as to the last paragraph of Note 14)

25
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Cumulative From
Year Ended December 31, June 15, 1995
-------------------------- (Inception) To
1999 1998 December 31, 1999
--------- ---------- ------------------
<S> <C> <C> <C>
Revenues ..................................................... $ 37,207 $ 245,406 $ 282,613
Cost of revenues ............................................. 363 91,529 91,892
------------ ------------ ------------
Gross margin .............................................. 36,844 153,877 190,721

Costs and expenses:
Research and development (excluding
stock-based compensation of
$10,085,922 in 1999 and cumulative
from June 15, 1995 (inception) to
December 31, 1999) ........................................ 4,420,903 6,615,558 22,985,471

Selling and marketing (excluding
stock-based compensation of
$1,303,333 in 1999 and
cumulative from June 15, 1995
(inception) to December 31, 1999) ......................... 412,842 2,608,190 9,499,512

General and administrative (excluding stock-
based compensation of $9,345,440 in 1999 and
cumulative from June 15, 1995 (inception) to
December 31, 1999) ........................................ 2,204,499 3,388,312 10,578,153

Stock-based compensation ..................................... 20,734,695 -- 20,734,695
Consulting fees to related parties ........................... 64,888 647,795 712,683
------------ ------------ ------------
Loss from operations ...................................... (27,800,983) (13,105,978) (64,319,793)
Interest income .............................................. 13,542 168,498 578,618
Interest expense:
Interest expense to related parties (including
$3,027,375 relating to a beneficial conversion
feature in 1999 and cumulative from June 15,
1995 (inception) to December 31, 1999) ..................... (3,391,167) (19,726) (3,410,893)
Other interest expense (including $1,832,625
relating to a beneficial conversion feature in
1999 and cumulative from June 15, 1995 to
December 31, 1999) ......................................... (1,837,490) (49,507) (1,886,997)
------------ ------------ ------------
Total interest expense .................................... (5,228,657) (69,233) (5,297,890)
Other income (expense), net .................................. (5,547) (67,200) (72,747)
------------ ------------ ------------
Net loss .................................................... (33,021,645) (13,073,913) (69,111,812)
Accretion of redeemable preferred stock ...................... 1,884,923 2,634,482 6,604,024
------------ ------------ ------------
Net loss applicable to common stockholders.................... $(34,906,568) $(15,708,395) $(75,715,836)
============ ============ ============
Net loss per common share - basic and diluted................. $ (5.44) $ (115.19)
Shares used in computing basic and diluted net loss
per common share ............................................ 6,414,178 136,367

</TABLE>

See Notes to Consolidated Financial Statements

26
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 29,959 $ 232,637
Accounts receivable, net of an allowance of $9,702 in 1998 .............. -- 9,458
Inventory ............................................................... -- 275
Prepaid insurance ....................................................... 120,968 --
Other prepaid expenses and current assets ............................... 7,187 3,591
------------ ------------
Total current assets ............................................... 158,114 245,961

PROPERTY AND EQUIPMENT--Net .................................................. 147,889 206,264
DEPOSITS AND OTHER ASSETS .................................................... 5,943 5,943
------------ ------------
TOTAL ................................................................... $ 311,946 $ 458,168
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Demand notes payable to related parties ................................. $ 232,500 $ 2,000,000
Other short-term debt.................................................... 92,904 750,000
Accrued expenses to related parties ..................................... 712,683 647,795
Accounts payable, including past due amounts ............................ 1,558,988 1,768,456
Accrued payroll ......................................................... 192,191 142,834
Accrued merger costs .................................................... 77,893 --
Other accrued expenses .................................................. 414,734 424,172
Deferred revenue ........................................................ -- 19,160
------------ ------------
Total current liabilities .......................................... 3,281,893 5,752,417

COMMITMENTS AND CONTINGENCIES

REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Redeemable convertible preferred stock, Series C ..................... -- 10,536,748
Redeemable convertible preferred stock, Series D ..................... -- 7,193,384
Redeemable convertible preferred stock, Series E ..................... -- 14,233,546
------------ ------------
Total redeemable preferred stock ............................ -- 31,963,678
------------ ------------

STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A ................................ -- 22,500
Convertible preferred stock, Series B ................................ -- 7,500
Common stock.......................................................... 19,924 761
Additional paid-in capital ........................................... 72,185,728 --
Deferred compensation ................................................ (2,980,343) --
Deficit accumulated during the development stage ..................... (72,195,256) (37,288,688)
------------ ------------
Total stockholders' equity (deficiency) ........................... (2,969,947) (37,257,927)
------------ ------------
TOTAL......................................................................... $ 311,946 $ 458,168
============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

27
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

Convertible Preferred Convertible Preferred
Stock, Series A Stock, Series B
-------------------- --------------------
Shares Amount Shares Amount
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, June 15, 1995 (Inception)............................. -- $ -- -- $ --
Issuance of common stock at $0.001 per share ................. -- -- -- --
Issuance of convertible preferred stock, at $0.67 per share
Series A, net of issuance costs of $26,998................. 2,250,000 22,500 -- --
Issuance of convertible preferred stock, at $2.67 per share
Series B, net of issuance costs of $14,401................. -- -- 750,002 7,500
Net loss...................................................... -- -- -- --
--------- ------------ -------------- ----------
Balance, December 31, 1995..................................... 2,250,000 22,500 750,002 7,500
Accretion of redeemable convertible preferred stock........... -- -- -- --
Net loss...................................................... -- -- -- --
---------- ----------- -------------- ----------
Balance, December 31, 1996..................................... 2,250,000 22,500 750,002 7,500
Accretion of redeemable convertible preferred stock........... -- -- -- --
Net loss...................................................... -- -- -- --
---------- ----------- -------------- ----------
Balance, December 31, 1997..................................... 2,250,000 22,500 750,002 7,500
Conversion of accounts payable at $8.00 per share ............ -- -- -- --
Accretion of redeemable convertible preferred stock........... -- -- -- --
Net loss...................................................... -- -- -- --
---------- ----------- -------------- ----------
Balance, December 31, 1998..................................... 2,250,000 22,500 750,002 7,500
Accretion of redeemable convertible preferred stock........... -- -- -- --
Purchase and retirement of common stock from related
party at $0.50 per share ................................... -- -- -- --
Adjustment to reflect the exchange of common stock in
connection with the reverse merger, at $0.001 par value .... -- -- -- --
Issuance of common stock in exchange for preferred stock,
see footnote to this statement .............................. (2,250,000) (22,500) (750,002) (7,500)
Conversion of 12% senior secured convertible notes
payable and related accrued interest at $0.71 per share..... -- -- -- --
Beneficial conversion feature of 12% convertible notes........ -- -- -- --
Common stock held by former First American Clock
shareholders, converted into $0.001 par value common stock.. -- -- -- --
Issuance of common stock to placement agent valued at
$1.25 per share ............................................ -- -- -- --
Issuance of common stock at $1.25 per share, net of offering
costs of $651,173 ........................................... -- -- -- --
Stock-based compensation (options to purchase 3,235,993 common
shares granted in 1999, containing SARs, with intrinsic values
ranging from $0.40 to $8.50 per share) ...................... -- -- -- --
Net loss...................................................... -- -- -- --
---------- ----------- -------------- ----------
Balance, December 31, 1999..................................... -- $ -- -- $ --
========== =========== ============== ==========

<PAGE>

Common Stock Additional
-------------------- Paid-In Deferred
Shares Amount Capital Compensation
------- ------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, June 15, 1995 (Inception)............................. -- $ -- $ -- $ --
Issuance of common stock at $0.001 per share.................. 750,000 750 -- --
Issuance of convertible preferred stock at $0.67 per share,
Series A, net of issuance costs of $26,998................. -- -- 1,451,057 --
Issuance of convertible preferred stock at $2.67 per share,
Series B, net of issuance costs of $14,401................. -- -- 1,979,534 --
Net loss...................................................... -- -- -- --
----------- ----------- ------------------ -----------------
Balance, December 31, 1995..................................... 750,000 750 3,430,591 --
Accretion of redeemable convertible preferred stock........... -- -- (486,523) --
Net loss...................................................... -- -- -- --
----------- ----------- ------------------ -----------------
Balance, December 31, 1996..................................... 750,000 750 2,944,068 --
Accretion of redeemable convertible preferred stock........... -- -- (1,598,096) --
Net loss...................................................... -- -- -- --
----------- ----------- ------------------ -----------------
Balance, December 31, 1997..................................... 750,000 750 1,345,972 --
Conversion of accounts payable at $8.00 per share ............ 11,250 11 89,989 --
Accretion of redeemable convertible preferred stock........... -- -- (1,435,961) --
Net loss...................................................... -- -- -- --
----------- ----------- ------------------ -----------------
Balance, December 31, 1998..................................... 761,250 761 -- --
Accretion of redeemable convertible preferred stock........... -- -- -- --
Purchase and retirement of common stock from related
party at $0.50 per share ................................... (200,000) (200) (99,800) --
Adjustment to reflect the exchange of common stock in
connection with the reverse merger, at $0.001 par value .... (460,381) (460) 460 --
Issuance of common stock in exchange for preferred stock,
see footnote to this statement ............................. 5,908,129 5,908 33,872,709 --
Conversion of 12% senior secured convertible notes
payable and related accrued interest at $0.71 per share .... 9,000,000 9,000 6,368,409 --
Beneficial conversion feature of 12% convertible notes........ -- -- 4,860,000 --
Common stock held by former First American Clock
shareholders, converted into $0.001 par value common stock. 1,575,000 1,575 (1,575) --
Issuance of common stock to placement agent valued at
$1.25 per share ........................................... 300,000 300 374,700 --
Issuance of common stock at $1.25 per share, net of
issuance costs of $651,173.................................. 3,000,000 3,000 3,095,827 --
Stock-based compensation (options to purchase 3,235,993 common
shares granted in 1999, containing SARs, with intrinsic
values ranging from $0.40 to $8.50 per share) .............. 40,129 40 23,714,998 (2,980,343)
Net loss...................................................... -- -- -- --
----------- ----------- ------------------ -----------------
Balance, December 31, 1999..................................... 19,924,127 $19,924 $72,185,728 $(2,980,343)
=========== =========== ================== =================

<PAGE>

Deficit
Accumulated
During The
Development
Stage Total
------ -----
<S> <C> <C>
Balance, June 15, 1995 (Inception)............................. $ -- $ --
Issuance of common stock at $0.001 per share.................. -- 750
Issuance of convertible preferred stock at $0.67 per share,
Series A, net of issuance costs of $26,998................. -- 1,473,557
Issuance of convertible preferred stock at $2.67 per share,
Series B, net of issuance costs of $14,401................. -- 1,987,034
Net loss...................................................... (1,119,683) (1,119,683)
----------- -----------
Balance, December 31, 1995..................................... (1,119,683) 2,341,658
Accretion of redeemable convertible preferred stock........... -- (486,523)
Net loss...................................................... (6,115,576) (6,115,576)
----------- -----------
Balance, December 31, 1996..................................... (7,235,259) (4,260,441)
Accretion of redeemable convertible preferred stock........... -- (1,598,096)
Net loss...................................................... (15,780,995) (15,780,995)
----------- -------------
Balance, December 31, 1997..................................... (23,016,254) (21,639,532)
Conversion of accounts payable at $8.00 per share............. -- 90,000
Accretion of redeemable convertible preferred stock........... (1,198,521) (2,634,482)
Net loss...................................................... (13,073,913) (13,073,913)
----------- --------------
Balance, December 31, 1998..................................... (37,288,688) (37,257,927)
Accretion of redeemable convertible preferred stock........... (1,884,923) (1,884,923)
Purchase and retirement of common stock from related
party at $0.50 per share.................................... -- (100,000)
Adjustment to reflect the exchange of common stock in
connection with the reverse merger, at $0.001 par value..... -- --
Issuance of common stock in exchange for preferred stock,
see footnote to this statement .............................. -- 33,848,617
Conversion of 12% senior secured convertible notes
payable and related accrued interest at $0.71 per share..... -- 6,377,409
Beneficial conversion feature of 12% convertible notes........ -- 4,860,000
Common stock held by former First American Clock
shareholders, converted into $0.001 par value common stock.. -- --
Issuance of common stock to placement agent valued at
$1.25 per share............................................. -- 375,000
Issuance of common stock at $1.25 per share, net of offering
costs of $651,173 .......................................... -- 3,098,827
Stock-based compensation (options to purchase 3,235,993
common shares granted in 1999, containing SARs, with
intrinsic values ranging from $0.40 to $8.50 per share)..... -- 20,734,695
Net loss...................................................... (33,021,645) (33,021,645)
----------- --------------
Balance, December 31, 1999..................................... $(72,195,256) $(2,969,947)
=========== ===============
</TABLE>
Footnote:
(2,250,000 and 750,002 shares of Series A and Series B Preferred Stock converted
at a 0.17990 to 1 ratio; 1,500,000 shares of Series C Preferred Stock converted
at a 1.13288 to 1 ratio; 799,751 shares of Series D Preferred Stock converted
at a 1.50673 to 1 ratio; and 1,450,000 shares of Series E Preferred Stock at a
1.69932 to 1 ratio)

See Notes to Consolidated Financial Statements.

28
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative From
Year Ended December 31, June 15, 1995
------------------------ (Inception) To
1999 1998 December 31, 1999
------- ------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ $(33,021,645) $(13,073,913) $(69,111,812)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization .................................. 115,752 542,166 2,051,566
Stock-based compensation ....................................... 20,734,695 -- 20,734,695
Beneficial conversion feature of 12% convertible notes ......... 4,860,000 -- 4,860,000
Accrued interest converted into paid-in capital in connection
with the conversion of the 12% convertible notes ........... 377,409 -- 377,409
Loss on disposal of equipment .................................. -- 71,942 71,942
Change in assets and liabilities:
Accounts receivable ......................................... 9,458 140,063 --
Inventory ................................................... 275 62,761 --
Prepaid insurance and other current assets................... 11,524 81,823 7,933
Deposits and other assets ................................... -- 175,657 (5,943)
Accrued expenses to related parties ......................... 64,888 647,795 712,683
Accounts payable ............................................ (209,468) (140,123) 1,558,988
Accrued payroll ............................................. 49,357 (74,754) 192,191
Other accrued expenses ...................................... (9,422) (189,049) 414,750
Deferred revenue ............................................ (19,160) (130,361) --
------------ ------------ ------------
Total adjustments .................................... 25,985,308 1,187,920 30,976,214
------------ ------------ ------------
Net cash used in operating activities ................ (7,036,337) (11,885,993) (38,135,598)

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment ........................ (57,377) (214,348) (2,284,146)
Payment of merger costs ........................................ (198,280) -- (198,280)
Proceeds from sale of fixed assets ............................. -- 12,749 12,749
------------ ------------ ------------
Net cash used in investing activities ................... (255,657) (201,599) (2,469,677)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes to related parties ............. 2,232,500 2,000,000 4,232,500
Proceeds from other debt financings ............................ 2,000,000 750,000 2,750,000
Repayments of other debt financings ............................ (793,184) -- (793,184)
Net proceeds from issuance of common and preferred stock ....... 3,750,000 203,837 34,545,918
Purchase of common stock from related party.................... (100,000) -- (100,000)
------------ ------------ ------------
Net cash provided from financing activities .......... 7,089,316 2,953,837 40,635,234
------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .................... (202,678) (9,133,755) 29,959

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 232,637 9,366,392 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 29,959 $ 232,637 $ 29,959
============ ============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

MangoSoft, Inc. and subsidiary (a development stage company) ("the
Company") develops advanced software technology to simplify, expand and
integrate networking and pooled use of computer resources. It is engaged in
a single operating segment of the computer software industry.

The Company is considered to be a development stage company because it
has not generated significant revenues from products that have been
developed-to-date. The Company is subject to a number of risks similar to
those of other companies in an early stage of development. Principal among
these risks are dependencies on key individuals, competition from other
substitute products and larger companies, the successful development and
marketing of its products and the need to obtain adequate additional
financing necessary to fund future operations.

The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As shown in the financial statements during the years ended
December 31, 1999 and 1998, and cumulative for the period from June 15,
1995 (inception) to December 31, 1999, the Company incurred net losses of
$33,021,645, $13,073,913 and $69,111,812, respectively, and at December 31,
1999 a substantial portion of it's accounts payable were past due. These
factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. Based upon the raising of approximately
$29.4 million in proceeds from the sale of common stock and Convertible
Preferred Stock, Series A, subsequent to December 31, 1999 (see Note 14),
management believes that the Company will have sufficient capital to fund
its existing operations for the next twelve (12) months.

The financial statements do not include any adjustments relating to the
recoverability 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 to meet its obligations on a timely basis, to comply
with the terms of its financing agreements, to obtain additional financing,
and ultimately to attain profitability.

2. MERGER TRANSACTION AND BASIS OF PRESENTATION

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. ("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 approximately $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 non-operating 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

30
<PAGE>

MERGER TRANSACTION AND BASIS OF PRESENTATION (CONT.)

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.

Since the accounting applied differs from the legal form of the merger,
the Company's financial information for periods prior to the merger
represent the financial results of MangoSoft Corporation.

Pro Forma Disclosure (Unaudited) - The following table represents the
unaudited pro forma results of operations for the years ended December 31,
1999 and 1998 assuming the merger had occurred on January 1, 1998, the
beginning of the earliest period presented in the accompanying Consolidated
Statements of Operations. These pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of what would
have occurred had the merger occurred at that date or of results which may
occur in the future.

(Unaudited)
Year Ended December 31,
-----------------------
1999 1998
---- ----
Revenue .................................... $ 37,207 $ 245,406
Loss from operations ....................... (27,801,521) (13,133,180)
Net loss ................................... (33,008,354) (13,101,389)
Net loss applicable to common stockholders . (33,008,354) (13,101,389)

Net loss per common share .................. $ (1.90) $ (1.55)
Shares used in computing net loss per common
Share ............................... 17,385,425 8,428,664

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - As described in Note 2, the Company
completed a 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 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 generally accepted accounting principles 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.

Fair Value of Financial Instruments - The Company's financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable, notes payable and short-term debt are carried at cost
which approximates their fair value because of the short-term maturity of
these financial instruments.

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

Inventory - Inventory is stated at lower of cost or market using the
first-in, first-out method. Inventory consists of costs associated with
printing and packaging of software.

Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives (one to five years) of the related assets.
The Company periodically evaluates the recoverability of its long-lived
assets based on the expected

31
<PAGE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

undiscounted cash flows and recognizes impairments, if any, based on
discounted cash flows.

Revenue Recognition - Revenue is recognized when earned. The Company
sells its products primarily through distributors, wherein the revenue is
recognized upon resale of the products by the distributor. Revenue from
products licensed to original equipment manufacturers ("OEMs") is
recognized when OEMs ship the licensed products. Provisions are recorded
for estimated product returns and allowances.

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. In 1999 and 1998, no such costs were
capitalized.

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") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued To Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". All transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument
issued is the earlier of the date on which the counterparty's performance
is complete or the date on which it is probable that performance will
occur.

Income Taxes - The Company accounts for income taxes under SFAS No.
109, "Accounting for Income Taxes." This Statement requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the Company's
consolidated financial statements or tax returns. 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 presently in effect. Valuation
allowances are established when necessary to reduce the deferred tax assets
to those amounts expected to be realized.

Net Loss Per Common Share - The Company computes basic and diluted
earnings (loss) per share in accordance with SFAS No. 128, "Earnings Per
Share". Basic earnings per common share is computed by dividing net loss
applicable to common stockholders by the weighted average number of common
shares outstanding during the period.

Basic and diluted loss per common share are the same for all periods
presented, as potentially dilutive stock options of 3,150,428 in 1999 and
1,994,737 in 1998 have not been included in the calculation as their effect
is antidilutive.

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

Future Adoption of Accounting Pronouncements - In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. The provisions of SFAS No. 133 are effective for
periods beginning after June 15, 2000. The Company is currently evaluating
the effect, if any, SFAS No. 133 will have on the Company's financial
position and its results of operations. The Company will adopt this
accounting standard on January 1, 2001, as required.

Reclassifications - Certain reclassifications have been made to the
1998 and cumulative since inception amounts to conform to the 1999
presentation.

32
<PAGE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Supplemental Cash Flow Information - The following table sets forth
certain supplemental cash flow information for the years ended December 31,
1999 and 1998, and cumulative for the period from June 15, 1995 (inception)
to December 31, 1999:
<TABLE>
<CAPTION>
Cumulative
From
June 15, 1995
Year Ended December 31, (Inception) To
----------------------- December 31,
1999 1998 1999
---- ---- ----

<S> <C> <C> <C>
Cash paid during the period for interest ............................ $ 18,964 $ 69,233 $ 87,927

Non-Cash Financing Activities
Stock-based compensation ............................................ $20,734,695 $ -- $20,734,695
Merger-related transactions:
Conversion of redeemable convertible preferred stock into common
stock ........................................................... 33,818,617 -- 33,818,617
Conversion of convertible preferred stock into common stock ..... 30,000 -- 30,000
Conversion of 12% convertible notes into common stock............ 6,000,000 -- 6,000,000
Beneficial conversion feature on conversion of 12%
convertible notes ........................................... 4,860,000 -- 4,860,000
Conversion of accrued interest payable into common stock ........ 377,409 -- 377,409
Common stock issued in lieu of investment banking fees........... 300 -- 300
Accretion of redeemable convertible preferred stock ................ 1,884,923 2,634,482 6,604,024
Issuance of note to finance prepaid insurance premium .............. 136,088 -- 136,088
Conversion of accounts payable into common stock ................... -- 90,000 90,000

</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1999 and 1998 consists of the
following:

December 31,
-----------------
1999 1998
---- ----

Computer equipment ............... $1,571,277 $1,529,654
Furniture and fixtures ........... 309,302 309,302
Leasehold improvements ........... 198,052 198,052
---------- ----------
Total ..................... 2,078,631 2,037,008
Accumulated depreciation ......... (1,930,742) (1,830,744)
---------- ----------
Property and equipment - net $ 147,889 $ 206,264
========== ==========

33
<PAGE>

5. SHORT-TERM DEBT

Short-term debt consisted of the following at:

December 31,
------------
1999 1998
---- ----
Demand notes payable to related parties... $ 232,500 $ 2,000,000
Note payable to insurance company......... 92,904 --
Equipment term loan due to bank........... -- 750,000
--------- -----------
Total............................... $ 325,404 $ 2,750,000
========= ===========

In December 1999, the Company entered into a financing arrangement with
two stockholders to provide $232,500 of interim financing through the
issuance of demand notes. The notes are unsecured, bear interest at an
annual rate of 8%, and are senior to all other obligations of the Company.
In October 1998, the Company entered into similar arrangements with these
same two stockholders to provide $2,000,000 of interim financing.

In September 1999, the Company executed a note payable to an insurance
company to finance an insurance premium. The $92,904 balance at December
31, 1999 is due in six monthly installments of approximately $15,661,
including interest at an annual rate of 8.5%, with a final maturity on June
3, 2000.

In August 1999, the Company entered into a financing arrangement with
two additional stockholders to provide $400,000 of interim financing in
advance of the merger. The notes were unsecured, carried interest at an
annual rate of 9%, and automatically converted into common stock at $1.25
per share in conjunction with the merger on September 7, 1999.

In February 1999, the Company issued $4,000,000 in 12% convertible
notes, which included $2,000,000 from conversion of the demand notes issued
to the two stockholders in 1998. Subsequent to the February 1999 issuance,
the two stockholders purchased an additional $2,000,000 in 12% convertible
notes to enable the Company to meet its financing needs. The 12%
convertible notes were secured by substantially all of the Company's
assets, and were convertible into common stock at the option of the holder
at $3.50 per common share, or at 75% of the lowest cash price paid in any
equity offering during the period the 12% convertible notes were
outstanding. In addition, the conversion price would continue to decrease
by 5% per month for each month following the initial six-month period the
Notes remained unpaid, providing that the final conversion value would
never be lower than 50% of the lowest price paid by investors in any equity
financing. The total $6,000,000 in 12% convertible notes plus the related
accrued interest of $377,409 was converted into 9,000,000 shares of
MangoSoft, Inc. common stock at a value of $.71 per share in connection
with the merger.

The 12% convertible notes contained a beneficial conversion feature
which allowed their conversion into common stock at less than the fair
market value of the common stock. As part of the Merger, the Company
completed the Private Placement of 3,000,000 shares of its common stock at
$1.25 per share for net proceeds of approximately $3,098,827. This per
share value was the lowest cash price paid in any equity offering during
the period the 12% convertible notes were outstanding. At the time of the
Merger, the terms of the 12% convertible notes allowed for its conversion
at 65% of the $1.25 per share equity offering price, or $0.81 per share. To
facilitate the completion of the Company's Merger, a Note Conversion
Agreement was entered into between the Company and the holders of the 12%
convertible notes which allowed for their conversion at $0.71 per share
(including accrued interest), or $0.54 per share below the fair market
value of the Company's common stock. In accordance with EITF Issue No. 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios", the difference of $4,860,000
was recognized as a beneficial conversion feature through a charge to
interest expense and a credit to additional paid-in capital.

Upon conversion of the 12% convertible notes, the accrued interest
expense was no longer payable and was credited to additional paid-in
capital.

On May 28, 1998, the Company entered into a $1,250,000 financing
agreement with a bank. The financing consisted of a $750,000 equipment term
loan and a $500,000 revolving loan. Advances against the revolving loan
were based on a percentage of eligible accounts receivable. Interest was
charged at the bank's prime rate plus 1/2% (8.25% at December 31, 1998).
Borrowings were collateralized by substantially all of the Company's
assets. The financing agreement contained financial and non-financial
covenants including a prohibition on further indebtedness. The Company was
not in compliance with its financial covenants as of December 31, 1998.
Using proceeds received from the issuance of the Notes in February 1999,
the Company repaid the $750,000 of outstanding borrowings, plus the related
accrued interest, and the bank agreement was terminated.

34
<PAGE>
6. INCOME TAXES

The Company has federal and state tax net operating loss carryforwards
available for future periods of approximately $42,000,000. The federal tax
net operating loss carryforwards expire beginning in 2010, and state tax
net operating loss carryforwards expire beginning 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 $1,023,000 and $756,000,
respectively, which expire beginning in 2011.

The tax effect of significant items comprising the Company's deferred
tax assets at December 31, 1999 and 1998 are as follows:

1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 16,896,000 $ 13,849,000
Stock-based compensation ....... 3,514,000 --
Research and development credits 1,779,000 1,442,000
Depreciation and amortization .. 241,000 316,000
Organization costs and software 65,000 103,000
Accrued vacation ............... 35,000 46,000
Allowance for doubtful accounts 35,000 29,000
------------ ------------
22,565,000 15,785,000
Valuation allowance ............. (22,565,000) (15,785,000)
------------ ------------
Net deferred tax assets ... $ -- $ --
============ ============

The Company believes that uncertainty exists with respect to future
realization of the deferred tax assets and has established a valuation
allowance for the full amount as of December 31, 1999 and 1998.

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:
1999 1998
---- ----

Federal statutory rate .......................... (34)% (34)%
State tax, net of federal impact ................ (6) (6)
Non-deductible stock-based compensation ......... 21 --
Provision for valuation allowance on deferred tax 19 40
assets ........................................ --- ---
--% --%
=== ===
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK

At December 31, 1998, the Company had 1,500,000 authorized, issued and
outstanding shares of Series C Redeemable Convertible Preferred Stock, $.01
par value (the "Series C Preferred Stock") with a liquidation preference of
$9 million; 1,000,000 authorized, 799,751 issued and outstanding shares of
Series D Convertible Preferred Stock, $.01 par value (the "Series D
Preferred Stock") with a liquidation preference of $6.4 million; and
1,450,000 authorized, issued and outstanding shares of Series E Convertible
Preferred Stock, $.01 par value (the "Series E Preferred Stock") with a
liquidation preference of $13.1 million (collectively, the "Redeemable
Preferred Stock").

The Redeemable Preferred Stock had no stated dividend rate. The holders
were entitled to receive dividends had dividends been declared on either
the Company's common stock or the Series A and B Convertible Preferred
Stock. The Company has not declared dividends since its inception.
Information with respect to the issuance of the Redeemable Preferred Stock
is as follows:

Issuance Date Net Proceeds
------------- ------------
Series C Redeemable Preferred Stock,
1,500,000 shares at $6.00 per share, net
of offering costs of $783,355 June 1996 $ 8,216,645

Series D Redeemable Preferred Stock,
799,751 shares at $8.00 per share, net of
offering costs of $351,020 April 1997 6,046,988

Series E Redeemable Preferred Stock,
1,450,000 shares at $9.00 per share, net
of offering costs of $272,893 December 1997 12,777,107
------------
$ 27,040,740
============

Holders of the Redeemable Preferred Stock had the right and option to
convert the preferred shares, at any time, into shares of common stock.
Each share of Redeemable Preferred Stock would initially convert into one
share of common stock. The conversion rate was adjusted for stock splits,
combinations, stock dividends and distributions. The Redeemable Preferred
Stock had voting rights equal to the number of shares of common stock into
which it was convertible. Under certain events, including a public offering
of the common stock or approval by a certain percentage of each class of
the holders, the Redeemable Preferred Stock would automatically convert
into common stock at the applicable conversion rate.

35
<PAGE>

REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONT.)

In addition, the holders of the Redeemable Preferred Stock were
entitled to receive preference to the holders of the common stock in the
event of liquidation. On June 15, 2001, the Company may have been required,
at the option of the holders of a majority of the then outstanding Series
C, Series D and Series E Preferred Stock, to redeem 33 1/3% of the
outstanding shares of the Series C, Series D and Series E Preferred Stock,
and 50% and 100% of all outstanding shares on the first and second
anniversaries from June 15, 2001, respectively. In the event of such a
mandatory redemption, the holders of the Redeemable Preferred Stock would
have received a price equal to the original issue price plus an annual
compounded dividend of 8%. Accordingly, to reflect the mandatory redemption
feature, the Company recorded accretion on the Redeemable Preferred Stock
of $1,884,923, $2,634,482 and $6,604,024 in 1999, 1998 and cumulative for
the period from June 15 (inception) to December 31, 1999, respectively.

In connection with the merger in September 1999, as described in Note
2, all shares of the Redeemable Preferred Stock were converted into common
stock.

8. STOCKHOLDERS' EQUITY (DEFICIENCY)

MangoSoft, Inc.
Common stock - At December 31, 1999, the Company had authorized
100,000,000 shares of common stock, $.001 par value per share, of which
19,924,127 were issued and outstanding. Of the total authorized common
stock, 3,500,000 shares are reserved for issuance pursuant to the Company's
1999 Incentive Compensation Plan.

Preferred stock - At December 31, 1999, the Company had authorized
5,000,000 shares of preferred stock, $.001 par value per share, of which no
shares were issued and outstanding.

MangoSoft Corporation
Convertible Preferred Stock - At December 31, 1998, MangoSoft
Corporation had 2,250,000 authorized, issued and outstanding shares of
Series A Convertible Preferred Stock, $.01 par value (the "Series A
Preferred Stock") with a liquidation preference of $1,500,000; and 750,002
authorized, issued and outstanding shares of Series B Convertible Preferred
Stock, $.01 par value (the "Series B Preferred Stock") with a liquidation
preference of $2,001,075 (collectively, the "Convertible Preferred Stock").

Holders of the Convertible Preferred Stock had the right and option to
convert the preferred shares, at any time, into shares of common stock.
Each share of Convertible Preferred Stock would initially convert into one
share of common stock. The conversion rate was adjusted for stock splits,
combinations, stock dividends and distributions. The Convertible Preferred
Stock had voting rights equal to the number of shares of common stock into
which it was convertible, and a preference over the holders of the common
stock in the event of liquidation. In the event of a public offering of the
common stock or upon written notice of at least 51% of all the then
outstanding shares, the Series A Preferred Stock and Series B Preferred
Stock would automatically convert into common stock at the applicable
conversion rate. The Convertible Preferred Stock had no stated dividend
rate. The holders were entitled to receive dividends had dividends been
declared on the Company's common stock. The Company has not declared
dividends since its inception.

Common Stock - At December 31, 1998, MangoSoft Corporation had
authorized 25,000,000 shares of $.001 par value common stock of which
761,250 shares were issued and outstanding; 2,250,000 shares were reserved
for issuance upon conversion of the Series A Preferred Stock; 750,002
shares were reserved for issuance upon conversion of the Series B Preferred
Stock; 1,500,000 shares were reserved for issuance upon conversion of the
Series C Preferred Stock; 799,751 shares were reserved for issuance upon
conversion of the Series D Preferred Stock; 1,450,000 shares were reserved
for issuance upon conversion of the Series E Preferred Stock; 180,000
shares were reserved for issuance upon exercise of outstanding common stock
warrants; and 2,000,000 shares were reserved for issuance pursuant to the
1995 Stock Plan.

In connection with the merger in September 1999, as described in Note
2, all shares of MangoSoft Corporation common stock and Convertible
Preferred Stock were converted into common stock of MangoSoft,

36
<PAGE>

STOCKHOLDERS' EQUITY (DEFICIENCY) (CONT.)

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.

9. 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 3,500,000 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 discussed in Note 3, the Company accounts for stock options granted
to employees in accordance with APB No. 25. In connection with the merger,
outstanding employee options of MangoSoft Corporation were cancelled and
replaced with options to purchase shares of MangoSoft, Inc. The new options
were granted at fair market value at the date of grant ($1.25) and
contained the same vesting provisions as the options replaced. In addition,
the new options include stock appreciation rights ("SARs") that permit the
employee to receive the appreciation in shares of common stock in lieu of
exercising the option.

Under APB No.25, SARs are accounted for as a variable plan 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
common stock.

At December 31, 1999, compensation related to the SARs totaled
$23,552,721 based on the market price of $9.75 at that date compared to the
fair market value at the dates of grant. Because a substantial portion of
the options are vested, the charge to expense in the fourth quarter of 1999
was $20,572,378. The balance of $2,980,343 relates to unvested options and
will be charged to expense over the vesting period. Based on the number of
vested options at December 31, 1999, a $1 increase in the market price of
the Company's common stock results in the immediate recognition of
compensation expense of approximately $2,200,000.

In connection with the merger, the Company granted 405,590 options to
non-employees. The options were fully vested at the date of grant and the
Company recorded an expense of $162,317 related to these grants. The fair
value of the stock options awarded to non-employees on the grant date was
$.40 per share, calculated using the Black-Scholes option pricing model ,
with a risk-free interest rate of 6.0%, an expected option life of two
years, no dividends and a volatility of 50%.

The following table sets forth information regarding the outstanding
stock options at December 31, 1999:

<TABLE>
<CAPTION>
Weighted
Average
Number of Price of
Exercise Number of Weighted Average Weighted Average Shares Currently Currently
Prices Shares Exercise Price Remaining Life Exercisable Exercisable
------ ------ -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.25 3,121,425 $ 1.25 10 Years 2,615,633 $ 1.25
3.00 29,003 3.00 10 Years 7,243 3.00
--------- ---------
3,150,428 2,622,876
========= =========
</TABLE>

37
<PAGE>

STOCK OPTION PLAN (CONT.)

At December 31, 1999, all of the outstanding options to employees and
non-employees contained SARs.

The following table sets forth the stock option activity for the years
ended December 31, 1999 and 1998 (including options granted under the
predecessor 1995 Stock Option Plan):

Weighted
Average
Number of Exercise
Shares Price
------ -----

Outstanding at January 1, 1998 ... 1,128,561 $ 2.50
Granted .................... 1,300,081 3.55
Cancelled .................. (433,905) 3.23
Exercised .................. -- --
---------- --------

Outstanding at December 31, 1998.. 1,994,737 3.02
Granted .................... 3,235,993 1.27
Cancelled .................. (2,040,173) 2.98
Exercised .................. (40,129) 1.25
---------- --------

Outstanding at December 31, 1999. 3,150,428 $ 1.27
========== ========

Exercisable at December 31, 1999. 2,622,876 $ 1.25
========== ========

Exercisable at December 31, 1998. 379,565 $ 1.74
========== ========

Pro Forma Disclosure - As discussed in Note 3, the Company uses the
intrinsic value method to measure compensation expense associated with
grants of employee stock options. 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 with the following weighted
average assumptions: an expected life of two years; a risk-free interest
rate of 6.0%; no dividends; and a volatility factor of 50%. Forfeitures are
recognized as they occur.

Under SFAS No. 123, the options granted in 1999 and 1998 had a weighted
average grant date fair value of $.41 and $1.13, respectively. If the grant
date fair values of the awards had been amortized to expense over the
vesting period of the awards, the pro forma net loss and net loss per share
would have been as follows:

1999 1998
---- ----

Net loss as reported .......... $ (33,021,645) $ (13,073,913)
Pro forma net loss ............ (33,959,725) (13,393,559)
Net loss per share as reported. (5.44) (115.19)
Pro forma net loss per share .. (5.59) (117.54)

10. RETIREMENT SAVINGS PLAN

The Company has a 401(K) retirement savings plan covering substantially
all of its employees. Under provisions of the plan, employees may
contribute up to 15% of their compensation within certain limitations. 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 1999 and 1998.

38
<PAGE>

11. COMMITMENTS AND CONTINGENCIES

The Company has a noncancelable operating lease for office space, which
expires in 2001. The Company also leases various office equipment under
cancelable operating leases. Total rent expense was approximately $549,000
and $632,000 for the years ended December 31, 1999 and 1998, respectively.
Future minimum rental payments under the noncancelable office space lease
are $511,268 in 2000 and $340,845 in 2001.

The Company has an agreement with one of its directors pursuant to
which the director shall receive grants of stock options exercisable at the
current market price of the Company's common stock on the date of grant
equal to 1% of the voting securities of the Company on a fully-diluted
basis. Options granted to this director have been included in the Company's
issued and outstanding stock options granted to employees and
non-employees. See Note 9.

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.

12. TRANSACTIONS WITH STOCKHOLDERS

Demand Notes Payable - As discussed in Note 5, the Company received
$2,000,000 of interim financing from two stockholders in 1998 in the form
of demand notes with interest at an annual rate of 8%. The demand notes
were converted into 12% convertible notes in February 1999. Subsequent
thereto, the Company received an additional $2,000,000 in financing from
these two stockholders in the form of the 12% convertible notes. In
conjunction with the merger in September 1999, the 12% convertible notes
were converted into MangoSoft, Inc. common stock. In December 1999, the two
stockholders provided an additional $232,500 of interim financing under
demand notes with terms similar to those in 1998.

Other Stockholder Loans - As discussed in Note 5, the Company received
$400,000 in interim financing from two additional stockholders in advance
of the merger. The loans automatically converted into common stock in
conjunction with the merger.

Repurchase of Common Stock - In connection with the merger in 1999,
MangoSoft Corporation agreed to repurchase 200,000 shares of common stock
from one of its former executives for $100,000.

Administrative Services - During 1999 and 1998, a stockholder provided
administrative assistance to the Company. Amounts expensed and accrued for
such services were $64,888 in 1999 and $647,795 in 1998, which are
reflected as accrued liabilities in the accompanying Consolidated Balance
Sheets.

13. GEOGRAPHIC SALES INFORMATION AND MAJOR CUSTOMERS

The Company's sales in Japan and North America were 67% and 33% in
1999, respectively, and 85% and 15% in 1998, respectively. One customer
accounted for 67% of the 1999 sales and another customer accounted for 85%
of the 1998 sales.

14. SUBSEQUENT EVENTS

Common and Series A Convertible Preferred Stock

Subsequent to December 31, 1999 , the Company completed the sale of 2.5
million shares of a new issuance of Convertible Preferred Stock, Series A,
(the "Preferred Stock") to accredited investors at $4.00 per share. The
Preferred Stock is convertible into common stock (initially at a ratio of
one to one) and has a liquidation preference of $10 million. The Preferred
Stock will automatically convert to common stock upon the subsequent sale
of an additional $10 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 proceeds from the Series
A financing will be allocated between the conversion feature and the
preferred stock; because the fair value of the common stock was
significantly in excess of the conversion price implicit in the Series A
stock, the entire amount of net proceeds will be allocated to the
conversion feature. Because the preferred stock is immediately convertible
into common stock, an immediate dividend or accretion will be recorded from
common stockholders' equity to the carrying value of the Series A preferred
stock.

39
<PAGE>

SUBSEQUENT EVENTS (CONT).

Subsequent to December 31, 1999, the Company sold 4.0 million shares
of common stock to accredited investors at $5.00 per share. Upon completion
of the sale of common stock, the Preferred Stock will automatically
convert, in accordance with its terms, into 2.5 million shares of common
stock. The $29.4 million in proceeds from the sale of the common stock and
Preferred Stock will be used for research and development, marketing and
general working capital or such other purposes as the Company may determine
from time to time in its discretion.

STOCK OPTION PLAN

On May 19, 2000, the Company's stockholders approved the Company's 1999
Incentive Compensation Plan, as amended and restated, including increasing
the number of shares available to grant under the Plan from 3,500,000 to
8,000,000 shares.
*******

40
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
CUMULATIVE FROM
THREE MONTHS ENDED MARCH 31, JUNE 15, 1995
---------------------------- (INCEPTION) TO
2000 1999 MARCH 31, 2000
------ ------ ----------------
<S> <C> <C> <C>
Revenues............................................ $ 1,335 $ -- $ 283,948
Cost of revenues.................................... -- 275 91,892
-------------- ------------- --------------
Gross margin.............................. 1,335 (275) 192,056

Costs and expenses:

Research and development (excluding stock-based
compensation of $11,119,266 in 2000 and
$21,205,188 cumulative from June 15, 1995
(Inception) to March 31, 2000................... 1,141,781 1,177,272 24,127,252

Selling and marketing (excluding stock-based
compensation of $1,480,859 in 2000 and
$2,784,192 cumulative from June 15, 1995
(Inception) to March 31, 2000................... 271,933 18,004 9,784,637

General and administrative (excluding stock-
based compensation of $9,565,884 in 2000 and
$18,911,324 cumulative from June 15, 1995
(Inception) to March 31, 2000................... 666,670 611,028 11,231,631

Stock-based compensation.......................... 22,166,009 -- 42,900,704
Consulting fees to related parties................ -- 7,582 712,683
-------------- ------------- --------------
Total operating costs and expenses........ 24,246,393 1,813,886 88,756,907
-------------- ------------- --------------
Loss from operations................................ (24,245,058) (1,814,161) (88,564,851)
Interest income..................................... 13,225 2,749 591,843
Interest expense to related parties (including
$3,027,375 related to a beneficial conversion
feature in cumulative from June 15, 1995
(Inception) to March 31, 2000).................. (9,783) (68,391) (3,295,377)
Other interest expense (including $1,832,625
related to a beneficial conversion feature in
cumulative from June 15, 1995 (Inception)
to March 31, 2000).............................. -- (17,700) (2,012,296)
-------------- ------------- --------------
Total interest expense.................... (9,783) (86,091) (5,307,673)
Other income (expense), net......................... (1,467) 781 (74,214)
-------------- ------------- --------------
Net loss............................................ (24,243,083) (1,896,722) (93,354,895)
Accretion of preferred stock........................ (9,627,147) (706,846) (16,231,171)
-------------- ------------- --------------
Net loss applicable to common stockholders.......... $ (33,870,230) $ (2,603,568) $(109,586,066)
============== ============= ==============
Net loss per common share - basic and diluted $ (1.68) $ (19.01)
============== =============
Shares used in computing basic and diluted
net loss per common share........................ 20,130,349 136,949
============== =============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

41
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
ASSETS

CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................... $ 14,491,646 $ 29,959
Accounts receivable..................................... 270 --
Prepaid insurance....................................... 93,754 120,968
Other prepaid expenses and current assets............. 12,948 7,187
-------------- -------------
Total current assets............................... 14,598,618 158,114

PROPERTY AND EQUIPMENT, at cost.............................. 2,251,713 2,078,631
Accumulated depreciation..................................... (1,989,846) (1,930,742)
-------------- -------------
Property and equipment, net.......................... 261,867 147,889

DEPOSITS AND OTHER ASSETS.................................... 5,943 5,943
-------------- -------------
TOTAL................................................... $ 14,866,428 $ 311,946
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Demand notes payable to related parties................. $ -- $ 232,500
Other short-term debt................................... 55,704 92,904
Accounts payable, including past due amounts............ 1,710,079 1,558,988
Accrued payroll......................................... 176,293 192,191
Other accrued expenses.................................. 57,273 414,734
Accrued expenses to related parties..................... -- 712,683
Accrued merger costs.................................... -- 77,893
-------------- -------------
Total current liabilities.......................... 1,999,349 3,281,893

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A................... 2,500 --
Common stock............................................ 21,559 19,924
Additional paid-in capital.............................. 113,443,856 72,185,728
Deferred compensation................................... (4,162,497) (2,980,343)
Deficit accumulated during the development stage.. (96,438,339) (72,195,256)
-------------- -------------
Total stockholders' equity (deficiency)........... 12,867,079 (2,969,947)
-------------- -------------
TOTAL................................................... $ 14,866,428 $ 311,946
============== =============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

42
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
CUMULATIVE FROM
THREE MONTHS ENDED MARCH 31, JUNE 15, 1995
---------------------------- (INCEPTION) TO
2000 1999 MARCH 31, 2000
------ ------ ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (24,243,083) $ (1,896,722) $(93,354,895)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 59,104 26,128 2,110,670
Stock-based compensation................................................... 22,166,009 -- 42,900,704
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 disposal of equipment.............................................. -- -- 71,942
Change in assets and liabilities:
Accounts receivable ................................................... (270) 9,458 (270)
Inventory.............................................................. -- 275 --
Prepaid insurance and other current assets............................. 21,453 (17,845) 29,386
Deposits and other assets.............................................. -- -- (5,943)
Accounts payable....................................................... 151,091 (5,552) 1,710,079
Accrued payroll........................................................ (15,898) (14,419) 176,293
Other accrued expenses................................................. (357,461) 275,665 57,289
Accrued expenses to related parties.................................... (712,683) 7,582 --
Deferred revenue....................................................... -- (19,160) --
------------ ---------- ------------
Total adjustments............................................... 21,311,345 262,132 52,287,559
------------ ---------- ------------
Net cash used in operating activities........................... (2,931,738) (1,634,590) (41,067,336)

CASH FLOWS FROM INVESTING ACTIVITIES:

Expenditures for property and equipment.................................... (173,082) -- (2,457,228)
Payment of merger costs.................................................... (77,893) -- (276,173)
Proceeds from sale of fixed assets......................................... -- -- 12,749
------------ ---------- ------------
Net cash used in investing activities.............................. (250,975) -- (2,720,652)
------------ ---------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common and preferred stock................... 17,914,100 -- 52,460,018
Proceeds from issuance of notes to related parties......................... -- 250,000 4,232,500
Repayments of notes to related parties..................................... (232,500) -- (232,500)
Proceeds from other debt financings........................................ -- 2,000,000 2,750,000
Repayments of other debt financings........................................ (37,200) (750,000) (830,384)
Purchase of common stock from related party................................ -- -- (100,000)
------------ ---------- ------------
Net cash provided from financing activities..................... 17,644,400 1,500,000 58,279,634
------------ ---------- ------------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............................... 14,461,687 (134,590) 14,491,646

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 29,959 232,637 --
------------ ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 14,491,646 $ 98,047 $ 14,491,646
============ ========== ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

43
<PAGE>

MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

MangoSoft, Inc. and subsidiary (a development stage company) ("the
Company") develops advanced software technology to simplify, expand and
integrate networking and pooled use of computer resources. The Company
organizes itself as one segment reporting to the chief operating decision-
maker.

The Company is considered to be a development stage company since it
has not generated significant revenues from products that have been
developed-to-date. The Company is subject to a number of risks similar to
those of other companies in an early stage of development. Principal among
these risks are dependencies on key individuals, competition from other
substitute products and larger companies, the successful development and
marketing of its products and the need to obtain adequate additional
financing necessary to fund future operations.

The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As shown in the financial statements during the three months
ended March 31, 2000 and 1999, and cumulative for the period from June 15,
1995 (inception) to March 31, 2000, the Company incurred net losses of
$24,243,083, $1,896,722 and $93,354,895, respectively. These factors, among
others, raise substantial doubt about the Company's ability to continue as
a going concern. Based upon the raising of approximately $31.2 million in
proceeds from the sale of common stock and Convertible Preferred Stock,
Series A, subsequent to December 31, 1999 (see Note 3), management believes
that the Company will have sufficient capital to fund its existing
operations for the next twelve (12) months.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The Company, without audit, has prepared the
accompanying condensed consolidated financial statements. In the opinion of
management, these unaudited interim condensed consolidated financial
statements furnished herein reflect all adjustments, which in the opinion
of management are of a normal recurring nature, necessary to fairly state
MangoSoft, Inc. and subsidiary's financial position, cash flows and the
results of operations for the periods presented and have been prepared on a
basis substantially consistent with the audited financial statements at
December 31,1999. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles for annual periods have been condensed or
omitted. Accordingly, these unaudited interim condensed consolidated
financial statements should be read in conjunction with the Company's
Form 10-KSB for the year ended December 31, 1999.

The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.

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

44
<PAGE>

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

Inventory - Inventory is stated at lower of cost or market using the
first-in, first-out method. Inventory consists of costs associated with
printing and packaging of software.

Revenue Recognition - Revenue is recognized when earned. The Company
sells its products primarily through distributors wherein the revenue is
recognized upon resale of the products by the distributor. Revenue from
products licensed to original equipment manufacturers ("OEMs") is
recognized when OEMs ship the licensed products. Provisions are recorded
for estimated product returns and allowances.

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") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued To Other Than Employees For Acquiring, or in Conjunction with
Selling, Goods or Services". All transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument
issued is the date on which the counterparty's performance is complete or
the date on which it is probable that performance will occur.

Income Taxes - The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the Company's consolidated financial statements or tax returns.
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 presently in effect.
Valuation allowances are established when necessary to reduce the deferred
tax assets to those amounts expected to be realized.

Net Loss Per Common Share - Basic earnings per common share is computed
by dividing net loss applicable to common stockholders by the weighted
average number of common shares outstanding during the period.

45
<PAGE>

Basic and diluted loss per common share are the same for all periods
presented, as potentially dilutive stock options of 3,368,428 in 2000 and
1,994,737 in 1999 have not been included in the calculation as their effect
is antidilutive.

Comprehensive Income - Comprehensive income (loss) is equal to net
income (loss) for the three months ended March 31, 2000 and 1999.

Future Adoption of Accounting Pronouncements - In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The provisions of SFAS No. 133 are effective for periods
beginning after June 15, 2000. The Company is currently evaluating the
effect, if any, SFAS No. 133 will have on the Company's financial position
and results of operations. The Company will adopt this accounting standard
on January 1, 2001, as required.

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

Supplemental Cash Flow Information - The following table sets forth
certain supplemental cash flow information for the three months ended March
31, 2000 and 1999, and cumulative for the period from June 15, 1995
(inception) to March 31, 2000:

<TABLE>
<CAPTION>
Three Months Ended
March 31, Cumulative
-------------------- Since
2000 1999 Inception
---- ---- ---------
<S> <C> <C> <C>
Supplemental Cash Flow Information
Cash paid during the period for interest..................................... $ 9,783 $ 11,102 $ 97,710

Non Cash Financing Activities
Accretion of preferred stock and warrants................................... 9,627,147 706,846 16,231,171
Fair value of warrants issued in connection with the sale of the
convertible preferred stock, Series A.................................... 711,229 -- 711,229
Issuance costs of the convertible preferred stock, Series A................. 235,900 -- 235,900
Conversion of accounts payable into common stock............................ 100,000 190,000
</TABLE>

3. STOCKHOLDERS' EQUITY (DEFICIENCY)

During February and March 2000, the Company sold 2.5 million shares of
a new issuance 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) and had
a liquidation preference of $10 million. The Preferred Stock would
automatically convert to common stock upon the subsequent sale of an
additional $10 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
Series A financing were allocated between the conversion feature and the
preferred stock; because the fair value of the common stock was
significantly in excess of the conversion price implicit in the Series A
stock, the net proceeds was 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.

46
<PAGE>

In March 2000, the Company sold 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 received $18.1 million from the sale of the common and
Preferred Stock during the three months ended March 31, 2000 and $12.9
million in April 2000. In May 2000, the Company received $210,000 from the
sale of an additional 52,500 shares of common stock at $4.00 per share. The
$31.2 million in proceeds will be used for research and development,
marketing and general working capital or such other purposes as the Company
may determine from time to time in its discretion.

Costs incurred in connection with the sale of the 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 Preferred Stock at
$4 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.

4. STOCK-BASED COMPENSATION

As discussed in Note 2, the Company accounts for stock options granted
to employees in accordance with APB No. 25. Under APB No. 25, stock options
which include stock appreciation rights ("SARs") are accounted for as a
variable plan and compensation expense is measured at each reporting date
based on the difference between the option 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 common stock.

During the three months ended March 31, 2000, compensation related to
the SARs totaled $23,075,810 based on the market price of $18.00 at that
date compared to the fair market value at the dates of grant. Because a
substantial portion of the options are vested, the charge to expense in the
first quarter of 2000 was $22,166,009. The balance relates to unvested
options and will be charged to expense over the vesting period. Based on
the number of vested options at March 31, 2000, a $1 increase in the market
price of the Company's common stock results in the immediate recognition of
compensation expense of approximately $2,500,000.

5. TRANSACTIONS WITH STOCKHOLDERS

Demand Notes Payable - In March 2000, the Company repaid the $232,500
in demand notes payable to related parties, plus the related interest
expense of $9,783 during the quarter.

Administrative Services - During the three months ended March 31, 1999,
a stockholder provided administrative assistance to the Company. Amounts
expensed and accrued for such services in the three months ended March 31,
1999 were $7,582 in 1999 . No administrative services were provided in
2000.

In March 2000, the Company repaid $712,683 in accrued expenses to
related parties for administrative services provided to the Company during
1998 and 1999.

********

47
<PAGE>

PART III

ITEMS 1 AND 2. EXHIBITS.

EXHIBIT
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.

3.2 By-Laws.

10 Lease of Westborough Office Park, Building Five,
dated November 10, 1995. (2)

11.1 Statement Regarding Computation of Net Loss Per
Common Share for the fiscal years ended December 31,
1999 and 1998.

11.2 Statement Regarding Computation of Net Loss Per
Common Share for the three months ended March 31, 2000
and 1999.

16 Letter on Change in Certifying Accountant. (3)

20.1 Merger Consent Solicitation and Information
Statement, dated August 2, 1999. (2)

20.2 Supplement to Merger Consent Solicitation and
Information Statement, dated August 26, 1999. (2)

20.3 Supplement to Merger Consent Solicitation and
Information Statement, dated September 1, 1999. (2)

21 Subsidiary of the Registrant.

27.1 Financial Data Schedule for the fiscal year ended
December 31, 1999.

48
<PAGE>

27.2 Financial Data Schedule for the fiscal year ended
December 31, 1998.

27.3 Financial Data Schedule for the three months ended
March 31, 2000.

27.4 Financial Data Schedule for the three months ended
December 31, 1999.

99.1 1999 Incentive Compensation Plan, as amended and
restated as of May 1, 2000.

99.2 Form of Subscription Agreement for purchase of
Common Stock, dated as of March 20, 2000.

99.3 Manufacturer's Representative Agreement, dated July 5,
2000, between the Company and Marketlink Technologies,
LLC.

99.4 Value Added Reseller Agreement, dated July 14, 2000,
between the Company and 3Com Corporation.

--------------------------
(1) Filed as an exhibit the Company's 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 the Company's Quarterly Report filed November
19, 1999 for the quarter ended September 30, 1999 and hereby
incorporated by reference thereto.

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

49
<PAGE>

SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be
signed by the undersigned, thereunto duly authorized.

MANGOSOFT, INC.

/s/ Dale Vincent
-----------------------------------
Dale Vincent
President and Chief Executive Officer

50
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER

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.

3.2 By-Laws.

10 Lease of Westborough Office Park, Building Five,
dated November 10, 1995. (2)

11.1 Statement Regarding Computation of Net Loss Per
Common Share for the fiscal years ended December 31,
1999 and 1998.

11.2 Statement Regarding Computation of Net Loss Per
Common Share for the three months ended March 31, 2000
and 1999.

16 Letter on Change in Certifying Accountant. (3)

20.1 Merger Consent Solicitation and Information
Statement, dated August 2, 1999. (2)

20.2 Supplement to Merger Consent Solicitation and
Information Statement, dated August 26, 1999. (2)

20.3 Supplement to Merger Consent Solicitation and
Information Statement, dated September 1, 1999. (2)

21 Subsidiary of the Registrant.

27.1 Financial Data Schedule for the fiscal year ended
December 31, 1999.

27.2 Financial Data Schedule for the fiscal year ended
December 31, 1998.

51
<PAGE>

27.3 Financial Data Schedule for the three months ended
March 31, 2000.

27.4 Financial Data Schedule for the three months ended
December 31, 1999.

99.1 1999 Incentive Compensation Plan, as amended and
restated as of May 1, 2000.

99.2 Form of Subscription Agreement for purchase of
Common Stock, dated as of March 20, 2000.

99.3 Manufacturer's Representative Agreement, dated July 5,
2000, between the Company and Marketlink Technologies,
LLC.

99.4 Value Added Reseller Agreement, dated July 14, 2000,
between the Company and 3Com Corporation.

----------------
(1) Filed as an exhibit the Company's 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 the Company's Quarterly Report filed November 19,
1999 for the quarter ended September 30, 1999 and hereby incorporated by
reference thereto.

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