<PAGE>
As filed with the Securities and Exchange Commission on July 20, 2000
Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MANGOSOFT, INC.
(Name of small business issuer in its charter)
Nevada 7371 87-0543565
------------------------- ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Number) Identification No.)
organization)
1500 West Park Drive, Suite 190, Westborough, MA 01581 (508) 871-7397
--------------------------------------------------------------------------------
(Address and telephone number of principal
executive offices and place of business)
Robert E. Parsons, MangoSoft, Inc., 1500 West Park Drive, Suite 190,
Westborough, MA 01581, (508) 871-7397
--------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies of communications to:
Arnold J. Levine, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
(212) 969-3000
Approximate date of proposed sale to the public: From time to time after the
registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________________________
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
[ ] ________________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Proposed
Title of each Number of Proposed maximum Amount of
class of securities Shares to be maximum offering aggregate offering registration
to be registered registered price per unit (1) price (1) fee (1)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 25,217,524 $15.50 $390,871,622 $103,190
per share
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Common Stock, par value $.001 204,009 $15.50 $3,162,140 $835
per share (2)
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</TABLE>
(1) Registration fees were calculated in accordance with Rule 457(c) under
the Securities Act. Calculation based on the closing price of the
common stock on the OTC Bulletin Board on July 18, 2000.
(2) Shares of common stock issuable by the Registrant from time to time
upon exercise of outstanding warrants.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
Subject to Completion
PROSPECTUS
MANGOSOFT, INC.
25,421,533 SHARES OF COMMON STOCK
This prospectus relates to shares of common stock of MangoSoft, Inc.
that may be sold from time to time for the account of the selling security
holders named in this prospectus. MangoSoft will not receive any proceeds from
sales of the common stock by the selling security holders.
Our common stock is quoted in the over-the-counter market in what is
commonly referred to as the OTC Bulletin Board under the trading symbol MNGX. On
July 18, 2000, the last reported sale price for the common stock on the OTC
Bulletin Board was $15.50 per share.
Investing in shares of our common stock involves significant risks. You
should read the discussion under "Risk Factors" beginning on page 5 of this
prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 20, 2000.
<PAGE>
TABLE OF CONTENTS
Available Information.........................................................2
Forward-Looking Statements....................................................3
Prospectus Summary............................................................3
Risk Factors..................................................................5
Use of Proceeds...............................................................7
Selling Security Holders......................................................7
Plan of Distribution.........................................................26
Legal Proceedings............................................................27
Directors, Executive Officers, Promoters and Control Persons.................28
Security Ownership of Certain Beneficial Owners and Management...............30
Description of Securities....................................................32
Disclosure of Commission Position on Indemnification.........................33
Organization Within Last Five Years..........................................33
Experts ....................................................................33
Description of Business......................................................33
Management's Discussion and Analysis.........................................36
Description of Property......................................................41
Certain Relationships and Related Transactions...............................42
Market for Common Equity and Related Stockholder Matters.....................43
Executive Compensation.......................................................44
Changes in And Disagreements With Accountants on Accounting and
Financial Disclosure.......................................................47
Financial Statements........................................................F-1
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States
to permit the offer and sale of our common stock or possession or distribution
of this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933 with the Securities and Exchange Commission covering the
shares of our common stock offered by this prospectus. This prospectus is filed
as a part of that registration statement and does not contain all of the
information contained in the registration statement and exhibits. Statements
made in the
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registration statement are summaries of the material terms of our contracts,
agreements or documents. We refer you to our registration statement and each
exhibit attached to it for a more complete description of matters involving
MangoSoft, and the statements we have made in this prospectus are qualified in
their entirety by reference to these additional materials.
You may inspect the registration statement and exhibits and schedules
filed with the SEC at its principal office in Washington, D.C. Copies of all or
any part of the registration statement may be obtained from the Public Reference
Section of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor, New
York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago IL 60661. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. The SEC also maintains a website (http://www.sec.gov)
that contains reports, proxy statements and information regarding companies that
file electronically with the SEC. Our registration statement and the referenced
exhibits can also be found on this site.
FORWARD-LOOKING STATEMENTS
We believe that certain statements contained or incorporated by
reference in this prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and are considered
prospective. These include statements contained under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis" and "Business." The
following statements are or may constitute forward-looking statements within the
meaning of the Private
Securities Litigation Reform Act of 1995:
o statements before, after or including the words "may," "will,"
"could," "should," "believe," "expect," "future," "potential,"
"anticipate," intend," "plan," estimate" or "continue" or the
negative or other variations of these words; and
o other statements about matters that are not historical facts.
We may be unable to achieve future results covered by the
forward-looking statements. The statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from the
future results that the statements express or imply. Please do not put undue
reliance on these forward-looking statements, which speak only as of the date of
this prospectus.
PROSPECTUS SUMMARY
The following discussion is only a summary and does not contain all of
the information that you should consider before investing in our common stock.
You should read this entire prospectus carefully, including the "Risk Factors"
section, prior to investing in our common stock. References in this prospectus
to "MangoSoft," "we", "us", or "our" mean MangoSoft, Inc. and its subsidiary.
References to "MangoSoft Corporation" refer to our wholly-owned operating
subsidiary.
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OUR BUSINESS
We develop, market and support computer software solutions that address
the networking needs of large and small businesses. The technology we use is
known as "Pooling," which enhances the performance of personal computer networks
by delivering services normally associated with servers. Our major products
include CacheLink(TM), a product designed to increase the delivery speed of
Internet or Intranet content for businesses; Medley 99(TM), which creates a file
server by aggregating idle capacity from connected personal computers and
automatically recovers information from system failures; and MangoSoft Internet
Drive, generally referred to as "MangoMIND(TM)," which allows data access and
sharing from any location via the Internet. MangoMIND is currently under
development.
OUR OBJECTIVE AND STRATEGY
Our objective is to become the leading provider of software-based
service solutions that enable our customers to maximize the return on their
computer networks. We intend to leverage our technology with customer desktops
and networks to deliver networking solutions for Local Area Networks, Internet
file servers and web cache applications. Our strategy is to advance our existing
products, establish more comprehensive distribution channels, commercialize
MangoMIND and extend our current technologies to additional software solutions.
OUR HISTORY AND RECENT DEVELOPMENTS
We were incorporated as a Nevada corporation on May 17, 1995 as First
American Clock Co. Under an Agreement and Plan of Merger between MangoSoft
Corporation, MangoMerger Corp., and First American Clock Co., dated August 27,
1999, MangoSoft Corporation, a Delaware software development corporation, merged
with MangoMerger Corp., a wholly-owned subsidiary of First American Clock Co., a
public company which changed its name to MangoSoft, Inc. in connection with the
merger. Accordingly, MangoSoft Corporation became the wholly-owned operating
subsidiary of MangoSoft, Inc.
In May 2000 we completed a private offering of convertible preferred
stock and common stock raising proceeds of approximately $32.4 million, which is
expected to fund our operations during the next year.
Our principal executive offices are located at 1500 West Park Drive,
Suite 190, Westborough, Massachusetts 01581. Our telephone number is (508)
871-7397.
SECURITIES BEING OFFERED
BY SELLING SECURITY HOLDERS: Up to 25,421,533 shares of common stock.
SECURITIES CURRENTLY ISSUED
AND OUTSTANDING: Approximately 26,869,142 shares of common stock
were issued and outstanding as of June 30, 2000.
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PLAN OF DISTRIBUTION: This prospectus covers the sale of shares of
our common stock by the persons named in
this prospectus. These security holders may
offer and sell their shares from time to time
as market conditions permit or in negotiated
transactions.
USE OF PROCEEDS: We will receive no proceeds from the sale of
common stock by the security holders named
in this prospectus.
RISK FACTORS
An investment in our common stock is highly speculative and subject to
a high degree of risk. You may lose money by investing in our common stock so
only persons who can bear the risk of the entire loss of their investment should
invest. Prospective investors should carefully consider the following factors in
deciding whether to invest in our common stock.
WE HAVE A LIMITED OPERATING HISTORY AND SUBSTANTIAL CUMULATIVE OPERATING LOSSES.
Our current operations substantially commenced in May 1997.
Accordingly, our prospects should be evaluated based on the expenses and
operating results typically experienced by any early stage business. We have 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, our losses from operations were $27.8 million and
$13.1 million, respectively. For the three months ended March 31, 2000, our loss
from operations was $24.2 million. We have historically experienced cash flow
difficulties primarily because our expenses have exceeded our revenues. We
expect to incur additional operating losses and expect cumulative losses to
increase substantially as we expand our marketing, sales and research and
development efforts. The auditors' opinion on our financial statements for the
fiscal years ended December 31, 1999 and 1998 includes a going concern
explanatory paragraph, which highlights the uncertainty of our ability to
continue our operations. If we are unable to generate sufficient revenue from
our operations to pay expenses or we are unable to obtain additional financing
on commercially reasonable terms, our business, financial condition and results
of operations will be materially and adversely affected.
OUR PERFORMANCE DEPENDS ON MARKET ACCEPTANCE OF OUR PRODUCTS.
We expect to derive a substantial portion of our future revenues from
the sales of CacheLink, MangoMIND and our updated Medley products, none of which
we have previously marketed. If markets for our products fail to develop,
develop more slowly than expected or are subject to substantial competition, our
business, financial condition and results of operations will be materially and
adversely affected.
WE HAVE AN EVOLVING MARKET STRATEGY.
We expect our future marketing efforts will focus on developing
business relationships with technology companies that seek to augment their
businesses by offering our products to their
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customers. Our inability to enter into and retain strategic relationships, or
the inability of such technology companies to effectively market our products,
could materially and adversely affect our business, operating results and
financial condition.
WE WILL NEED ADDITIONAL FINANCING.
We will require substantial additional capital to finance our growth
and product development. We can provide no assurances that we will obtain
additional financing sufficient to meet our future needs on commercially
reasonable terms or otherwise. If we are unable to obtain the necessary
financing, our business, operating results and financial conditional will be
materially and adversely affected.
THERE MAY BE LIMITED LIQUIDITY IN OUR COMMON STOCK AND ITS PRICE MAY BE SUBJECT
TO FLUCTUATION.
Our common stock is currently traded on the OTC Bulletin Board and
there is no established market for the common stock. We can provide no
assurances that we will be able to have our common stock listed on an exchange
or quoted on Nasdaq or that it will continue to be quoted on the OTC Bulletin
Board. If there is no trading market, the market price of our common stock will
be materially and adversely affected. In addition, this prospectus covers shares
of common stock that have not been freely tradable in the past. If a large
number of shares of common stock are sold by the selling security holders under
this prospectus, the market price of the common stock may be materially and
adversely affected.
RAPIDLY CHANGING TECHNOLOGY AND SUBSTANTIAL COMPETITION MAY ADVERSELY AFFECT OUR
BUSINESS.
Our business is subject to rapid changes in technology. We can provide
no assurances that research and development by competitors will not render our
technology obsolete or uncompetitive. We compete with a number of computer
hardware and software design companies that have technologies and products
similar to those offered by us and have greater resources, including more
extensive research and development, marketing and capital than us. We can
provide no assurances that we will be successful in marketing our existing
products and developing and marketing new products in such a manner as to be
effective against such competition. If our technology is rendered obsolete or we
are unable to compete effectively, our business, operating results and financial
condition will be materially and adversely affected.
LITIGATION CONCERNING INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on a combination of trade secrets, copyright and trademark law,
contractual provisions, confidentiality agreements and certain technology and
security measures to protect our trademarks, patents, proprietary technology and
know-how. However, we can provide no assurances that our rights in our
intellectual property will not be infringed upon by competitors or that
competitors will not similarly make claims against us for infringement. If we
are required to be
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involved in litigation involving intellectual property rights, our business,
operating results and financial condition will be materially and adversely
affected.
OUR SUCCESS DEPENDS ON KEY PERSONNEL.
Our success is dependent upon the efforts of our senior management
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,
Research; Robert E. Parsons, Vice President and Chief Financial Officer; Robert
J. Primmer, Vice President, Marketing; Peter Caparso, Vice President, Business
Development; and Thomas Teixeira, Vice President, Engineering. The loss of Mr.
Vincent, Mr. Gaubatz, Mr. Davis, Mr. Dietterich, Mr. Parsons, Mr. Primmer, Mr.
Caparso or Mr. Teixeira could have a material and adverse affect on our
business. In addition, competition for qualified personnel in the computer
software industry is intense, and we can provide no assurances that we will be
able to retain existing personnel or attract and retain additional qualified
personnel necessary for the development of our business. Our inability to
attract and retain such personnel would have a material and adverse effect on
our business, financial condition and results of operations.
DEFECTS IN OUR SOFTWARE PRODUCTS MAY ADVERSELY AFFECT OUR BUSINESS.
Complex software such as the software developed by MangoSoft may
contain defects when introduced and also when updates and new versions are
released. Our introduction of software with defects or quality problems may
result in adverse publicity, product returns, reduced orders, uncollectible or
delayed accounts receivable, product redevelopment costs, loss of or delay in
market acceptance of our products or claims by customers or others against us.
Such problems or claims may have a material and adverse effect on our business,
financial condition and results of operations.
USE OF PROCEEDS
We will not receive any proceeds from the sales of our common stock
made by the selling security holders named in this prospectus.
SELLING SECURITY HOLDERS
The following table sets forth the names of the selling security
holders and the respective number of shares of common stock that are covered by
this prospectus. The shares are being registered to permit public secondary
trading of these shares, and each of the selling security holders may offer the
shares for resale from time to time. Please see "Plan of Distribution."
These shares are being registered in accordance with written agreements
between MangoSoft and certain of the selling security holders and based on the
records maintained by MangoSoft's transfer agent. We know of no material
relationships between MangoSoft and these selling security holders other than as
discussed in this prospectus.
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<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
1989 Rieders Revocable Family Trust.............. 3,776 3,776
A.G. Edwards & Sons Inc. C/F
James V. McAndrews Jr. IRA....................... 6,250 6,250
ABN Amro Incorporated as Custodian
FBO Gerard Bergeron R/O IRA...................... 9,516 9,516
Alberville Investments Limited................... 179,917 179,917
Ayad Alhadi...................................... 36,020 36,020
Keith Allchin.................................... 1,012 1,012
Philip Altheim................................... 9,440 9,440
Jeffery C. Ames & Elizabeth C. Ames Trust
DTD June 1998.................................... 36,190 36,190
Ames Family Trust DTD 5/22/97.................... 9,440 9,440
Alan L. Annex.................................... 3,011 3,011
William M. Appelbaum............................. 75,431 75,431
Aries Domestic Fund LP........................... 137,625 137,625
Aries Domestic Fund II LP........................ 21,207 21,207
The Aries Master Fund II......................... 291,168 291,168
Theodore Aroney.................................. 100,000 100,000
ASC Capital Partners, Inc........................ 38,375 38,375
ASC Capital Partners.............................
Associated Capital LP............................ 67,458 67,458
Associated Capital Offshore LP................... 94,406 94,406
Ellen C. Atwell-Chvastek & Joseph Chvastek
JTWROS........................................... 12,000 12,000
Robert Auerbach.................................. 9,440 9,440
Maureen A. Bailie................................ 170 170
Balboa Fund L.P.................................. 8,960 8,960
Banque Ferrierlullin............................. 21,525 21,525
Emilio Bassini................................... 31,250 31,250
Steven M. Bauer.................................. 3,767 3,767
Joel J. Becker................................... 4,758 4,758
John Bell........................................ 3,373 3,373
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Arthur J. Benvenuto TTEE FBO
Arthur J. Benvenuto Trust DTD 11/12/97........... 9,430 9,430
Steven Berns..................................... 1,869 1,869
E. Garrett Bewkes III............................ 25,490 25,490
Sunil Bhargava................................... 14,727 14,727
David and Mary Lynda Bianchi..................... 2,355 2,355
BKF Investments.................................. 94,406 94,406
Billy Blanco..................................... 170 170
Howard Blum & Edis Blum JTWROS................... 2,500 2,500
David Boczar..................................... 8,000 (1) 8,000 (1)
Merle Bohm....................................... 40,000 40,000
Boomer's Grandchildren Fund LP................... 12,500 12,500
Marvin Bornstein................................. 4,719 4,719
Matthew B. Brand................................. 10,000 10,000
David Brault..................................... 4,709 4,709
Broadlawn Capital LLC............................ 30,000 30,000
Michael J. Brown................................. 10,196 10,196
Michael J. Brown C/F
Michael J. Brown Jr. UGMA FL..................... 5,098 5,098
Michael J. Brown TTEE FBO
Fain Kelley Brown................................ 5,098 5,098
Michael J. Brown TTEE FBO
Kathryn V. Brown................................. 5,098 5,098
Camelot Investment Co............................ 28,000 28,000
Camhy, Karlinsky & Stein......................... 25,000 25,000
Capital Ventures XXVI............................ 39,084 39,084
Caremi Partners Ltd.............................. 62,500 62,500
Angus Carlill.................................... 2,431 (1) 2,431 (1)
Francis Casale................................... 2,355 2,355
Catcando Properties Ltd.......................... 9,333 9,333
Frances Cavallero................................ 1,888 1,888
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
James A. Cavallero & Kerin E. Cavallero.......... 4,709 4,709
Center Partners Holdings Ltd..................... 47,202 47,202
Colel Chabad..................................... 200 200
Chandler Family Trust............................ 44,692 44,692
Gerald Chasin.................................... 50,000 50,000
Matthew Chasin................................... 50,000 50,000
Alexandre & Lori Chemla.......................... 5,664 5,664
Cherry Hill Inc.................................. 134,600 134,600
Chilmark 21st Century............................ 95,162 95,162
Chilmark Capital Corp............................ 56,664 56,664
Anna Chomczyk.................................... 300 300
City of London PR Group PLC...................... 22,601 22,601
Clippership & Co................................. 1,200,000 1,200,000
Clough Investment Partners I..................... 58,800 58,800
Clough Investment Partners II LP................. 1,200 1,200
Cogefin (Bermuda) Limited........................ 16,993 16,993
M. Noel Coghlan.................................. 2,124 2,124
Alan Cohen....................................... 50,000 50,000
Stanley L. Cohen................................. 27,189 27,189
Steven Cohen..................................... 283,220 283,220
Alan R. Cohen C/F
Jessica W. Cohen UTMA NJ......................... 20,000 20,000
Kenneth Cole..................................... 9,440 9,440
C. Neilson Cooper, Jr............................ 4,721 4,721
S. James Coppersmith............................. 32,477 32,477
Teresa Cordova................................... 170 170
James R. Cornell................................. 510 510
Craig E. Cowan................................... 2,266 2,266
Neil Crespi & Elissa Crespi JTWROS.............. 6,000 6,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Christopher Crockett............................. 3,750 3,750
Robert F. Dall................................... 5,098 5,098
Anne Michele Darmon.............................. 4,153 4,153
Len Davidson TTEE FBO The Elena M. Frank
DTD 11/10/95..................................... 8,905 8,905
Len Davidson TTEE of The Benjamin J. Frank
DTD 11/10/95..................................... 8,905 8,905
Len & Bernice Davidson Family Trust.............. 2,024 2,024
Leonard Davidson TTEE FBO
Robyn K. Ames 1997 Trust......................... 3,776 3,776
Leonard Davidson TTEE FBO
Jennifer C. Ames 1997 Trust...................... 3,776 3,776
Gisele De Bruijne................................ 8,493 8,493
Henk Arnold De Bruijne........................... 1,699 1,699
Delaware Charter Guarantee & Trust FBO IRA V/A
DTD 4-1-97 Charles M. Johnson Jr. ............... 18,834 18,834
Delaware Guarantee & Trust TTEE FBO
Jay Zises IRA.................................... 2,652,375 2,652,375
Deltee Panamerica Trust Company Limited.......... 6,592 6,592
Joseph DeMatteo.................................. 4,721 4,721
Devonshire Partners LLC.......................... 40,000 40,000
Rino Dimeo....................................... 5,000 5,000
Lynn Dixon (2)................................... 152,806 152,806
Michael Dixon.................................... 20,000 20,000
Rona Dixon....................................... 20,000 20,000
Rona Dixon C/F
Jennifer Dixon UGMA UT........................... 20,000 20,000
DLJ as Custodian for Seymour Zises IRA R/O....... 5,664 5,664
Domanco Venture Capital Fund..................... 5,833 5,833
Carl Domino...................................... 25,000 25,000
Donaldson Lufkin & Jenrette Securities C/F
FBO Ari Kiev M.D. P.C. IRA R/O................... 4,714 4,714
Michel Donegani.................................. 4,670 4,670
Malcolm J. Dorman................................ 11,799 11,799
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Malcolm J. Dorman, MD
PA Qualified Deferred Compensation Trust......... 2,359 2,359
Alan Dorsey...................................... 32,500 (1) 32,500 (1)
The dotCOM Fund L.L.C............................ 70,000 70,000
Tara Duffy....................................... 500 500
Eagle Partners LP................................ 45,000 45,000
Irene A. Easton.................................. 4,709 4,709
Rolando Eisen.................................... 4,709 4,709
Rolando Eisen.................................... 4,717 4,717
Electronic Assembly Corporation.................. 200,000 200,000
Christopher Engel................................ 4,721 4,721
Donald Engel..................................... 21,714 21,714
Elisa Engel...................................... 4,721 4,721
Jeffrey Engel.................................... 4,721 4,721
Melissa Epperson................................. 24,500 24,500
Etess Family Investment Partnership.............. 9,417 9,417
Lauren Etess..................................... 9,440 9,440
Lauren Etess IRA................................. 4,721 4,721
Eurowest Investments Limited..................... 60,000 60,000
S. Edmond Farber................................. 5,833 5,833
Carl D. Farley................................... 40,000 40,000
David Fastenberg................................. 12,500 12,500
Harvey Felsen.................................... 12,054 12,054
Karen Ferguson-Moran............................. 982 982
Brett H. Fialkoff................................ 12,273 12,273
S. Marcus Finkle................................. 50,000 50,000
First Clearing Corp.............................. 23,082 23,082
First Union Securities C/F
FBO Lynn G. Kapel IRA............................ 35,000 35,000
Alexander E. Fisher.............................. 4,721 4,721
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Alexander E. Fisher TTEE......................... 4,721 4,721
Mark B. Fisher................................... 28,274 28,274
Fleck Family Partnership II...................... 18,834 18,834
Robert Fleising.................................. 6,250 6,250
Flintstone Limited............................... 103,644 103,644
Four Daughters Family Trust...................... 18,882 18,882
Joseph Fowler.................................... 472 472
Allen K. Fox & Suzan Fox......................... 90,000 90,000
Gregory Fox & Doris Fox.......................... 10,000 10,000
Steven Frank (3)................................. 81,135 81,135
Frankhill Associates............................. 37,385 37,385
Richard H. Friedman.............................. 9,440 9,440
Elizabeth Funk................................... 20,000 20,000
Frederick N. Gaffney & Aileen M. Gaffney......... 4,709 4,709
Dennis M. Galgano................................ 10,000 10,000
Robert and Maxine Ganer.......................... 4,719 4,719
Lawrence Garber.................................. 9,440 9,440
Martin H. Garvey................................. 10,000 10,000
Gemini Domestic Fund LP.......................... 25,250 25,250
Gemini Domestic Fund II LP....................... 336,750 336,750
The Gemini Master Fund........................... 88,000 88,000
Frank Gerardi TTEE
The Gerber Family Trust.......................... 23,543 23,543
Univest Management Inc........................... 50,000 50,000
Janine Polly Gia................................. 16,993 16,993
Mark J. Gillis................................... 10,000 10,000
Nancy Glasenk & Steve Glasenk JTWROS............. 10,000 10,000
The Glickman Family Trust........................ 18,834 18,834
Global Light, LLC................................ 21,250 21,250
Alyssum Gluck.................................... 944 944
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Elizabeth Goldberg & Tamar G. Olitsky
TTEES T/U/W/O Regina Gruss FBO
Tamar Goldberg................................... 20,000 20,000
Ronald E. Goldberger............................. 18,882 18,882
Craig Goldman.................................... 400,000 (4) 50,000
Dawn Goldring.................................... 4,719 4,719
Stanley J. Goldring.............................. 18,857 18,857
Todd Goldring.................................... 4,719 4,719
Ira P. Goldstein & Gerrianne Goldstein
JTWROS........................................... 150,000 (4) 50,000
Cheryl Gordon.................................... 9,440 9,440
Edward S. Gordon................................. 18,881 18,881
Peter Gordon..................................... 1,500 1,500
Edward S. Gordon & Anthony M. Saytanides
Edward S. Gordon U/A 12/19/86.................... 37,716 37,716
Charles R. Grant................................. 1,883 1,883
Gina Grant....................................... 6,250 6,250
John F. Grant.................................... 2,124 2,124
Ezra Grayman..................................... 15,000 15,000
Susan Zises Green................................ 21,940 21,940
Greenstreet Partners............................. 9,819 9,819
John Gross....................................... 5,833 5,833
Ricelle Grossinger............................... 750 750
Guarantee & Trust Co. TTEE FBO
Joseph DeMatteo IRA DTD 4/1/92................... 4,721 4,721
Guarantee & Trust Co. TTEE FBO
Nancy Frankel IRA DTD 1/20/95.................... 7,552 7,552
Guarantee & Trust Co. TTEE FBO
Alan Kaufman MD R-IRA DTD 7/13/90................ 4,721 4,721
Guarantee & Trust Co. TTEE FBO
Jay Zises IRA DTD 7/9/92......................... 169,932 169,932
Guarantee & Trust Co. TTEE FBO
Selig Zises R-IRA DTD 5/20/96.................... 113,287 113,287
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Heather Hamby.................................... 20,000 20,000
Leonard M. Harlan................................ 18,882 18,882
Leonard Harlan & Fleur Harlan.................... 10,196 10,196
Eric Hauser...................................... 10,000 10,000
Lawrence R. Haut................................. 14,090 14,090
John W. Heilshorn................................ 10,000 10,000
Jolan E. Henn.................................... 3,399 3,399
Hepplewhite Fund................................. 19,040 19,040
Richard A. Herman................................ 4,719 4,719
Richard A. Herman IRA............................ 4,721 4,721
Heymann C-Link Partners.......................... 42,425 42,425
Zuhuir Hirmez & Saad Hirmez &
Badry Hirmez JTWROS.............................. 200,000 200,000
Carole Hochman................................... 17,937 17,937
David Hochman.................................... 8,855 8,855
Neal S. Hochman.................................. 17,938 17,938
Sara B. Hochman.................................. 1,869 1,869
Hochman Family Partnership....................... 33,800 33,800
Phillip S. Hofmann & Caroline M.H. Hofmann
JTWROS........................................... 40,000 40,000
John Holmes...................................... 229 (1) 229 (1)
Leonard Holtz.................................... 17,918 17,918
Jonathan Horn.................................... 1,000 1,000
Allison Hubrich.................................. 1,500 1,500
Kurtis D. Hughes................................. 60,000 60,000
Gregory C. Huston IRA............................ 4,532 4,532
Iguana Investments Ltd........................... 40,000 40,000
Imperial Bancorp (5)............................. 25,034 (1) 25,034 (1)
Investec Ernst & Company......................... 37,763 37,763
Jahleel Corp..................................... 28,499 28,499
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Jahleel Corporation.............................. 18,834 18,834
Jelco Ventures................................... 3,500 3,500
JLB Leasing...................................... 50,000 50,000
Charles M. Johnson III........................... 4,709 4,709
Jeffery Johnson.................................. 6,250 6,250
Jeffrey A. Jonas................................. 26,400 26,400
Marvin Josephson................................. 18,882 18,882
Kalisman Technology LLC.......................... 25,000 25,000
Rafik Y. Kamell.................................. 9,417 9,417
Leonid Kapelusnik................................ 10,000 10,000
Lynn G. Karel & Norman E. Karel TTEES
FBO Karel 1988 Trust DTD 9/27/88................. 100,000 100,000
Norm Karel....................................... 35,000 35,000
Neal B. Karelitz................................. 25,000 25,000
Stephen H. Kareltiz.............................. 10,000 10,000
Katie & Adam Bridge Partners LP.................. 20,000 20,000
Alan Kaufman..................................... 14,161 14,161
Jeff Kaufman..................................... 944 944
Kay Capital Company.............................. 18,795 18,795
Howard Kaye...................................... 18,795 18,795
Wilma Kaye TTEE FBO
The Robin Kaye Revocable Trust................... 6,293 6,293
Wilma Kaye TTEE FBO
The Ross Kaye Revocable Trust.................... 6,293 6,293
Kenneth T. Kelley................................ 20,000 20,000
Gary J. Kerner & Sandra E. Kerner
JTWROS........................................... 7,000 7,000
Kaveh Khosrowshahi............................... 9,417 9,417
Ari Kiev......................................... 4,721 4,721
Marshall Kiev.................................... 7,029 7,029
Kevin Kileen..................................... 162 (1) 162 (1)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Paul King........................................ 1,000 1,000
Jeffrey Kingsley................................. 1,000 1,000
Rogers Kirven, Jr................................ 20,000 20,000
William B. Klein & Laurie J. Klein
JTWROS........................................... 7,500 7,500
Richard & Michelle Knoll......................... 13,206 13,206
Michelle Knoll & Elizabeth Ames TEN COM.......... 4,721 4,721
Knoll Smith Partnership.......................... 18,682 18,682
Louis Kovacs..................................... 4,721 4,721
Sam Kristal...................................... 8,497 8,497
Manda Kristal & Leonard Kristal.................. 1,699 1,699
Irene Kuntz...................................... 10,000 10,000
Luba A. Kuntz & Irene Kuntz...................... 10,000 10,000
Norman Lampert................................... 9,440 9,440
Lancer Offshore Inc.............................. 275,000 275,000
Lancer Partners L.P.............................. 125,000 125,000
Lappin Capital Management LP..................... 20,392 20,392
Michael Lauer.................................... 210,000 210,000
Yolanda Laureyssen............................... 4,719 4,719
Ronald Lazar..................................... 5,833 5,833
Lazard Freres & Co. LLC.......................... 33,060 33,060
Aaron Lehmann.................................... 4,709 4,709
Arnold J. Levine (6)............................. 4,719 4,719
Allyn Levy Revocable Trust 9/15/92............... 18,881 18,881
Scott S. Lewin................................... 2,889 2,889
Stacey S. Lewin.................................. 2,039 2,039
Lincoln Meadows Associates LLP................... 9,440 9,440
Lindemann Capital Partners LP.................... 37,500 37,500
Linkage Limited Partnership...................... 142,360 142,360
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Robert Lipkowitz................................. 3,398 3,398
Keith L. Lippert................................. 10,000 10,000
Kennth Lissak.................................... 18,882 18,882
Joan G. Lister................................... 9,346 9,346
Steven Lockwood.................................. 75,000 75,000
Jan Loeb......................................... 15,000 15,000
Lombard Odier & Cie.............................. 24,357 24,357
Angelia Long..................................... 1,500 1,500
Joseph Loshinsky & Frieda Loshinsky
JTWROS........................................... 14,450 14,450
Matthew M. Ludmer................................ 4,709 4,709
Matthew J. Lustig................................ 6,027 6,027
Joel Magerman.................................... 4,719 4,719
Maria Maldonado.................................. 500 500
Steven M. Manket................................. 1,869 1,869
Margolis Holdings Limited........................ 80,000 80,000
Herman Matthew & Linda Lee Russell Trust
U/A/D 10-17-97................................... 9,428 9,428
F. James McGilloway.............................. 8,497 8,497
Timothy McInerney................................ 5,833 5,833
Sean McNamara.................................... 29,166 29,166
Mees Pierson Nominees (Guernsey) Limited
A/C N990......................................... 23,600 23,600
Eugene Melnyk.................................... 19,321 19,321
Charles Meyerson................................. 4,721 4,721
William P. Miller................................ 5,000 5,000
Kenneth D. Moelis & Julie Lynn Moelis
TTEES under the Moelis Family Trust DTD
12/3/90.......................................... 52,668 52,668
Roberta Moeller.................................. 500 500
Jeff Mondry...................................... 5,098 5,098
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Monness Crespi Hardt & Co........................ 35,000 (1) 35,000 (1)
Andrew Monness & Neil Crespi JTWROS.............. 6,000 6,000
William Monness.................................. 944 944
Edward Montague.................................. 5,098 5,098
Tom Montgomery................................... 2,000 2,000
Monument Trust Company........................... 6,608 6,608
Guerry R. Moore.................................. 9,176 9,176
Morgan Stanley Dean Witter C/F
Gerald Chasin IRA................................ 75,000 75,000
MSS Descendants Trust............................ 20,000 20,000
Naohisa Murakami & Peggy Ahn JTWROS.............. 10,000 10,000
Bonnie Myers..................................... 27,000 27,000
Daniel M. Myers.................................. 9,516 9,516
David Naldler.................................... 170 170
Bobby C. New & Jaqueline New
JTWROS........................................... 5,608 5,608
Eugene Newton & Susan Newton..................... 19,032 19,032
Nielsen Family Trust............................. 4,758 4,758
1989 Rieders Revocable Family Trust.............. 3,776 3,776
N&R Industries, Inc.............................. 146,246 146,246
Paul C. O'Brien.................................. 225,000 (4) 25,000
Octavian Nominees Limited........................ 319,041 319,041
Margaret H. Offenbach &
M. Jack Offenbach TEN ENT........................ 9,440 9,440
Oratory School of Summit......................... 1,133 1,133
James F. Orlando................................. 14,149 14,149
Palisade Private Partnership LP.................. 3,125,000 3,125,000
Panorama Partner LP.............................. 4,709 4,709
Park Place Capital Limited....................... 61,176 61,176
Joel Pashcow..................................... 28,251 28,251
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Robert S. Pearson................................ 20,000 20,000
Kevin J. Perry................................... 5,060 5,060
The Peters Children's Trust of 1999.............. 75,000 75,000
The Peters Family Trust.......................... 6,250 6,250
V. Mark Peterson................................. 60,000 60,000
B. Michael Pisani................................ 40,000 40,000
Pitt & Co........................................ 1,200,000 1,200,000
Daphne M. Platford............................... 170 170
Anthony G. Polak................................. 11,666 11,666
Harvey Polly..................................... 16,993 16,993
Jeffrey Polly.................................... 16,993 16,993
Noel G. Posternak................................ 8,497 8,497
Prism Partners L.P............................... 116,666 116,666
Robert Pruzan.................................... 6,250 6,250
Punk Ziegel & Company............................ 300,000 300,000
R L Meadowbrook Inc.............................. 16,500 16,500
Jonathan D. Rahn................................. 50,000 50,000
Stewart Rahr..................................... 18,882 18,882
T. Kent Rainey................................... 40,000 40,000
The Raptor Global Portfolio Ltd.................. 313,656 313,656
Regent Capital Group Inc......................... 10,000 10,000
Kristyn E. Reid.................................. 170 170
Mark Reiner...................................... 10,000 10,000
Paolo Revelli.................................... 19,259 19,259
Gregory Richards................................. 10,000 10,000
Daniel Rieders & Dorothy Rieders................. 14,140 14,140
RL Capital Partners.............................. 35,000 35,000
Alan Robbins..................................... 15,000 15,000
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Alan Robbins TTEE FBO Robins Electrical
Dist. Profit Sharing............................. 15,000 15,000
Mark Roberts..................................... 14,992 14,992
Ronald W. Rodgers................................ 1,699 1,699
Jennifer Rodriquez............................... 100 100
Robert J. Rosen.................................. 3,776 3,776
Rosen Family Trust............................... 14,188 14,188
Richard M. Rosenbaum............................. 9,440 9,440
Randi Smith Rosenthal............................ 4,719 4,719
Duane J. Roth.................................... 4,532 4,532
Theodore D. Roth................................. 9,063 9,063
Jonathan E. Rothschild........................... 5,833 5,833
Peter H. Rothschild.............................. 18,750 18,750
Lawrence J. Rubinstein........................... 30,000 30,000
Douglas S. Russell............................... 510 510
Willis G. Ryckman................................ 6,250 6,250
SAC Capital Associates LLC....................... 324,282 324,282
Michael Salaman.................................. 51,450 51,450
Steven Salaman................................... 75,259 75,259
Mark Salaman & Ginni Salaman..................... 40,000 40,000
Mark Salaman & Ginni Salaman JTWROS.............. 15,266 15,266
Lester Samuels................................... 5,098 5,098
Sands Brothers Venture Capital LLC............... 400,000 400,000
Martin Santangelo & Edward Santangelo
JTWROS........................................... 40,000 40,000
SB Real Wire Associates LLC...................... 320,000 320,000
SBMD Partners.................................... 20,000 20,000
SBS Descendants Trust............................ 20,000 20,000
Schachter Partners, LP........................... 12,500 12,500
Howard S. Schachter.............................. 12,500 12,500
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Joanne Schaefer.................................. 170 170
Mark Schorr...................................... 4,721 4,721
Cheryl E. Schotz................................. 20,000 20,000
David Schotz & Marcia Schotz JT TEN............. 20,000 20,000
Wendy Jo Schriber................................ 6,797 6,797
William C. Scott................................. 37,385 37,385
Randall P. Seidl................................. 95,000 95,000
Mehul N. Shah & Rini M. Shah..................... 4,719 4,719
Alexander Shang.................................. 6,250 6,250
Eli Shapiro Revocable Trust...................... 100,000 100,000
Leonard P. Shaykin............................... 28,251 28,251
Linda Heiman Shear............................... 2,000 2,000
Marc S. Sherman.................................. 8,497 8,497
Jack Silver...................................... 37,668 37,668
Shirley Silver TTEE FBO
Romy J. Silver................................... 37,500 37,500
Shirley Silver TTEE FBO
Leigh N. Silver.................................. 37,500 37,500
Silverbond Investments Limited................... 9,417 9,417
Paul A. Simard, Jr............................... 9,346 9,346
Diane P. Simon................................... 4,709 4,709
Nicholas Sinacori TTEE FBO
International Partners Inc. Profit Sharing
Trust............................................ 37,767 37,767
Wenyi Sing & George Sing JTWROS.................. 6,000 6,000
Elliot Singer.................................... 62,644 62,644
Sixela Investments Limited - Clients............. 46,725 46,725
Jerome M. Slavin................................. 18,834 18,834
Paul Sloan....................................... 50,000 50,000
Laura J. Sloate.................................. 10,196 10,196
Steve Solmonson.................................. 7,771 (1) 7,771 (1)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Sonem Partners Ltd............................... 100,000 100,000
Sound Capital Partners, LLC...................... 40,000 40,000
Dennis James Stack............................... 5,000 5,000
Joseph Stein Jr.................................. 6,250 6,250
David J. Strong.................................. 18,806 18,806
David R. Swanson, Jr............................. 20,000 20,000
Stephen Sweeney.................................. 8,000 8,000
Kent M. Swig..................................... 9,417 9,417
Andrea Tessler................................... 6,086 6,086
Dede Thea........................................ 14,417 14,417
Douglas Thea..................................... 10,000 10,000
Joel Thea........................................ 15,067 15,067
Joel Thea
FBO Karen Thea................................... 2,260 2,260
Joel Thea
FBO Mark Thea.................................... 2,260 2,260
Joel Thea
FBO William Thea................................. 2,260 2,260
Michael Thea..................................... 5,000 5,000
Michael C. Thea.................................. 7,534 7,534
Linda Todd....................................... 9,417 9,417
Kurtiss L. Tomasovich & Nancy Tomasovich
JTWROS........................................... 5,000 5,000
John R. Torell III............................... 18,693 18,693
Charles F. Trapp................................. 20,000 20,000
Richard Travis................................... 1,699 1,699
Harry (Nick) Tredennick.......................... 104,721(4) 4,721
Eliska M. Tretera................................ 4,709 4,709
Kellie Trimble................................... 5,000 5,000
Trinity American Corporation..................... 8,333 8,333
Tudor Arbitrage Partners, LP..................... 110,786 110,786
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Tudor BVI Global Portfolio, Ltd.................. 446,827 446,827
Tuscany Enterprises Inc.......................... 2,022 2,022
UBS Luxembourg SA................................ 3,965 3,965
Union Bancaire Privee............................ 28,251 28,251
US Trust Company of Florida Personal
Representative of the Estate of Roger S. Smith... 8,497 8,497
Value Investing Partners I LLC................... 92,424 (1) 92,424 (1)
Henry H. Vechery & Donald F. Vechery
JTWROS........................................... 20,000 20,000
Dale Vincent..................................... 1,027,135 (4) 27,135
Vogel Partner LLP................................ 18,882 18,882
Vogel Partners LLP............................... 18,834 18,834
Tore Aksel Voldberg.............................. 75,337 75,337
W.G.R. Investments LP............................ 112,155 112,155
Michael J. Walton................................ 1,883 1,883
Brian Warner..................................... 9,440 9,440
Vicki Warner..................................... 6,797 6,797
Vicki Warner & Brian Warner JTWROS............... 6,000 6,000
Jeffrey Weingarten............................... 50,000 50,000
Ralph and Margalit Werthheimer................... 20,392 20,392
Whisper Investment Co............................ 40,000 40,000
Brenda J. White.................................. 1,900 1,900
Ronald Wilen..................................... 20,000 20,000
Caroline Williams................................ 1,889 1,889
Edward Williams.................................. 472 472
Edward S. Williams............................... 510 510
Syndey M. Williams, III.......................... 943 943
Michael Williamson............................... 20,000 20,000
Richard Wilson................................... 458 (1) 458 (1)
Fernando Wong.................................... 100 100
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
SECURITY HOLDER STOCK OWNED PRIOR TO OFFERING COMMON STOCK TO BE SOLD
--------------- ----------------------------- -----------------------
<S> <C> <C>
Wesley A. Wong................................... 14,149 14,149
Michael Wyzga.................................... 1,012 1,012
Z-Four Partnership LLC........................... 10,794 10,794
Ami Zak.......................................... 18,693 18,693
Herbert J. Zarkin................................ 8,497 8,497
Andrew J. Zaroulis............................... 8,497 8,497
Murray Zborowski................................. 4,721 4,721
Peter Zecca...................................... 1,547 1,547
Jay Zises........................................ 63,928 63,928
Justin Zises..................................... 15,180 15,180
Lara Zises....................................... 15,180 15,180
Lynn Zises....................................... 68,799 68,799
Samantha Zises................................... 15,180 15,180
Selig Zises...................................... 2,692,606 2,692,606
Seymour Zises 1989 Trust
FBO Cathy Zises.................................. 5,664 5,664
Seymour W. Zises................................. 314,904 314,904
Susan Zises...................................... 2,699 2,699
Jay Zises & Nancy Zises JTWROS................... 40,478 40,478
Nancy Zises C/F Meryl Zises UGMA NY.............. 15,180 15,180
Philip Zuccaire.................................. 5,098 5,098
Uzi Zucker....................................... 75,477 75,477
------------- ------------
Total................................... 27,171,533 25,421,533
</TABLE>
----------------
(1) Includes shares of common stock issuable upon exercise of currently
exercisable warrants to purchase common stock as follows: Value
Investing Partners I LLC, 53,449 exercisable at $1.25 per share, 38,975
exercisable at $4.00 per share; Alan Dorsey, 17,500 exercisable at
$1.25 per share, 15,000 exercisable at $4.00 per share; David Boczar,
3,000 exercisable at $1.25 per share, 5,000 exercisable at $4.00 per
share; Steve Solmonson, 7,771 exercisable at $1.25 per share; Angus
Carlill, 2,431 exercisable at $1.25 per share; John Holmes, 229
exercisable at $1.25 per share; Kevin Kileen, 162 exercisable at $1.25
per share; Richard Wilson, 458 exercisable at $1.25 per share; Imperial
Bancorp., 25,034 exercisable at $4.00 per share; and Monness Crespi
Hardt & Co., 35,000 exercisable at $1.25 per share.
25
<PAGE>
(2) Lynn Dixon previously served as an officer of First American Clock
Company, the predecessor corporation of MangoSoft, Inc.
(3) Steven Frank is a former director and officer of MangoSoft Corporation.
(4) Such selling security holder is currently a director of MangoSoft, Inc.
The beneficial ownership of such persons includes, as applicable,
options to purchase common stock exercisable within 60 days of June 30,
2000 as follows: Craig Goldman, 350,000 shares; Ira Goldstein, 100,000
shares; Paul O'Brien, 200,000 shares; Nick Tredennick, 100,000; and
Dale Vincent, 1,000,000 shares.
(5) Imperial Bank, an affiliate of Imperial Bancorp., is a former lender to
MangoSoft Corporation. Any agreements with Imperial Bank executed in
connection with such lending, other than the applicable warrant
documents, have been terminated.
(6) Mr. Levine is a Partner in the law firm of Proskauer Rose LLP,
independent legal counsel to MangoSoft, Inc.
PLAN OF DISTRIBUTION
We are registering the common stock on behalf of the security holders
listed above under "Selling Security Holders." The sale of all or a portion of
the shares of common stock offered by this prospectus by the selling security
holders may be effected from time to time at prevailing market prices at the
time of such sales, at prices related to such prevailing prices, at fixed prices
that may be changed or at negotiated prices. The selling security holders may
effect such transactions by selling or transferring shares of common stock
directly to purchasers in negotiated transactions, to dealers acting as
principals or through one or more brokers, to pledgees or donees of such selling
security holders, or any combination of these methods of sale or transfer.
Dealers or brokers may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or purchasers of
shares for whom they may act as agent (which compensation may be in excess of
customary commissions). The selling security holders and any brokers or dealers
that participate in the distribution may under certain circumstances be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commissions received by such brokers or dealers and any profits realized on the
resale of shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
To the extent required under the Securities Act or the rules of the
SEC, a supplemental prospectus will be filed disclosing (i) the name of any such
brokers or dealers, (ii) the number of shares involved, (iii) the price at which
such shares are to be sold, (iii) the price at which such shares are to be sold,
(iv) the commissions paid or discounts or concessions allowed to such brokers or
dealers, where applicable, (v) that such brokers or dealers did not conduct any
investigation to verify the information set out in this prospectus, as
supplemented, and (vi) other facts material to the transaction.
We can provide no assurances that the selling security holders will
sell any or all of the shares of common stock offered by this prospectus.
MangoSoft has agreed to pay the expenses for the registration of the shares of
common stock offered by this prospectus. The selling security holders
26
<PAGE>
will be responsible for all selling commissions, transfer taxes and related
charges in connection with the offer and sale of their shares.
LEGAL PROCEEDINGS
On August 30, 1999, one of our 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 stockholder seeks damages in the amount
of $50,000 plus interest.
On May 8, 2000, Jose Benitez filed a suit against MangoSoft Corporation
in the Circuit Court of the 11th Judicial Circuit for Miami-Dade County, Florida
alleging certain causes of action in connection with the unauthorized use of his
image and claiming damages in excess of $15,000. We believe that neither of the
above-referenced litigations will have a material adverse effect on our
business, financial condition and results of operations.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following is a list of our directors and executive officers and
their respective positions:
NAME: AGE: POSITIONS:
Dale Vincent 53 Director, President and Chief Executive Officer
Craig D. Goldman 55 Director and Non-Executive Co-Chairman
Paul C. O'Brien 60 Director and Non-Executive Co-Chairman
Dr. Ira Goldstein 55 Director
Selig Zises 56 Director
Dr. Nick Tredennick 53 Director
Joseph Robinson 37 Director
Donald A. Gaubatz 46 Senior Vice President and Chief Operating Officer
Scott H. Davis 43 Vice President and Chief Technology Officer
Daniel J. Dietterich 43 Vice President, Research
Robert E. Parsons 49 Vice President and Chief Financial Officer
Robert J. Primmer 38 Vice President, Marketing
Peter Caparso 33 Vice President, Business Development
Thomas Teixeira 45 Vice President, Engineering
Dale Vincent was appointed President, Chief Executive Officer and
elected a Director following the September 1999 merger transaction among First
American Clock Co., MangoSoft Corporation and MangoMerger Corp. (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, the general partner of Associated
Capital L.P., and consults with Associated Capital L.P. 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.
Mr. Goldman also serves as a director of CMGI Inc., Engage Technology, Inc.,
NaviSite, Inc. and Divine Interventures.
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 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
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<PAGE>
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.
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.
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.
Joseph Robinson was elected a Director in June 2000. Since 1998 he has
served as Chairman of UGO Networks, Inc., a technology infrastructure company.
Prior to that he founded and served as an officer of Interworld Corporation, an
e-commerce solutions provider.
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, Research 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.
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<PAGE>
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.
Robert J. Primmer was appointed Vice President, Marketing in March
2000. He previously served GeoTel communications as Director of Product
Marketing, and prior to that he served as Vice President of Engineering at
Aurora Systems.
Peter Caparso was appointed Vice President, Business Development in
June 1999. Prior to joining MangoSoft, Mr. Caparso managed OEM and major account
relationships at VocalTec Incorporated and Stratus Computer Corporation. Mr
Caparso began his career at Bell Atlantic Corporation, where he spent over nine
years in the sales department managing the Internet Service Provider and
Financial Institutional Accounts.
Thomas Teixeira was appointed Vice President, Engineering in May 2000.
He previously served Axtent Technologies as Director of Software Engineering.
Prior to that position he served Compaq's Alta Vista Security Products Group as
Engineering Manager and Technical Director for the Alta Vista Firewall and
Tunnel products.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of common stock as
of June 30, 2000 by (i) each director, (ii) each of the named executive
officers, (iii) all directors and executive officers of MangoSoft 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.
PERCENT OF
NUMBER OF SHARES OF COMMON STOCK
NAME COMMON STOCK OWNED OWNED
-------------------------------------- ------------------- ------------
Dale Vincent.......................... 1,027,135 (1)(2) 3.2%
Scott H. Davis ....................... 250,000 (1)(2) *
Daniel J. Dietterich ................. 250,000 (1)(2) *
Craig D. Goldman ..................... 400,000 (1)(2) 1.2%
Paul C. O'Brien ...................... 225,000 (1)(2) *
Robert E. Parsons .................... 130,000 (1)(2) *
Dr. Ira Goldstein .................... 150,000 (1)(2) *
Selig Zises........................... 2,874,692 (2)(3) 8.8%
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PERCENT OF
NUMBER OF SHARES OF COMMON STOCK
NAME COMMON STOCK OWNED OWNED
-------------------------------------- ------------------- ------------
Dr. Nick Tredennick................... 100,000 (1)(2) *
Donald A. Gaubatz..................... 81,250 (1)(2) *
Robert J. Primmer..................... 25,000 (1)(2) *
Peter Caparso......................... 25,000 (1)(2) *
All directors and executive
officers as a group................. 5,538,077 (4) 17.0%
Jay Zises............................. 3,088,577 (5)(6) 9.5%
Palisade Private Partnership, L.P..... 5,525,000 (5)(7) 17.0%
--------------------
* 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 June 30, 2000, as follows: Dale Vincent,
1,000,000; Scott H. Davis, 250,000; David J. Dietterich, 250,000; Craig
D. Goldman, 350,000; Paul C. O'Brien, 200,000; Robert E. Parsons,
130,000; Dr. Ira Goldstein, 100,000; Dr. Nick Tredennick, 100,000;
Donald A. Gaubatz, 81,250; Robert J. Primmer, 25,000; and Peter
Caparso, 25,000. 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 June 30, 2000, as
follows; Donald A. Gaubatz, 168,750; Robert E. Parsons, 30,000; Robert
J. Primmer, 75,000; Thomas Teixeira, 80,000 and Peter Caparso, 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 Guaranteed Trust Co. TTEE FBO Selig Zises R-IRA DTD 5-20-96;
and 68,799 shares owned by Lynn Zises.
(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 include
the following: 63,928 shares owned by Jay Zises; 2,652,375 shares owned
by Delaware Guarantee & Trust TTEE FBO Jay Zises IRA; 40,478 shares
owned by Jay Zises and Nancy Zises JTWROS; 169,932 shares owned by
Guaranteed Trust TTEE FBO Jay Zises IRA DTD 7-9-92; 67,458 shares owned
by Associated Capital LP; and 94,406 shares owned by Associated Capital
Offshore LP.
(7) Total shares of common stock beneficially owned by Palisade Private
Partnership, L.P. include the following: 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.
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<PAGE>
DESCRIPTION OF SECURITIES
Our 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 our 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 MangoSoft, 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. Our 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 and
rates, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series and the
designation of such series, without further vote or action by the stockholders.
Issuances 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 our 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. Our By-Laws provide
that stockholders may call a special meeting of stockholders only upon a request
of stockholders owning at least 10% of our 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 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.
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<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our directors and officers are indemnified as provided by the Nevada
Revised Statutes and our Articles of Incorporation and By-Laws. We have been
advised that in the opinion of the SEC, indemnification for liabilities arising
under the Securities Act is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities is asserted by one of our directors,
officers or controlling persons in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
ORGANIZATION WITHIN LAST FIVE YEARS
See "Description of Business" below.
EXPERTS
The consolidated financial statements of MangoSoft, Inc. and subsidiary
as of December 31, 1999 and 1998 and for the years then ended, which are
included in this prospectus and elsewhere in the registration statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein (which report expresses an unqualified opinion and
includes explanatory paragraphs as to the basis of presentation and to a
going-concern uncertainty), and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
DESCRIPTION OF BUSINESS
HISTORY
MangoSoft, Inc., a Nevada corporation, was incorporated on May 17, 1995
as First American Clock Co. ("First American"). First American 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. First American used the net
proceeds from that offering to acquire antique clocks for resale. First American
did not generate any significant revenues from its operations and ceased such
operations at the end of 1998. However, First American continued to file
periodic reports with the SEC.
Pursuant to an Agreement and Plan of Merger by and among MangoSoft
Corporation, MangoMerger Corp. and First American, dated August 27, 1999 (the
"Merger Agreement"), MangoSoft Corporation, a Delaware software development
company, merged with MangoMerger Corp., a wholly-owned subsidiary of First
American, which changed its name to MangoSoft, Inc., so that MangoSoft
Corporation became the wholly-owned operating subsidiary of MangoSoft, Inc.
(such transactions collectively referred to as the "Merger").
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Pursuant to the terms of the Merger Agreement, all of the outstanding
capital stock of MangoSoft Corporation was converted into common stock of
MangoSoft, Inc., par value $.001 per share, in accordance with the conversion
rates specified in the Merger Agreement. In connection with the Merger,
MangoSoft, Inc. issued 15,008,998 shares of common stock to security holders and
certain debt holders of MangoSoft Corporation. Because the stockholders of
MangoSoft Corporation received the majority of the equity interest in MangoSoft,
Inc., the Merger qualified for reverse acquisition accounting, so that MangoSoft
Corporation was deemed to have acquired First American. Accordingly, unless
otherwise specified, historical references to the operations of MangoSoft, Inc.
are references to the operations of MangoSoft Corporation.
OUR BUSINESS
Overview. We develop, market and support computer software solutions to
address the networking needs of small and large businesses. We have leveraged
our patented technology known as "Pooling" to develop our 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. Our
products enhance the performance of PC networks and deliver improved service
utilizing existing equipment.
Our objective is to become the leading provider of software-based
service solutions that enable our customers to maximize the return on their
computer networks. We intend to leverage our Pooling technology with customer
desktops and networks to deliver software based solutions for Local Area
Networks ("LANs"), Internet file services and web cache appliances. Our strategy
is to advance our existing products, establish more comprehensive distribution
channels, including strategic partnerships, commercialize MangoMIND, a new
Internet service, and extend our current technology to additional software
solutions.
Technology. We use our highly adaptable Pooling technology to develop
additional software solutions based on the concept of aggregating the excess
memory and disk resources of networked computers. Our current initiative is to
deliver an easy-to-use Internet file service, which provides universal native
data access and sharing from any location. Since our inception, we have invested
more than $24 million of our capital in the aggregate in research and
development activities.
Our 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. We have identified
this technology as "Pooling" and have 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 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 our "Distributed Storage Engine." It manages both memory and disk resources
across systems as a unified shared virtual memory which it treats 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.
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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. Many of the control structures of the cache 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.
Products. Our current products include CacheLink, Medley 99 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.
Medley99 creates a software-based file server by aggregating idle
capacity from connected PCs. Medley99 stores multiple copies of data and
automatically recovers information from system failures and maintains data
access. Our 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. We plan 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. We are pursuing an evolving market strategy
consisting of forming relationships with leading technology companies that can
provide distribution and co-marketing efforts for our software products. These
strategic partnerships include the following: ISPs, who sell our CacheLink
product to the enterprise market; original equipment manufacturers of network
hardware, such as communication devices, that enable shared Internet access
throughout companies, ISPs and ASPs; and Internet community sites and portals as
distribution partners for MangoMIND. Through these relationships, we intend to
commercialize bundled products and establish distribution channels. In addition,
we intend to establish technology partnerships to explore, develop, market and
distribute other applications related to our Pooling technology.
Product Support. We provide technical support to our partners through
Internet communication, electronic mail and a traditional telephone support
line. We depend on our resellers and strategic partners to provide end-user
support and troubleshooting. We maintain a specific reseller area on our 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.
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<PAGE>
Intellectual Property. To date, we have 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). In addition, we have been
granted two provisional patents and have applied for four other patents which
applications are pending. We also own trademarks on "CacheLink," "Medley,"
"Mango," "MangoSoft," "Pool" and "Pooling."
We consider elements of our software and Pooling technology to be
proprietary. We rely on a combination of trade secrets, copyright and trademark
law, contractual provisions, confidentiality agreements, and certain technology
and security measures to protect our intellectual property, proprietary
technology and know-how.
Employees. As of December 31, 1999, we had 46 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 our employees is subject to
employment or collective bargaining agreements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 MangoSoft, Inc. are those of MangoSoft Corporation. We are
considered to be a development stage company since we have not generated
significant revenues from the products that we have developed to date.
Revenue decreased from $245,406 in 1998 to $37,207 in 1999 due to our
decision to defer sales and marketing efforts and focus on product quality. 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 our 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.
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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 (excluding
stock-based compensation of
$10,085,922 in 1999).................... $ 4,420,903 $ 6,615,558 $ (2,194,655) (33.2)
Selling and marketing (excluding
stock-based compensation of
$1,303,333 in 1999)..................... 412,842 2,608,190 (2,195,348) (84.2)
General and administrative (excluding
stock-based compensation of
$9,345,440 in 1999)..................... 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) N/A
------------- --------------- ---------------- --------------
Total................................... $27,837,827 $13,259,855 $ 14,577,972 110.0
============= =============== ================ ==============
</TABLE>
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%, primarily 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.
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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 we incurred no disk
replication costs.
Operating expenses, excluding stock-based compensation costs, increased
14.7% to $2,080,384 in the three months ended March 31, 2000 due primarily to
development of our reseller network. A summary of the operating expenses and the
increases (decreases) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, INCREASE (DECREASE)
------------------------------ -------------------------------
2000 1999 AMOUNT ($) PERCENTAGE
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Research and development (excluding
stock-based compensation of
$11,119,266 in 2000)....................... $ 1,141,781 $1,177,272 $ (35,491) (3.0)
Selling and marketing (excluding stock-
based compensation of $1,480,859 in
2000)...................................... 271,933 18,004 253,929 1410.4
General and administrative (excluding
stock-based compensation of $9,565,884
in 2000)................................... 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 N/A
----------- ---------- ------------ ------------
Total...................................... $24,246,393 $1,813,886 $22,432,507 1236.7
=========== ========== ============ ============
</TABLE>
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 represents an increase in the value of certain stock appreciation
rights due to a rise in the fair value of our common stock during the three
months ended March 31, 2000. There were no stock-based compensation costs in the
three months ended March 31, 1999.
The net loss 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.
38
<PAGE>
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 June 30, 2000, we raised
approximately an additional $74.2 million in financing from the private
placement of debt and equity securities as follows:
39
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PROCEEDS
DATE DESCRIPTION (IN MILLIONS ($))
---------------- -------------------------------------------------------------------------- -----------------
<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 Preferred
Stock..................................................................... 9.0
April 1997 MangoSoft Corporation Series D Redeemable Convertible Preferred
Stock..................................................................... 6.4
December 1997 MangoSoft Corporation Series E Redeemable Convertible Preferred
Stock..................................................................... 13.1
October 1998 MangoSoft Corporation demand notes issued to related
parties................................................................... 2.0
February 1999 MangoSoft Corporation 12% Notes........................................... 4.0
September 1999 Sale of 3 million shares of common stock of MangoSoft, Inc................ 3.8
March 2000 Sale of 2.5 million shares of Series A Preferred Stock of MangoSoft,
Inc. (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 MangoSoft, Inc.............. 21.0
May 2000 Sale of approximately 300,000 shares of common stock of MangoSoft,
Inc....................................................................... 1.4
------------
Total..................................................................... $ 74.2
</TABLE>
In addition to the above, we have, at times, depended upon bank debt,
loans from stockholders and directors and credit from suppliers to meet interim
financing needs. In 1998, we 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.
The proceeds raised have been used in the development of our 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 our 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, we 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.
Unless we can generate a significant level of on-going revenue and
attain adequate profitability, we will be required to seek additional private or
public equity or debt financing. Although we have been successful in raising
funds in the past, management can provide no assurances that additional
financing will be available to us on commercially reasonable terms or at all.
Our inability to obtain additional financing will have a material and adverse
effect on our business,
40
<PAGE>
operating results and financial condition, requiring us to significantly curtail
or possibly cease our operations. The auditors' opinion on our financial
statements for the fiscal years ended December 31, 1999 and 1998 includes a
going concern explanatory paragraph, which highlights the uncertainty of our
ability to continue our operations. In addition, any additional equity financing
may involve substantial dilution to our stockholders.
During the three months ended March 31, 2000 we 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, we 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, we received approximately $1.4
million from the sale to accredited investors of an additional 200,000 shares of
common stock at $5.00 per share and approximately 100,000 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 pursuant to Section 4(2) of the Securities Act or
Regulation D promulgated thereunder. We believe the $32.4 million in proceeds
from the sale of the common and Preferred Stock will be adequate to fund our
operations for the next 12 months. We can provide no assurances, however, that
such amount will adequately fund our operations for such period, and it may be
necessary for us 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. We are currently evaluating the effect, if any,
SFAS No. 133 will have on our financial position and its results of operations.
We will adopt this accounting standard on January 1, 2001, as required.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements filed with the Securities and
Exchange Commission. We are currently evaluating the effect, if any, SAB No. 101
will have on our financial position and results of operations. We will adopt
this accounting standard during the fourth quarter of 2000, as required.
41
<PAGE>
DESCRIPTION OF PROPERTY
Our research and development, sales and marketing, customer support and
administrative offices are located in Westborough, Massachusetts, and consist of
approximately 23,000 square feet of office space under a lease expiring on
August 31, 2001. The lease terms include an annual base rent of $511,268 per
year plus a proportionate share of certain operating costs. The total rent
expense on this facility in 1999 was $540,697. Our offices have the capacity to
accommodate approximately 100 employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, Associated Venture Management provided executive and
administrative assistance to MangoSoft Corporation, including services performed
by Dale Vincent through August 1998. 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 Associated Venture Management 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, Associated Venture Management 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 Associated
Venture Management.
In September 1998, MangoSoft Corporation established a consulting
relationship with Dale Vincent, who at that time served as its Vice President,
Chief Financial Officer and a director. The consulting relationship continued
when Mr. Vincent became our President and Chief Executive Officer. For his
services we compensated Mr. Vincent through his company, RCG Real Estate, 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 us.
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 MangoSoft, Inc. and Selig Zises is a director of
MangoSoft, Inc. 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. Subsequent thereto, MangoSoft Corporation issued an
additional $1 million of its 12% Notes to each of Selig Zises and Jay Zises. In
September 1999, in connection with the Merger, the aggregate $4 million plus
accrued interest of the 12% Notes held by Selig Zises and Jay Zises were
converted into 6,000,000 shares of common stock, so that 3,000,000 shares of
common stock were issued to each of Selig Zises and Jay Zises. In December 1999,
we issued to Selig Zises an 8% unsecured demand note for $200,000 principal
amount which was senior to all our obligations. Such note was repaid in cash on
March 28, 2000.
We have an agreement with Craig D. Goldman, a director, 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 our
voting securities on a fully-diluted basis. As of June 30, 2000 Mr. Goldman has
been granted options to purchase 350,000 shares of common stock at exercise
prices ranging from $1.25 to $5.00.
42
<PAGE>
In connection with the Merger, MangoSoft Corporation agreed to
repurchase 200,000 shares of its common stock from Steven Frank, a former
director and officer, for $100,000.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. As of June 30, 2000, we had a total of
approximately 26,869,142 shares of common stock issued and outstanding. We
estimate 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 promulgated
under the Securities Act.
We estimate that approximately 25,294,142 shares of common stock, or
94% of the total issued and outstanding shares, are restricted securities under
Rule 144 as follows:
<TABLE>
<CAPTION>
<S> <C>
Shares of common stock issued pursuant to the Merger........................................ 15,308,998
Shares of common stock sold to accredited investors......................................... 9,874,972
Shares of common stock issued pursuant to the exercises of employee stock options........... 73,922
Shares of common stock issued upon conversion of accounts payable........................... 36,250
----------
Total....................................................................................... 25,294,142
</TABLE>
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 closing
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:
HIGH LOW
---- ---
2000
First Quarter $26.50 $8.25
Second Quarter 17.75 6.38
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
43
<PAGE>
Holders of Common Stock. As of June 30, 2000, there were approximately
520 record holders of common stock. This number does not include stockholders
for whom shares were held in a nominee or street name.
Dividends. We have not previously paid any dividends on the common
stock and do not anticipate paying cash dividends in the foreseeable future. The
only restrictions that limit our 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 us insolvent or reduce our assets
to less than the sum of our liabilities plus the amount needed to satisfy any
liquidation preference.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information about the compensation paid,
or payable, by us for services rendered in all capacities by our Chief Executive
Officer and each of our most highly paid executive officers who earned more than
$100,000 for each of the fiscal years ended December 31, 1999, 1998 and 1997 in
which such officers were executive officers for all or part of such year.
44
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) AWARD(S) ($) OPTIONS (#) ($)
------------------- ---- ---------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dale Vincent (1)
President and Chief
Executive Officer 1999 150,000 -- -- -- 400,000 --
1998 201,200 -- -- -- -- --
1997 -- -- -- -- -- --
Mick Jardine (2)
President 1999 -- -- -- -- -- --
1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
Scott H. Davis
Vice President and
Chief Technology
Officer 1999 128,000 19,000 -- -- 250,000 --
1998 124,462 -- -- -- -- --
1997 103,846 -- -- -- -- --
Daniel J. Dietterich
Vice President,
Engineering 1999 119,139 6,050 -- -- 250,000 --
1998 113,692 -- -- -- -- --
1997 106,462 -- -- -- -- --
Robert E. Parsons (3)
Vice President and
Chief Financial
Officer 1999 43,269 25,000(5) -- -- 160,000 --
1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
James M. Stark (3)(4)
Senior Vice President,
Sales and Marketing 1999 36,058 25,000 (5) -- -- 200,000 --
1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
--------------
</TABLE>
(1) In 1999, Mr. Vincent performed his services to MangoSoft, Inc. through RCG
Real Estate, and in 1998 through RCG Real Estate and Associated Venture
Management.
(2) Mr. Jardine was paid no compensation for his services to MangoSoft, Inc.
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 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.
45
<PAGE>
STOCK OPTION GRANTS
The following table provides information concerning grants of stock options
by the Company to the named executive officers during 1999.
<TABLE>
<CAPTION>
OPTION GRANTS FOR FISCAL 1999
-------------------------------------------------------------------------------------------------------
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% $1.25 9/07/09
</TABLE>
OPTION EXERCISES AND VALUES FOR 1999
The following table provides information concerning options exercised by
the named executive officers and the value of such officers' unexercised options
at December 31, 1999. The Value of the Unexercised In-The-Money Options is based
on the average bid and ask price of the common stock on the OTCBB on December
31, 1999. There is no established market for the common stock and, accordingly,
such valuation may not necessarily reflect the actual market value of the
outstanding options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------------- ------------------------------
NAME EXERCISE (#) REALIZED ($) 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. -- -- 250,000 -- 2,125,000 --
Dietterich
Robert E. -- -- 100,000 60,000 850,000 $ 510,000
Parsons
James M. Stark -- -- 100,000 100,000 850,000 850,000
</TABLE>
46
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On January 11, 2000, we dismissed our then current independent
accountant, David T. Thomson P.C. ("Thomson"). The decision to change
independent accountants was recommended by our Audit Committee and approved by
our Board of Directors on October 14, 1999. We appointed Deloitte & Touche LLP
as our independent accountant as of January 11, 2000.
Our change in independent accountants was a result of the Merger.
Thomson was the accountant for First American Clock and Deloitte & Touche LLP
had been the auditor for MangoSoft Corporation since its inception. Following
the Merger, we appointed Deloitte & Touche LLP as our 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, we consulted with
Deloitte & Touche LLP regarding the application of accounting principles
involved in the Merger, subsequent events, and our Form 10-QSB as filed with the
SEC on November 19, 1999.
47
<PAGE>
FINANCIAL STATEMENTS
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report........................................................ F-2
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................................................................. F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998......................... F-4
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..................................................... F-5
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 .......................................................... F-8
Notes to Consolidated Financial Statements........................................... F-9
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 F-23
(Inception) to March 31, 2000........................................................
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2000 and F-24
December 31, 1999....................................................................
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 F-25
(Inception) to March 31, 2000........................................................
Notes to Unaudited Condensed Consolidated Financial Statements.......................F-27
</TABLE>
F-1
<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)
F-2
<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 6,414,178 136,367
share.............................................................
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<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.
F-4
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK,
SERIES A
----------------------------
SHARES AMOUNT
------------- ------------
<S> <C> <C>
Balance, June 15, 1995 (Inception)............................................................. -- $ --
Issuance of common stock.................................................................... -- --
Issuance of convertible preferred stock, Series A, net of issuance costs of $26,998......... 2,250,000 22,500
Issuance of convertible preferred stock, Series B, net of issuance costs of $14,401......... -- --
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1995..................................................................... 2,250,000 22,500
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1996..................................................................... 2,250,000 22,500
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss.................................................................................... -- --
------------- ------------
Balance, December 31, 1997..................................................................... 2,250,000 22,500
Conversion of accounts payable.............................................................. -- --
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1998..................................................................... 2,250,000 22,500
Accretion of redeemable convertible preferred stock......................................... -- --
Purchase and retirement of common stock from related party.................................. -- --
Adjustment to reflect the exchange of common stock in connection with the reverse merger.... -- --
Issuance of common stock in exchange for preferred stock.................................... (2,250,000) (22,500)
Conversion of 12% senior secured convertible notes payable and related accrued interest..... -- --
Beneficial conversion feature of 12% convertible notes...................................... -- --
Common stock held by former First American Clock shareholders............................... -- --
Adjustment to reflect costs incurred in the reverse merger.................................. -- --
Issuance of common stock.................................................................... -- --
Stock-based compensation.................................................................... -- --
Net loss.................................................................................... -- --
------------- ------------
Balance, December 31, 1999..................................................................... -- $ --
============= ============
CONVERTIBLE PREFERRED STOCK,
SERIES B
----------------------------
SHARES AMOUNT
------------- ------------
<S> <C> <C>
Balance, June 15, 1995 (Inception)............................................................. -- $ --
Issuance of common stock.................................................................... -- --
Issuance of convertible preferred stock, Series A, net of issuance costs of $26,998......... -- --
Issuance of convertible preferred stock, Series B, net of issuance costs of $14,401......... 750,002 7,500
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1995..................................................................... 750,002 7,500
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1996..................................................................... 750,002 27,500
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss.................................................................................... -- --
------------- ------------
Balance, December 31, 1997..................................................................... 750,002 27,500
Conversion of accounts payable.............................................................. -- --
Accretion of redeemable convertible preferred stock......................................... -- --
Net loss....................................................................................... -- --
------------- ------------
Balance, December 31, 1998..................................................................... 750,002 27,500
Accretion of redeemable convertible preferred stock......................................... -- --
Purchase and retirement of common stock from related party.................................. -- --
Adjustment to reflect the exchange of common stock in connection with the reverse merger.... -- --
Issuance of common stock in exchange for preferred stock.................................... (750,002) (7,500)
Conversion of 12% senior secured convertible notes payable and related accrued interest..... -- --
Beneficial conversion feature of 12% convertible notes...................................... -- --
Common stock held by former First American Clock shareholders............................... -- --
Adjustment to reflect costs incurred in the reverse merger.................................. -- --
Issuance of common stock.................................................................... -- --
Stock-based compensation.................................................................... -- --
Net loss.................................................................................... -- --
------------- ------------
Balance, December 31, 1999..................................................................... -- $ --
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
SHARES AMOUNT
------------- -----------
<S> <C> <C>
Balance, June 15, 1995 (Inception)...................................................... -- $ --
Issuance of common stock............................................................. 750,000 750
Issuance of convertible preferred stock, Series A, net of issuance costs of $26,998.. -- --
Issuance of convertible preferred stock, Series B, net of issuance costs of $14,401.. -- --
Net loss................................................................................ -- --
------------- -----------
Balance, December 31, 1995.............................................................. 750,000 750
Accretion of redeemable convertible preferred stock.................................. -- --
Net loss................................................................................ -- --
------------- -----------
Balance, December 31, 1996.............................................................. 750,000 750
Accretion of redeemable convertible preferred stock.................................. -- --
Net loss............................................................................. -- --
------------- -----------
Balance, December 31, 1997.............................................................. 750,000 750
Conversion of accounts payable....................................................... 11,250 11
Accretion of redeemable convertible preferred stock.................................. -- --
Net loss............................................................................. -- --
------------- -----------
Balance, December 31, 1998.............................................................. 761,250 761
Accretion of redeemable convertible preferred stock.................................. -- --
Purchase and retirement of common stock from related party........................... (200,000) (200)
Adjustment to reflect the exchange of common stock in connection with the reverse
merger........................................................................... (460,381) (460)
Issuance of common stock in exchange for preferred stock............................. 5,908,129 5,908
Conversion of 12% senior secured convertible notes payable and related accrued
interest......................................................................... 9,000,000 9,000
Beneficial conversion feature of 12% convertible notes............................... -- --
Common stock held by former First American Clock shareholders........................ 1,575,000 1,575
Adjustment to reflect costs incurred in the reverse merger........................... 300,000 300
Issuance of common stock............................................................. 3,000,000 3,000
Stock-based compensation............................................................. 40,129 40
Net loss............................................................................. -- --
------------- -----------
Balance, December 31, 1999.............................................................. 19,924,127 $ 19,924
============= ===========
ADDITIONAL PAID-IN
CAPITAL
------------------ DEFERRED
SHARES COMPENSATION
------------------ ------------------
<S> <C> <C>
Balance, June 15, 1995 (Inception)...................................................... $ -- $ --
Issuance of common stock............................................................. -- --
Issuance of convertible preferred stock, Series A, net of issuance costs of $26,998.. 1,451,057 --
Issuance of convertible preferred stock, Series B, net of issuance costs of $14,401.. 1,979,534 --
Net loss................................................................................ -- --
--------------- --------------
Balance, December 31, 1995.............................................................. 3,430,591 --
Accretion of redeemable convertible preferred stock.................................. (486,523) --
Net loss................................................................................ -- --
--------------- --------------
Balance, December 31, 1996.............................................................. 2,944,068 --
Accretion of redeemable convertible preferred stock.................................. (1,598,096) --
Net loss............................................................................. -- --
--------------- --------------
Balance, December 31, 1997.............................................................. 1,345,972 --
Conversion of accounts payable....................................................... 89,989 --
Accretion of redeemable convertible preferred stock.................................. (1,435,961) --
Net loss............................................................................. -- --
--------------- --------------
Balance, December 31, 1998.............................................................. -- --
Accretion of redeemable convertible preferred stock.................................. -- --
Purchase and retirement of common stock from related party........................... (99,800) --
Adjustment to reflect the exchange of common stock in connection with the reverse
merger........................................................................... 460 --
Issuance of common stock in exchange for preferred stock............................. 33,872,709 --
Conversion of 12% senior secured convertible notes payable and related accrued
interest......................................................................... 6,368,409 --
Beneficial conversion feature of 12% convertible notes............................... 4,860,000 --
Common stock held by former First American Clock shareholders........................ (1,575) --
Adjustment to reflect costs incurred in the reverse merger........................... (276,473) --
Issuance of common stock............................................................. 3,747,000 --
Stock-based compensation............................................................. 23,714,998 (2,980,343)
Net loss............................................................................. -- --
--------------- --------------
Balance, December 31, 1999.............................................................. $ 72,185,728 (2,980,343)
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STATE TOTAL
----------------------- ---------------
<S> <C> <C>
Balance, June 15, 1995 (Inception)........................................................... $ -- $ --
Issuance of common stock.................................................................. -- 750
Issuance of convertible preferred stock, Series A, net of issuance costs of $26,998....... -- 1,473,557
Issuance of convertible preferred stock, 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) (15,870,995)
-------------- -------------
Balance, December 31, 1997................................................................... (23,016,254) (21,639,532)
Conversion of accounts payable............................................................ -- 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................................ -- (100,000)
Adjustment to reflect the exchange of common stock in connection with the reverse merger.. -- --
Issuance of common stock in exchange for preferred stock.................................. -- 33,848,617
Conversion of 12% senior secured convertible notes payable and related accrued interest... -- 6,377,409
Beneficial conversion feature of 12% convertible notes.................................... -- 4,860,000
Common stock held by former First American Clock shareholders............................. -- --
Adjustment to reflect costs incurred in the reverse merger................................ -- (276,173)
Issuance of common stock.................................................................. -- 3,750,000
Stock-based compensation.................................................................. -- 20,734,695
Net loss.................................................................................. (33,021,645) (33,021,645)
-------------- -------------
Balance, December 31, 1999................................................................... $ (72,195,256) $ (2,969,947)
============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 CUMULATIVE FROM
-------------------------------- JUNE 15, 1995
(INCEPTION) TO
DECEMBER 31,
1999 1998 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.
F-8
<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 its 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.").
F-9
<PAGE>
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.
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. The merger transaction has been accounted for under the purchase method
of accounting and was treated as a reverse acquisition as the shareholders of
MangoSoft Corporation received the larger portion of the voting interests in the
combined enterprise. Therefore, for accounting purposes, MangoSoft Corporation
is deemed to have acquired First American. Estimated costs of the merger were
$276,173, which have been reflected as a reduction to additional paid-in
capital. In addition, the Company issued 300,000 shares of common stock in lieu
of investment banking fees.
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.
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998
------------------- ------------------
<S> <C> <C>
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
</TABLE>
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
F-10
<PAGE>
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 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".
F-11
<PAGE>
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.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements filed with the Securities and
Exchange Commission. We are currently evaluating the effect, if any, SAB No. 101
will have on our financial position and results of operations. We will adopt
this accounting standard during the fourth quarter of 2000, as required.
F-12
<PAGE>
Reclassifications - Certain reclassifications have been made to the
1998 and cumulative since inception amounts to conform to the 1999 presentation.
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>
YEAR ENDED DECEMBER 31 CUMULATIVE FROM
------------------------- JUNE 15, 1995
(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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
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
============= ============
</TABLE>
F-13
<PAGE>
5. SHORT-TERM DEBT
Short-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
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
================ =================
</TABLE>
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. The total $6,000,000 in 12% convertible
notes plus the related accrued interest of $377,409 was converted into
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. In conjunction with the merger, the 12% convertible
notes were converted at a value of $.71 per share (including accrued interest),
or $.54 below the fair market value of the common stock. In accordance with EITF
Issue No. No. 98-5 "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios", the
difference of $4,860,000 was
F-14
<PAGE>
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.
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:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
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............................ $ -- $ --
============= ============
</TABLE>
F-15
<PAGE>
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 assets... 19 40
-- --
--% --%
====== ======
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").
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.
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. 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.
F-16
<PAGE>
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.
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.
F-17
<PAGE>
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, 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%.
F-18
<PAGE>
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>
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):
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------------- -------------------
<S> <C> <C>
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
================ ==================
</TABLE>
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.
F-19
<PAGE>
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.
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 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.
F-20
<PAGE>
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.
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.
F-21
<PAGE>
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.
F-22
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS CUMULATIVE FROM
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.
F-23
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
---------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
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.
F-24
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS CUMULATIVE FROM
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)
------------- ------------ --------------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.
F-26
<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.
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. 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
F-27
<PAGE>
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.
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 undiscounted cash flows and recognizes impairments, if any,
based on the 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 2000 and 1999, no such costs were
capitalized.
F-28
<PAGE>
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.
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.
F-29
<PAGE>
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 and 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.
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
F-30
<PAGE>
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 approximated $23,075,810 based on the market price of $18.00 at that
date compared to the fair market value at December 31, 1999. 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.
F-31
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our 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 us 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 us or our 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the offering are as follows:
SEC registration fee........................................ $104,025
Transfer Agent fees *....................................... 1,500
Accounting fees and expenses *.............................. 50,000
Legal fees and expenses *................................... $ 50,000
--------
Total....................................................... $205,525
-----------------
*Estimated
We will pay all expenses of the offering listed above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following are the sales of unregistered securities made by us since
our inception:
<TABLE>
<CAPTION>
FACE VALUE AGGREGATE
OF DEBT PROCEEDS
NUMBER OF IN MILLIONS (IN MILLIONS
DATE DESCRIPTION SHARES ($)) ($))
------- ------------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
August 1995 MangoSoft Corporation Series A
Convertible Preferred Stock.................... 2,250,000 $-- $1.5
December 1995 MangoSoft Corporation Series B
Convertible Preferred Stock.................... 750,002 -- 2.0
June 1996 MangoSoft Corporation Series C
Redeemable Convertible Preferred Stock......... 1,500,000 -- 9.0
April 1997 MangoSoft Corporation Series D
Redeemable Convertible Preferred Stock......... 799,751 -- 6.4
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
FACE VALUE AGGREGATE
OF DEBT PROCEEDS
NUMBER OF IN MILLIONS (IN MILLIONS
DATE DESCRIPTION SHARES ($)) ($))
------- ------------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
December 1997 MangoSoft Corporation Series E 13.1
Redeemable Convertible Preferred Stock......... 1,450,000 --
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 MangoSoft, Inc................. 3,000,000 -- 3.8
March 2000 Series A Preferred Stock of MangoSoft,
Inc. (subsequently converted to common 10.0
stock on a 1 to 1 basis)....................... 2,500,000 --
March/April 2000 Common stock of MangoSoft, Inc................. 4,200,000 -- 21.0
May 2000 Common Stock of MangoSoft, Inc................. 300,000 -- 1.4
------------- ---------------
Total.......................................... 6.0 $74.2
============= ===============
</TABLE>
In connection with the Merger, we issued 15,008,998 shares of our common
stock in exchange for certain debt and all of the outstanding shares of capital
stock of MangoSoft Corporation. The Company issued an additional 300,000 shares
of common stock in connection with the Merger in lieu of investment banking
fees. Prior to the Merger, MangoSoft Corporation also 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. On or about July 20, 2000, we issued 85,000 warrants
to purchase common stock at $1.25 per share and 58,975 warrants to purchase
common stock at $4.00 per share to certain designees of Value Investing
Partners, Inc., a placement agent; 35,000 warrants to purchase common stock at
$1.25 per share to Monness Crespi Hardt & Co., a placement agent; and 25,034
warrants to purchase common stock at $4.00 per share to Imperial Bancorp., the
assignee of a former creditor.
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. The conversion of
the Series A Preferred Stock into common stock was effected pursuant to Section
3(a)(9) of the Securities Act. Accordingly, the offers, sales and conversion of
our securities were exempt from the registration requirements of the Securities
Act, pursuant to Section 4(2) or 3(a)(9) thereof or Regulation D promulgated
thereunder, as applicable.
II-2
<PAGE>
ITEM 27. 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. (2)
3.2 By-Laws. (2)
5.1 Opinion of Monsey & Andrews
10 Lease of Westborough Office Park, Building Five,
dated November 10, 1995. (3)
11.1 Statement Regarding Computation of Net Loss Per
Share of common stock for the fiscal years ended
December 31, 1999 and 1998. (2)
11.2 Statement Regarding Computation of Net Loss Per
Share of common stock for the three months ended
March 31, 2000 and 1999. (2)
16 Letter on Change in Certifying Accountant. (4)
21 Subsidiary of the Registrant. (2)
23.1 Consent of Monsey & Andrews
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche, LLP
27.1 Financial Data Schedule for the fiscal year ended
December 31, 1999. (2)
27.2 Financial Data Schedule for the fiscal year ended
December 31, 1998. (2)
II-3
<PAGE>
27.3 Financial Data Schedule for the three months ended
March 31, 2000. (2)
27.4 Financial Data Schedule for the three months ended
December 31, 1999. (2)
99.1 1999 Incentive Compensation Plan, as amended and
restated as of May 1, 2000. (2)
99.2 Form of Subscription Agreement for purchase of
common stock, dated as of March 20, 2000. (2)
99.3 Form of Warrant Agreement.
----------------------------
(1) Filed as an exhibit to our Current Report on Form 8-K for an event dated
September 7, 1999 and hereby incorporated by reference thereto.
(2) Filed as an exhibit to our Registration Statement on Form 10-SB, filed June
9, 2000, and hereby incorporated by reference thereto.
(3) Filed as an exhibit to our Quarterly Report filed November 19, 1999 for the
quarter ended September 30, 1999 and hereby incorporated by reference
thereto.
(4) Filed as an exhibit to our Current Report on Form 8-K/A for an event dated
January 11, 2000 and hereby incorporated by reference thereto.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
II-5
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Westborough,
Massachusetts, on the 20th day of July, 2000.
MANGOSOFT, INC.
By:________________________________________
Dale Vincent
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby authorizes Dale Vincent as his
attorney-in-fact to execute in the name of each such person and to file such
amendments (including post-effective amendments) to this registration statement
as the Registrant deems appropriate and appoints such person as attorney-in-fact
to sign on his behalf individually and in each capacity stated below and to file
all amendments, exhibits, supplements and post-effective amendments to this
registration statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C> <C>
/s/ Dale Vincent President and Chief Executive July 20, 2000
---------------------------- Officer (Principal executive officer)
Dale Vincent
---------------------------- Director July 20, 2000
Craig D. Goldman
/s/ Dr. Ira Goldstein
---------------------------- Director July 20, 2000
Dr. Ira Goldstein
/s/ Robert E. Parsons Chief Financial Officer (Principal July 20, 2000
---------------------------- financial officer and principal
Robert E. Parsons accounting officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Paul C. O'Brien
---------------------------- Director July 20, 2000
Paul C. O'Brien
/s/ Selig Zises
---------------------------- Director July 20, 2000
Selig Zises
---------------------------- Director July 20, 2000
Dr. Nick Tredennick
---------------------------- Director July 20, 2000
Joseph Robinson
</TABLE>
II-8
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NUMBER EXHIBIT
2.1 Agreement and Plan of Merger by and among First
American Clock Co., MangoSoft Corporation and
MangoMerger Corp., dated as of August 27, 1999.
(1)
3.1 Articles of Incorporation, as amended. (2)
3.2 By-Laws. (2)
5.1 Opinion of Monsey & Andrews
10 Lease of Westborough Office Park, Building Five,
dated November 10, 1995. (3)
11.1 Statement Regarding Computation of Net Loss Per
Share of common stock for the fiscal years ended
December 31, 1999 and 1998. (2)
11.2 Statement Regarding Computation of Net Loss Per
Share of common stock for the three months ended
March 31, 2000 and 1999. (2)
16 Letter on Change in Certifying Accountant. (4)
21 Subsidiary of the Registrant. (2)
23.1 Consent of Monsey & Andrews
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche, LLP
27.1 Financial Data Schedule for the fiscal year ended
December 31, 1999. (2)
27.2 Financial Data Schedule for the fiscal year ended
December 31, 1998. (2)
II-9
<PAGE>
EXHIBIT
NUMBER EXHIBIT
27.3 Financial Data Schedule for the three months ended
March 31, 2000. (2)
27.4 Financial Data Schedule for the three months ended
December 31, 1999. (2)
99.1 1999 Incentive Compensation Plan, as amended and
restated as of May 1, 2000. (2)
99.2 Form of Subscription Agreement for purchase of
common stock, dated as of March 20, 2000. (2)
99.3 Form of Warrant Agreement.
--------------------------------------
(1) Filed as an exhibit to our Current Report on Form 8-K for an event dated
September 7, 1999 and hereby incorporated by reference thereto.
(2) Filed as an exhibit to our Registration Statement on Form 10-SB, filed June
9, 2000, and hereby incorporated by reference thereto.
(3) Filed as an exhibit to our Quarterly Report filed November 19, 1999 for the
quarter ended September 30, 1999 and hereby incorporated by reference
thereto.
(4) Filed as an exhibit to our Current Report on Form 8-K/A for an event dated
January 11, 2000 and hereby incorporated by reference thereto.
II-10
