<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 31, 1999

                                       OR

   [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

For the transition period from _______ to _______

                        Commission file number 000-21295

                              THINKING TOOLS, INC.
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                 (Name of small business issuer in its charter)

           Delaware                                     77-0436410
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(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

200 Park Avenue  Ste 3900
New York,  New York                                      10166
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(Address of principal executive offices)               (Zip Code)

Issuer's telephone number  (212) 808-7474

Securities registered under Section 12(b) of the Exchange Act:

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------

           None                        None

Securities registered pursuant to Section 12(g) of the Exchange Act:
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                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

Yes  [X]   No  [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- KSB or any amendment to
this Form 10-KSB.

The Registrant's revenues for its most recent fiscal year were $92,283.

As of April 13, 2000, 9,684,237 shares of common stock (the "Common Stock") of
the Registrant were outstanding. The aggregate market value of the shares of
Common Stock held by non-affiliates of the Registrant, based on a closing sale
price of the Common Stock on the OTC Bulletin Board on April 13, 2000 of $3.12
per share, was approximately $24,084,141.

Transitional Small Business Disclosure Format (Check one):   Yes ___  No  X

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                                     PART I

This Annual Report on Form 10-KSB contains forward-looking statements that
involve certain risks and uncertainties. Our actual results could differ
materially from the results discussed in such forward-looking statements. See
"Description of Business-Cautionary Statements Regarding Forward-Looking
Statements."

Item 1. DESCRIPTION OF BUSINESS.

         General.

         Thinking Tools, Inc., a Delaware corporation (the "Company" or "we"),
is an information technology and Internet holding and incubating company. In
March 2000, through our newly formed wholly-owned subsidiary StartFree.com,
Inc., a Delaware corporation ("StartFree"), we acquired (the "Tritium
Acquisition") the business and substantially all of the assets and certain of
the liabilities of Tritium Network, Inc., a Delaware corporation ("Tritium").
Tritium was formed to provide free Internet access, e-mail and software to
users, and offer marketing and advertising opportunities to vendors (the
"Tritium Business"). StartFree's model will focus on the acquisition of users
through strategic relationships and alliances with businesses. StartFree intends
to continue to operate the Tritium Business and pursue opportunities for its
growth, as described below. Additionally, we are seeking to enter into strategic
transactions with companies in the technology or software fields which have the
potential for rapid growth and will increase the value of our current holdings
(including the Tritium Business) and future holdings.

         History.

         The Company was incorporated in Delaware on August 8, 1996, as a
wholly-owned subsidiary of Thinking Tools, Inc., a California corporation (the
"Predecessor Corporation"). On August 28, 1996, the Predecessor Corporation
merged into the Company. References to the Company shall include the Predecessor
Corporation.

         The Predecessor Corporation was incorporated in California on December
30, 1993 with a business strategy of developing and marketing business
simulation software. In December 1993, the Predecessor Corporation purchased
certain assets of the Business Simulation Division (the "Division") of Maxis,
Inc. ("Maxis"), a computer game company and creator of the simulation game
SimCityTM. The assets acquired from Maxis included the Division's equipment,
staff, work-in-progress, customers, prospects, software tools, libraries and
processes.

         In September 1997, we introduced Think 2000, a Year 2000 business
simulation software product. Think 2000 was the first simulation software
product which we internally funded, developed and presented to a broad market.

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We invested significant resources and capital in the development and
commercialization of Think 2000, but changes in marketing conditions and lack of
demand for Year 2000 software products had an adverse effect on the success of
Think 2000. Accordingly, the lack of success of Think 2000 had a material
adverse effect on our business, results of operations and financial condition.

         From our inception until March 1999, we engaged actively in research
and development activities and organizational efforts in developing and
marketing business simulation software. These activities and efforts included
developing and testing software products, recruiting qualified personnel,
establishing marketing and manufacturing capabilities and raising capital.
However, in light of our experience with Think 2000, we contemplated new
business strategies. On April 23, 1999, we eliminated substantially all of our
operations and terminated substantially all of our personnel with the exception
of certain executive and administrative personnel. During the third quarter of
1999, we formulated a new business strategy to establish ourselves as a global
information technology and Internet holding and incubating company. We believe
that we will be able to leverage the financial, intellectual and human
resources of our board of directors and executive officers towards effecting
this strategy.

         Recent Developments.

         On March 7, 2000, we consummated the Tritium Acquisition. In exchange
for StartFree's acquisition of substantially all of the assets and certain of
the liabilities of Tritium, we (a) issued 1,148,798.5 shares of our Series A
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), of
which 979,140.5 shares were delivered to Tritium and 169,658 shares were
delivered into escrow to secure certain indemnification obligations of Tritium
under the purchase agreement, and (b) assumed certain liabilities and
obligations of Tritium. Each share of Series A Preferred Stock is convertible
into 10 shares of our common stock, par value $.001 per share (the "Common
Stock"). The holders of the Series A Preferred Stock have the right to (i) vote
as a class on all matters on which the holders of Common Stock have the right to
vote and (ii) cast the number of votes per share that equals the number of whole
shares of Common Stock into which each share of Series A Preferred Stock is
convertible. The shares of Series A Preferred Stock issued to Tritium are
convertible into an aggregate of 11,487,985 shares of the Common Stock (assuming
the escrowed shares are released to Tritium).

         In consideration for consulting and advisory services rendered in
connection with the Tritium Acquisition, we issued as of December 10, 1999 five
year warrants to Global e-Markets to purchase 2,450,000 shares of Common Stock
at an exercise price of $.50 per share. Also as consideration for consulting and
advisory services relating to the Tritium Acquisition, we issued as of December
10, 1999 five year warrants to each of Fred Knoll and Moshe Zarmi to purchase
549,800 shares of Common Stock and 550,000 shares of Common Stock respectively,
at an exercise price of $.50 per share. Mr. Knoll is the general partner of
Thinking Technologies, L.P. ("Technologies"), which is one of our principal
stockholders, and our Chairman of the Board. Mr. Zarmi is our President and
Chief Executive Officer.

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         In connection with the amendment of the AdSmart Representation
Agreement by and between AdSmart Corporation ("AdSmart") and Tritium (the
"AdSmart Agreement"), we issued warrants (the "AdSmart Warrant") to AdSmart to
purchase an aggregate of up to 1,262,275 shares of Common Stock from time to
time as provided in the AdSmart Warrant, at an exercise price of $.01 per share.
Under the original AdSmart Agreement, AdSmart had similar rights to obtain the
capital stock of Tritium.

         In connection with the Tritium Acquisition, on March 8, 2000 we issued
200 shares of our Series B Preferred Stock, par value $.001 per share (the
"Series B Preferred Stock"), to Fred Knoll. The holder of the Series B Preferred
Stock is entitled to elect seven (7) directors to our Board during the period
ending March 7, 2002 and to elect five (5) directors to the Board or such number
as will constitute a majority of the Board during the period from March 8, 2002
through March 7, 2005. In addition, the Company, Technologies, Fred Knoll,
Tritium and certain of its stockholders entered into a voting agreement
governing, among other things, the election and number of our directors.
Pursuant to this agreement, the parties agreed to vote the securities owned by
them to elect five (5) designees of the Series B Preferred Stock and two (2)
designees of Michael Lee, the founder and principal stockholder of Tritium. See
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."

         Products and Services.

         Through StartFree, we provide consumers free Internet access that is
primarily supported by advertising revenues. In exchange for free Internet
access, users substitute the StartFree network for their current Internet
service provider ("ISP") and use StartFree's proprietary advertising based
dial-up AdVue software ("AdVue") to access the Internet. As part of the dial-up
function, the advertising application is automatically launched each time the
user logs onto the Internet. When a user goes online via the StartFree's network
(the "StartFree Internet Network"), StartFree's AdVue application is launched
automatically thereby occupying the lower 10% of the user's computer screen to
display billboard-like advertisements. Each advertisement appears for a
thirty-second interval before it is replaced with a different advertisement
provided by AdSmart via a rolling "ticker-scroll." The advertisements on the
StartFree Internet Network are interactive and offer users a direct link to the
advertiser's web page.

         StartFree generates revenues from its advertisers and vendors who place
advertisements through the StartFree Internet Network. StartFree is party to an
advertising representation agreement with AdSmart pursuant to which AdSmart
received the AdSmart Warrant in exchange for (a) the procurement of
advertisements for the StartFree Internet Network and (b) a guarantee of
StartFree's advertising revenues. Under the AdSmart Agreement, AdSmart
guarantees to StartFree a base Cost Per Thousand ("CPM") of up to $3.00 for
every one thousand (1,000) advertisements displayed depending on the
click-through rate, regardless of the CPM charged to, or collected from,
advertisers by AdSmart. If AdSmart's sales exceed the $3.00 base CPM per month,
StartFree retains 65% of the amount over $3.00 and

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AdSmart retains 35% of the amount over $3.00. Additionally, StartFree has the
option of withholding up to 25% of its advertising inventory from the AdSmart
Agreement and procuring such advertising from any non-competing advertising
network source or from internal sales.

         StartFree also offers its users free e-mail service and maintains a
database which records user preferences. User preferences are collected by
recording information provided by users in response to (i) StartFree's user
registration form and (ii) monthly on-line surveys conducted by StartFree.
StartFree uses such data to provide vendors with a targeted demographic profile
for increasing the effectiveness of their advertisements. StartFree also has the
capability to offer co-branded advertising content with vendors and to control
the first web page viewed by a StartFree user logging onto the Internet via the
StartFree Internet Network.

         The Tritium Business was launched by Tritium in January 2000. As of
March 31, 2000, StartFree was operational in Atlanta, Boston, Chicago, Dallas,
Los Angeles, New Hampshire, New York City, Philadelphia, San Francisco and
Washington D.C.

         StartFree's business model is unproven and a number of other businesses
offering free Internet access have failed. Since StartFree only began offering
Internet access in the ten markets listed above, it has a limited operating
history, which makes it difficult to evaluate its performance. This risk is
particularly acute because, unlike traditional ISPs, StartFree does not have a
measurable and predictable revenue stream from user access fees. StartFree's
model is intended to focus on the acquisition of users through strategic
relationships and alliances with businesses. There can be no assurance that this
business model will result in profitable operations and be able to generate
sufficient revenue streams to support its current operations and growth
strategy.

         Growth Strategy.

         General. We have a two-fold growth strategy. First, we are seeking to
enter into strategic transactions with companies in the technology or software
fields, whether by merger, acquisition or otherwise, which have the potential
for rapid growth and will increase the value of our current holdings (including
the Tritium Business) and future holdings. Second, we are seeking to expand the
business and operations of our existing holdings, including the Tritium
Business.

         Strategic Transactions. We are seeking to make acquisitions or
undertake other business combinations that can increase the value of our current
or planned business activities. Such acquisitions or business combinations may
not be available at the times or on terms acceptable to us, or at all. In
addition, acquiring, or combining with, a business involves many risks,
including:

         -  disruption of our ongoing business and diversion of resources and
            management time;

         -  unforeseen obligations or liabilities;

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         -  difficulty assimilating the acquired operations and personnel;

         -  risks of entering markets in which we have little or no direct prior
            experience;

         -  potential impairment of relationships with employees or users as a
            result of changes in management; and

         -  potential dilutive issuances of equity, large and immediate
            write-offs, the incurrence of debt, and amortization of goodwill or
            other intangible assets.

         We cannot assure you that we will make any acquisitions or business
combinations or that we will be able to obtain additional financing for such
acquisitions or combinations, if necessary. If any acquisitions or combinations
are made, we cannot assure you that we will be able to successfully integrate
the acquired or combined business into our operations or that the acquired or
combined business will perform as expected.

         Tritium Business. StartFree plans to expand the Tritium Business by (a)
creating alliances and joint ventures with, among others, corporations, foreign
small ISPs, not-for-profit corporations and banks through its StartFree Internet
Network advertising and database capabilities, (b) increasing its user base in
its current markets, (c) attracting users in new markets, including the European
and Asian markets and (d) aligning itself with our future holdings to produce
synergies. We hope to create alliances with vendors through StartFree's ability
to (i) offer co-branded advertising content with its vendors and (ii) provide
sponsors with targeted advertising opportunities based on StartFree's ability to
generate user demographics from its network database. Additionally, we believe
that the proposed acquisition of AdSmart by Engage Technologies, a majority
owned operating company of CMGI, Inc., may allow us to procure higher value
advertisements through the integration of StartFree's aggregate user data with
Engage's profiling methodologies.

         Competition.

         General. We expect to encounter intense competition from other entities
having business objectives similar to ours. Many of these entities are well
established and have extensive experience in connection with identifying and
effecting transactions directly or through affiliates. Many of these competitors
possess greater financial, technical, human and other resources than us and
there can be no assurance that we will have the ability to compete successfully.
Our financial resources will be limited in comparison to those of any of our
competitors. There can be no assurance that such prospects will permit us to
satisfy our stated business objectives.

         Tritium Business. StartFree competes for Internet users, advertising
customers and port/dial-up facility availability.

         Internet users. We believe that the primary competitive factors
determining success in the market for Internet users include a reputation for

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reliability of service, effective customer support, pricing, easy-to-use
software and scope of services. Other important factors include the timing and
introduction of new products and services and industry as well as general
economic trends, including increased demand for both free and paid Internet
access. While we believe that we compete favorably with respect to these
factors, numerous competitors may have an advantage over us with respect to
specific factors. We currently compete with established online service and
content providers, such as America Online, The Microsoft Network, independent
national ISPs such as EarthLink, MindSpring and Prodigy, numerous regional and
local commercial ISPs, and portals and search engines such as Yahoo! and Alta
Vista (which also recently has entered the free Internet access market). Some of
these providers offer significantly greater customer support and scope of
services than we currently offer, such as instant messaging and online content.
We also compete against other companies that offer free Internet access services
or free products, such as personal computers, bundled with, or as promotions
for, access services, and we expect that more companies will begin to offer such
services or products in the future. We also compete with, and expect increased
competition from, telecommunications service providers, such as AT&T, GTE and
MCI WorldCom. These companies generally have far greater resources, distribution
channels and brand awareness as well as lower costs because they control the
telecommunications services we are required to purchase. This cost advantage,
which could result in significant discounts to the user, could significantly
increase competitive pressures on us. We also believe that new competitors,
including large computer hardware and software, media and telecommunications
companies, will continue to enter the Internet access market and that our
competition will increase as large diversified telecommunications and media
companies acquire ISPs and as ISPs consolidate into larger, more competitive
companies. Diversified competitors may also bundle other services and products
with Internet connectivity services, potentially placing us at a significant
competitive disadvantage.

         We also face competition from companies that provide broadband
connections to users' homes, including local and long-distance telephone
companies, cable television companies, electric utility companies, and wireless
communications companies. These companies may use broadband technologies to
include Internet access or business services such as hosting a user's individual
Web-site in their basic bundle of services or may offer Internet access or
business services for little or no additional charge. Broadband technologies
enable users to access the Internet at much faster speeds than the dial-up
service we currently offer. While the market for the provision of free broadband
access is still an emerging market, we believe that this market will continue to
grow and pose an increasingly significant source of competition. We may provide
free broadband access once this market matures.

         Advertising Customers. We believe that the primary competitive factors
determining success in the market for advertising customers include:

         -  the size and demographic profile of a user base;

         -  the ability to target users based on specific demographic criteria;

         -  pricing; and

         -  geographic coverage.

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         Because of our relationship with AdSmart, we believe that we compete
favorably with respect to these factors. However, numerous of our competitors
may have an advantage over us with respect to specific factors. We compete for
Internet advertising and sponsorship revenues with major ISPs, content
providers, large Web publishers, Web search engine and portal companies,
Internet advertising providers, content aggregation companies, and various other
companies which facilitate Internet advertising. Many of these companies have
longer operating histories, greater name recognition, larger user bases and
significantly greater financial, technical, sales and marketing resources than
we do. This may allow them to respond more quickly than we can to new or
emerging technologies and changes in advertiser requirements. It may also allow
them to devote greater resources than we can to the development, promotion and
sale of their products and services. These competitors may also engage in more
extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, strategic partners, advertisers and
Web publishers. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products or services to address the
needs of our prospective advertising and sponsorship customers. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share. We also compete with television, radio, cable and print
media for a share of advertisers' total advertising budgets.

         We believe that StartFree is positioned favorably to compete in the
market for Internet users and advertisers. StartFree differentiates itself from
other subscriber based ISP's by providing users with (a) free unlimited Internet
access; (b) free e-mail service; (c) an open platform to any Internet
application or software; (d) free StartFree dial-up Internet software; and (e)
free copies of Netscape, Internet Explorer, Eudora Lite and Net Nanny software.
Additionally, StartFree plans to enhance its competitive position by providing
other co-bundled software packages and leveraging its pending patents on
bandwidth management to improve the speed of users' connections and its pending
patent on the free Internet access business model.

         StartFree differentiates the StartFree Internet Network from other
advertising media by providing advertisers with (a) demographic profile of
registered users via the StartFree Internet Network database; (b) a captive
audience for advertisements which appear continuously during a user's Internet
session as opposed to appearing only when a user accesses a specific web site;
(c) StartFree's ability to control the first web page viewed by a user upon
initiating an Internet session; (d) advertisements providing direct links to the
advertiser's web page; (e) the ability to offer co-branded advertisements with
StartFree; (f) advertisements which appear as a "billboard" on the bottom of a
user's screen and rotate every thirty seconds via a "rolling ticker" as opposed
to static, page-based banner advertisements; and (g) the base application to
which additional multi-media plug-ins can be built in or delivered unobtrusively
which results in increased applications for advertisers' creative works.
StartFree intends to increase its media offerings by providing richer media and
video advertisements in conjunction with the development of its bandwidth
management technologies. We believe our competitive position is also enhanced by
being one of the few free ISPs which has a guaranteed advertising revenue
arrangement.

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         There are no assurances that StartFree will be able to compete
favorably or at all with other ISPs for users and advertising customers.


         Suppliers.

         StartFree has two principal suppliers, Level 3 Communications ("Level
3"), which provides dial-up facilities, and Intermedia Communications Inc.,
which provides the Internet backbone connections. Although Level 3 has a
reported six-month wait-list to sign up for additional port facilities,
StartFree has reserved with Level 3 sufficient facility allocations to handle
its expected needs in the foreseeable future and will continue to increase its
future reservations in advance of its growth projections. Although StartFree has
secured port pricing prior to recent price adjustments, there is no guarantee
that this pricing will remain fixed or that such facilities will be available in
the future. Such changes could affect StartFree's growth and/or impact profit
margins.

         Dependence on Customers.

         Tritium Business. As of the date hereof, StartFree is dependent upon
AdSmart to generate advertising sponsors for the StartFree Internet Network. The
failure of AdSmart to generate sufficient advertising sponsors or to perform its
obligations under the AdSmart Agreement or lower than expected performance of
the AdVue application resulting in diminished base revenues would have a
material adverse effect on our results of operations, financial condition and
ability to continue as a going concern.

         Proprietary Rights.

         We believe that our success (including the success of StartFree) is in
part dependent upon internally developed technologies and trademarks, which we
protect and will protect through a combination of patent, copyright, trade
secret and trademark law.

         We have retained our proprietary rights in our discontinued products,
including without limitation, Think 2000 and the business simulation software
acquired from Maxis. Prior to the Tritium Acquisition, Tritium filed in the
United States Patent and Trademark Office (a) trademark registrations for the
trademarks "Tritium," "Tritium Network" and "Powered by Tritium"; (b) a service
mark registration for the service mark "Access the Future" which is pending ;
and (c) patent applications for United States Patent Application Serial No.
08/758,872 filed on December 2, 1996 and entitled "Dead-Bandwidth Information
System", and the divisional application based thereon regarding the provision of
free access business model, identified as United States Patent Application
Serial No. 09/503,794 filed on February 14, 2000 (collectively, the "Tritium
Property"). As part of the Tritium Acquisition, Tritium assigned its rights in
the Tritium Property to StartFree.

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         We enter into confidentiality agreements with our employees,
consultants and commercial partners and generally control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our attempts to protect our proprietary rights from
unauthorized use, disclosure and misappropriation, parties may attempt to
disclose, obtain or use our technologies. We cannot be certain that the steps we
have taken to protect our proprietary rights will prevent unauthorized use,
disclosure or misappropriation, particularly in foreign countries where the laws
or law enforcement may not protect its proprietary rights as fully as in the
United States. In addition, third parties may develop independently similar
know-how and products. Such unauthorized use, disclosure, misappropriation or
development of similar know-how may have a material adverse effect on our
results of operations and financial condition.

         We cannot be certain that any of our proprietary rights will be viable
or of value in the future since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving. In particular, there can be no assurance that any of our patent,
trademark or copyright applications, now pending or to be filed in the future,
will be approved. Even if they are approved, they may be successfully challenged
by others or invalidated. Such non-approval or invalidation of intellectual
property rights may have a material adverse effect on our results of operations
and financial condition.

         Furthermore, third parties may assert infringement claims against us.
We have no reason to believe that we are infringing upon the proprietary rights
of a third party. However, from time to time, we may be subject to claims in the
ordinary course of business, including claims of alleged infringement by us or
our Internet of the trademarks, patents and other intellectual property rights
of third parties. Any such claims, or resulting litigation could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. In addition, even if we were to prevail in litigation, such
litigation would be time consuming, expensive to defend and divert management's
time and attention, any of which could materially adverse effect our business,
results of operations and financial condition. Any claims or litigation may also
result in limitations on our ability to use such trademarks, patents or other
intellectual property unless we enter into arrangements with such third parties,
which may be unavailable on commercially reasonable terms.

         Government Regulation.

         General. We are subject to regulation under various federal and state
laws regarding, among other things, occupational safety, environmental
protection, hazardous substance control and product advertising and promotion.
We believe that we have complied with these laws and regulations in all material
respects and we have not been required to take any action to correct any
material noncompliance.

         Tritium Business. The law relating to the Internet business and
operations is evolving and no clear precedents have been established. In
addition, a number of legislative and regulatory proposals under consideration
by federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning online content, user privacy, taxation, parental
consent for access by their minor children, access charges, liability for
third-party activities, bulk e-mail or "spam", encryption standards, online

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sales of goods and services, domain name registration and use, copyright
infringement, and other intellectual property issues.

         Regulation of Content and Access. A variety of restrictions on content
and access, primarily as they relate to children, have been enacted or proposed.
The Children's Online Privacy Protection Act of 1998 prohibits and imposes
criminal penalties and civil liability on anyone engaged in the business of
selling or transferring, by means of the World Wide Web, material that is
harmful to minors, unless access to this material is blocked to persons under 17
years of age. In addition, the Federal Telecommunications Act of 1996 imposes
fines on any entity that knowingly permits any telecommunications facility under
such entity's control to be used to make obscene or indecent material available
to minors via an interactive computer service. Numerous states have adopted or
are currently considering similar types of legislation. In addition, laws have
been proposed which would require ISPs to supply, at cost, filtering
technologies to limit or block the ability of minors to access unsuitable
materials on the Internet. Because of these content restrictions and potential
liability to us for materials carried on or disseminated through our systems, we
may be required to implement measures to reduce our exposure to liability.

         User Privacy Issues. Internet user privacy has become an issue both in
the United States and abroad. Some commentators, privacy advocates and
government bodies have recommended or taken actions to limit the use of personal
profiles or other personal information by those collecting such information,
particularly as it relates to children. For example, the Children's Online
Privacy Protection Act of 1998 requires, among other things, that online
operators obtain verifiable parental consent for the collection, use, or
disclosure of personal information from children. The Act further mandates that
the Federal Trade Commission publish regulations for the collection of data from
children by commercial Web-site operators. We cannot predict the exact form of
the regulations that the FTC may finally adopt.

         Internet Taxation. The tax treatment of activities on or relating to
the Internet is currently unsettled. A number of proposals have been made at the
federal, state and local levels and by foreign governments that could impose
taxes on the online sale of goods and services and other Internet activities.
Recently, the Internet Tax Information Act was signed into law, placing a three-
year moratorium on new state and local taxes on Internet commerce. However,
there can be no assurance that future laws imposing taxes or other regulations
on commerce over the Internet would not substantially impair the growth of
Internet commerce and as a result could make it cost-prohibitive to operate our
business.

         Telecommunications Regulation. As an ISP, we are not currently directly
regulated by the Federal Communications Commission ("FCC") or any other agency,
other than regulations applicable to businesses generally. In a report to
Congress adopted on April 10, 1998, the FCC reaffirmed that ISPs should be
classified as unregulated "information service providers", rather than regulated
"telecommunications providers" under the terms of the Telecommunications Act of
1996. This finding is important because it means that regulations that apply to
telephone companies and similar carriers do not apply to us. We also are not
required to contribute a percentage of our gross revenues to support "universal
service" subsidies for local telephone services and other public policy

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objectives, such as enhanced communications systems for schools, libraries, and
some health care providers. The FCC action is also likely to discourage states
from regulating ISPs as telecommunications carriers or imposing similar subsidy
obligations.

         Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the FCC stated its
intention to consider whether to regulate voice and fax telephony services
provided over the Internet as "telecommunications" even though Internet access
itself would not be regulated.

         We could also be affected by any change in the ability of our users to
reach our network through a dial-up telephone call without any additional
charges. The FCC has ruled that connections linking end users to their ISPs are
jurisdictionally interstate rather than local, but the FCC did not subject such
calling to the access charges that apply to traditional telecommunications
companies. Local telephone companies assess access charges to long distance
companies for the use of the local telephone network to originate and terminate
long distance calls, generally on a per-minute basis. We could be adversely
affected by any regulatory change that would result in the application of access
charges to ISPs because this would substantially increase the cost of using the
Internet. Since the largest component of our operating costs is comprised of
telecommunications costs, any increase in such costs would have a material
adverse effect on our gross margins and revenues.

         State public utility commissions generally have declined to regulate
enhanced or information services. Some states, however, have continued to
regulate particular aspects of enhanced services in limited circumstances, such
as where they are provided by incumbent local exchange carriers that operate
telecommunications networks. Moreover, the public service commissions of some
states continue to review potential regulation of these services. We cannot
assure you that state regulatory authorities will not seek to regulate aspects
of these activities as telecommunications services.

         Federal and State Taxes - Acquisitions, Mergers, Asset Purchases. As a
general rule, Federal and state tax laws and regulations have a significant
impact upon the structuring of transactions. We will evaluate the possible tax
consequences of any prospective transaction and will endeavor to structure a
transaction so as to achieve the most favorable tax treatment. There can be no
assurance that the Internal Revenue Service or relevant state tax authorities
will ultimately assent to our tax treatment of a particular consummated
transaction. To the extent the Internal Revenue Service or any relevant state
tax authorities ultimately prevail in recharacterizing the tax treatment of a
transaction, there may be adverse tax consequences to ourselves, a target
business and their respective stockholders. Tax considerations as well as other
relevant factors will be evaluated in determining the precise structure of a
particular transaction, which could be effected through various forms of a
merger, consolidation or stock or asset acquisition.

                                       13
<PAGE>

         Research and Development Expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

         Environmental Compliance.

         We have not incurred any materials costs necessary for compliance with
environmental laws.

         Employees.

         As of December 31, 1999, we employed one (1) person, Moshe Zarmi, our
President and Chief Executive Officer. In addition, Fred Knoll, Patricia Kessler
and Charles Isaacs provide certain services on a consulting basis. As of March
31, 2000, after giving effect to the Tritium Acquisition, we (including
StartFree) employed eight (8) people. StartFree's employees include its
president, chief technological officer, vice president of network operations,
senior engineer, vice president of marketing, an office manager, an advisor and
a network administrator None of our employees are represented by a labor
organization, and we consider our relationship with our employees to be good.

         We are largely dependent upon the personal efforts of our senior
management, particularly Moshe Zarmi, our President and Chief Executive Officer,
Fred Knoll, our Chairman, and Michael Lee, StartFree's President. Each of these
persons can terminate his employment at any time. The loss or unavailability of
any of these persons or our inability to attract and retain qualified employees
(including senior management) to operate the business and implement our growth
strategies could have a material adverse effect on our results of operations and
financial condition. There is no assurance that we will be able to attract and
retain qualified employees (including senior management) to operate the business
and implement our growth strategies.

         Cautionary Statements Regarding Forward-Looking Statements.

         Statements in this Annual Report on Form 10-KSB under the captions
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as statements made in press
releases and oral statements that may be made by us or by our officers,
directors or employees acting on our behalf, that are not statements of
historical fact, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
could cause our actual results to be materially different from the historical
results or from any future results expressed or implied by such forward-looking
statements. In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes," "belief," "expects," "plans," "anticipates," or "intends" to be
uncertain and forward-looking. All cautionary statements made in this Annual
Report on Form 10-KSB should be read as being applicable to all related
forward-looking statements wherever they appear. Investors should consider the
risk factors described elsewhere in this Annual Report on Form 10-KSB.

                                       14
<PAGE>

Item 2. DESCRIPTION OF PROPERTY.

         Our principal offices are located at 200 Park Avenue, New York, New
York, where all executive functions at performed. StartFree leases premises
located at 9356 Montgomery Road, Suite 200, Cincinnati, Ohio, where the
operations of the Tritium Business are performed and its Internet network is
located. It leases this premises of approximately 2,000 square feet and pays
annual rent of $21,000 under a month-to-month lease.

         In May 1999, we vacated our former principal offices which were located
at One Lower Ragsdale Drive, 1-250, Monterrey, California 93940. We had leased
approximately 5,046 square feet at this location pursuant to a lease which
expired in September 1999. We made lease payments in the amount of $38,000 under
such lease during 1999 including common area charges. In December 1997, we
restructured and consolidated our operating facilities and closed one of our
offices located at 6541 Via Del Oro, San Jose, California 95119. We subleased
these premises in March 1998. The sublessor is currently paying all lease
payments, but we retain the responsibilities of the lease. The lease expires on
April 30, 2001. We do not anticipate any additional lease payments during the
year ending December 31, 2000.


Item 3. Legal Proceedings.

         We are not involved in any pending material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

         No matters were submitted to our security holders for a vote during the
year ended December 31, 1999.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

         Our Common Stock is quoted on the OTC Bulletin Board under the symbol
"TSIM." Our Common Stock traded on the Nasdaq SmallCap Market from October 25,
1996 until October 7, 1998.

         The following table sets forth the quarterly high and low bid prices of
a share of Common Stock as reported by the Nasdaq SmallCap Market and the OTC
Bulletin Board for the period commencing January 1, 1998, and ending on December
31, 1999.

                                       15
<PAGE>

             Period                                  High                 Low
             ------                                  ----                 ---
             Fiscal 1999
             First Quarter                           1.34                .22
             Second Quarter                           .44                .19
             Third Quarter                            .80                .31
             Fourth Quarter                          4.00                .51

             Fiscal 1998
             First Quarter                           6.37               2.50
             Second Quarter                          4.50               1.31
             Third Quarter                           3.56                .43
             Fourth Quarter                            .5                .09

         On October 7, 1998, Nasdaq delisted our stock from the Nasdaq SmallCap
Market due to our failure to maintain compliance with certain quantitative
requirements. The effects of delisting include, without limitation, the limited
release of market prices of our securities, limited news coverage of us, and
restriction of investors' interest in us, and may adversely materially affect
the trading market and prices for our securities, thereby affecting our ability
to issue additional securities or secure additional financing.

         In addition, our securities are penny stocks under the Securities
Enforcement Penny Stock Reform Act of 1990. Additional disclosure is required in
connection with trading in our securities, including determination of a
purchaser's suitability and delivery of a disclosure schedule explaining the
nature and risk of the penny stock market. In addition, a broker or dealer is
required to send monthly statements disclosing recent price information with
respect to the penny stock held in a customer's account and information with
respect to the limited market in penny stocks. Such requirements could severely
limit the liquidity of our securities. Although there is no assurance that our
securities will become listed again on the Nasdaq SmallCap Market, we intend to
reapply when we are able to comply with Nasdaq's listing requirements.

         The number of holders of record for our Common Stock as of December 31,
1999 was approximately fourteen (14). This number excludes individual
stockholders holding stock under nominee security position listings.

         We did not pay any dividends on the Common Stock since our inception
and do not intend to pay any cash dividends to our stockholders in the
foreseeable future. We currently intend to reinvest earnings, if any, in the
development and expansion of our business.

                                       16
<PAGE>

         Sales of Unregistered Securities. In the past three years, we have made
the following sales of unregistered securities, all of which sales were exempt
from the registration requirements of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act"), pursuant to
Section 4(2) thereof or as otherwise indicated herein.

         In November 1998, we granted Technologies the right to purchase 350
units (each, a "Bridge Unit") for $1,000 per Bridge Unit (the "1998 Bridge
Financing"). Each Bridge Unit consisted of a Secured Convertible Note in the
principal amount of $1,000 and earning interest at a rate of 10% per annum
(each, a "Bridge Note") and a warrant to purchase 200 shares of the Common Stock
at an exercise price of $0.20 per share with no vesting period (each, a "Bridge
Warrant"). Each Bridge Note was convertible into 5,000 shares of the Common
Stock, and upon conversion of each Bridge Note, a Bridge Warrant was to be
terminated without any further consideration. Technologies purchased
approximately 393 Bridge Units for an aggregate purchase price of $392,992.14.
As of December 31, 1999, Technologies had converted all of the 393 Bridge Notes
(including accrued interest and expenses incurred by Technologies in an amount
equal to $69,000) into 1,964,961 shares of our Common Stock. There are no Bridge
Units currently outstanding.

         Proceeds of the 1998 Bridge Financing were used for working capital and
general corporate purposes. In connection with the 1998 Bridge Financing, we
agreed to reimburse Technologies for certain expenses incurred by it in
performing advisory and consulting services relating to a strategic transaction.

         In July 1999, we sold 150 units (the "Gem Units") to Gem Management
Limited ("Gem") for an aggregate purchase price of $150,000 (the "Gem
Financing"). Each Gem Unit consisted of an Unsecured Convertible Note in the
principal amount of $1,000 and earning interest at a rate of 10% per annum
(each, a "Gem Note") and a warrant to purchase 30 shares of our Common Stock at
an exercise price of $0.20 per share with no vesting period (each, a "Gem
Warrant"). Each Gem Note was convertible into 5,000 shares of the Common Stock,
and upon conversion of each Gem Note a Gem Warrant was to be terminated without
any further consideration. As of December 31, 1999, Gem had converted
approximately 155.5 Gem Notes (including accrued interest in an amount equal to
$5,500) into 777,518 shares of Common Stock. There are no Gem Units currently
outstanding. Proceeds of the Gem Financing were used for working capital and
general corporate purposes.

         Effective as of December 10, 1999, Mr. Knoll agreed to exchange accrued
salary of $176,450 owed to him by us for options to purchase 352,900 shares of
Common Stock at a purchase price of $0.50 per share. Also, effective as of
December 10, 1999 in connection with consulting and advisory services rendered
in connection with the Tritium Acquisition, we issued (i) warrants to Global
e-Markets to purchase 2,450,000 shares of Common Stock at an exercise price of
$.50 per share, (ii) warrants to Mr. Knoll to purchase 549,800 shares of Common
Stock at an exercise price of $.50 per share; and (iii) warrants to Mr. Zarmi to
purchase 550,000 shares of Common Stock at an exercise price of $.50 per share.

         In November and December 1999, we entered into financing agreements
with outside investors. Such investors agreed to purchase an aggregate of
2,000,000 shares of Common Stock for $1,000,000, $500,000 of which was advanced
to Tritium pursuant to a bridge note

                                       17
<PAGE>

and $100,000 of which was advanced to the Company for working capital. On March
7, 2000, upon the closing of the Tritium Acquisition, the outstanding bridge
note and advance were repaid, and a total of 2,300,000 shares of Common Stock
was purchased by investors for $1,150,000.

         On March 7, 2000, in connection with the Tritium Acquisition, we issued
(i) 1,148,798.5 shares of Series A Preferred Stock to Tritium, which shares are
convertible into an aggregate of 11,487,985 shares of Common Stock at such time
as we increase the authorized number of shares of Common Stock; (ii) 200 shares
of Series B Preferred Stock to Mr. Knoll, which shares are convertible into 200
shares of Common Stock at any time or automatically after March 7, 2005; and
(iii) warrants to AdSmart to purchase an aggregate of 1,262,275 shares of Common
Stock at an exercise price of $.01 per share.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

         The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto appearing elsewhere in this
Annual Report on Form 10- KSB.

         Overview.

         From our inception through April 1999, we engaged in research and
development activities including the development of our initial products
(developing and marketing simulation software), recruiting personnel,
establishing marketing and manufacturing capabilities and raising capital. To
date, we have not generated substantial revenues from the sale of our products.
Revenues generated through October 30, 1997 were primarily derived from software
development projects completed under contracts.

         During 1998, we focused primarily on the commercial introduction of
Think 2000, a Year 2000 risk simulation software program, which was introduced
in September 1997. Think 2000 was the first simulation product that we funded
and brought to a broader market. We made a significant investment in the
development and commercialization of Think 2000. However, change in market
conditions resulted in a lack of interest in Y2K products and thus culminated in
the failure to successfully commercialize Think 2000.

         In March 1999, in light of the changes in market conditions and our
failure to commercialize Think 2000, we eliminated substantially all of our
operations and terminated all personnel other than those required to perform
certain executive and administrative functions. We have retained the technology
underlying the products that we discontinued.

         During the second half of 1999, we moved forward with our new strategy
to establish ourselves as a global information technology and Internet holding
and incubating company. We focused on locating and entering into transactions
with existing, public or privately-held companies which, in our view, have
growth potential and may be involved in the software or technology industry (a
"Target Business").

                                       18
<PAGE>

         In March 2000, we consummated the Tritium Acquisition.

         We intend to continue to seek to enter into additional transactions
with Target Businesses. To that end, we are currently engaged in negotiations
with a few candidates. A combination may be structured as a merger,
consolidation, exchange of our Common Stock for stock or assets or any other
form which will result in the combined enterprise remaining a publicly-held
corporation.

         Results of Operations.

         Comparison of Years Ended December 31, 1999 and 1998.

         Revenues. Revenues for the year ended December 31, 1999 decreased by
$266,000 or 74% to $92,000 from $358,000 for the year ended December 31, 1998.
During 1998 and during the first quarter of 1999, our revenues consisted
primarily of sales of our software product.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $766,000, or 35%, for the year ended
December 31, 1999, to $2,981,000 from $2,215,000 for the year ended December 31,
1998. Selling, general and administrative expenses consisted primarily of
nonrecurring noncash stock compensation expense of approximately $2,877,000 in
connection with the Tritium Acquisition, the 1998 Bridge Financing, and the Gem
Financing during 1999. Additionally, approximately $261,000 of accrued 1998
bonuses will not be advanced and the adjustment is reflected as a reduction in
total costs of Selling, General and Administrative Expenses.

         Research and Development. Research and development expenses for the
year ended December 31, 1999 decreased by $1,306,000, or 92%, to $121,000 from
$1,427,000 for the year ended December 31, 1998. Research and development costs
consisted primarily of wages and benefits. The 1999 decrease in research and
development expense was due primarily to closing the Monterey facility and
shifting to the commencement of our new business strategy.

         Interest Income. Interest income for the year ended December 31, 1999
decreased by $48,000 or 100% from $48,000 for the year ended December 31, 1998
to nil. The interest earned decreased primarily due to a reduction in the
balance of proceeds raised from our initial public offering in 1996. These funds
were the sole generator of interest earned from 1996 through 1998.

         Interest Expense. Interest expense for the year ended December 31, 1999
increased by $276,600, to $276,800, from $200 for the year ended December 31,
1998. The increase was due to the interest expense associated with the 1998
Bridge Financing and the Gem Note and the interest attributable to the
beneficial conversion feature.

                                       19
<PAGE>

         Other Expenses, Net. Other expenses for the year ended December 31,
1999 decreased by 248,000 or 100%, to nil from $248,000 for the year ended
December 31, 1998. These expenses were primarily due to the write-offs
associated with deferred stock compensation and the losses on sales of certain
fixed assets and from the impairment of fixed assets. There were no expenses of
this nature in 1999.

         Net Loss. As a result of the foregoing, net loss for the year ended
December 31, 1999 decreased by $198,000 or 6% to $3,286,000 from $3,484,000 for
the year ended December 31, 1998.

         Liquidity and Capital Resources.

         To date, our operations have been funded primarily through private
sales of debt and equity securities and our initial public offering of
securities consummated in 1996.

         Since our inception and through December 31, 1999, we incurred
cumulative losses aggregating approximately $15,496,000 and have not experienced
any quarter of profitable operations. We expect to continue to incur operating
losses for the foreseeable future, principally as a result of expenses
associated with launching the Tritium Business (Startfree.com) and our continued
efforts towards locating Target Business. The primary uses of cash have been to
fund basic overhead expenses while we pursued Target Business and developed
potential outside sources to provide necessary funds to continue our strategy of
locating new Target Businesses.

         At December 31, 1999, we had cash and cash equivalents of approximately
$112,000, a negative working capital of approximately $323,000 and a
shareholders' deficiency of approximately $354,000. At December 31, 1999, we had
long-term liabilities of approximately $5,000 outstanding.

         Our operating activities used cash of approximately $434,000 and
$2,585,000 in 1999 and 1998, respectively. The funds were used for our product
development and to fulfill general operating expenses during 1998.

         Our financing activities generated cash of approximately $531,000 for
the year ended December 31, 1999 and used cash of approximately $3,000 for the
year ended December 31, 1998.

         We anticipate that our expenses will increase as we attempt to expand
our business and locate and enter into transactions with Target Businesses. We
expect to continue to incur losses for the foreseeable future. Our capital
requirements will depend upon the numerous contingencies associated with early
stage companies, including the ability of StartFree or any other Target Business
to generate revenues. Our continued existence is dependent on our ability to
negotiate additional acquisitions, to raise additional financing and to develop
successful future operations. We also expect to incur significant charges to
income in connection with our recent acquisition of Tritium and the warrants
issued in connection therewith. The Report of Independent Accountants for the

                                       20
<PAGE>

year ended December 31, 1999 includes an explanatory paragraph indicating that
there is substantial doubt as to our ability to continue as a going concern.

         The costs we have incurred related to Year 2000 compliance have not
been material to our business, results of operations or financial condition. We
have experienced no Year 2000 problems. In the event that we do encounter such
problems (either within our own systems or with regard to a prolonged data
communication, telecommunications or electrical failure), we could be required
to expend additional resources or lose revenues.

Item 7. Financial Statements

         The Financial Statements and Notes thereto can be found beginning on
page F-1, "Index to Financial Statements" at the end of this Form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure


         We filed a Form 8-K with the Securities and Exchange Commission with a
Report Date of July 23, 1999, in connection with the resignation of Deloitte &
Touche LLP ("Deloitte") as the Company's independent accountants, effective as
of the close of business July 16, 1999. Deloitte's report on the Company's
financial statements during the past two years contained no adverse opinion or
disclaimer of opinion, and was not qualified or modified as to audit scope or
accounting principles. Deloitte had not issued a report on the Company's
financial statements for the year ended December 31, 1998. For the year ended
December 31, 1997, Deloitte's report on the Company's financial statements was
unqualified and included an explanatory paragraph concerning certain factors
which raise substantial doubt about the Company's ability to continue as a going
concern. During the Company's two most recent fiscal years and subsequent
interim period through the date of Deloitte's resignation, there had been no
disagreements with Deloitte on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. During the two
most recent fiscal years and through July 16, 1999, there were no reportable
events as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

         A Form 8-K was filed on August 17, 1999 in connection with the
engagement of Druker, Rahl & Fein as our independent accountants.

         PART III

         Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

         The information required to be disclosed under this item will be
incorporated by reference from either the Company's definitive proxy statement
if filed by April 29, 2000 or by amendment to this Form 10-KSB prior to April
30, 2000.

                                       21
<PAGE>

         Item 10. Executive Compensation.

         The information required to be disclosed under this item will be
incorporated by reference from either the Company's definitive proxy statement
if filed by April 29, 2000 or by amendment to this Form 10-KSB prior to April
30, 2000.

         Item 11. Security Ownership of Certain Beneficial Owners and
Management.

         The information required to be disclosed under this item will be
incorporated by reference from either the Company's definitive proxy statement
if filed by April 29, 2000 or by amendment to this Form 10-KSB prior to April
30, 2000.

         Item 12. Certain Relationships and Related Transactions.

         The information required to be disclosed under this item will be
incorporated by reference from either the Company's definitive proxy statement
if filed by April 29, 2000 or by amendment to this Form 10-KSB prior to April
30, 2000.

         Item 13. Exhibits, List and Reports on Form 8-K.

         The information required to be disclosed under this item will be
incorporated by reference from either the Company's definitive proxy statement
if filed by April 29, 2000 or by amendment to this Form 10-KSB prior to April
30, 2000.

                                       22
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

THINKING TOOLS, INC.

By:  /s/ Moshe Zarmi
      Name:  Moshe Zarmi
     Title:     President, Chief Executive Officer and Director

Date:  April 14, 2000

         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of Company in the
capacities and on the dates indicated.

/s/ Moshe Zarmi
----------------------------
Name: Moshe Zarmi
Title: President, Chief Executive
       Officer and Director

/s/ Marc Cooper
----------------------------
Marc Cooper, Director

Dated:  April 14, 2000


----------------------------
Esther Dyson, Director

Dated: April 14, 2000

/s/ Frederick Gluck
-----------------------------
Frederick Gluck, Director

Dated: April 14, 2000

/s/ Fred Knoll
----------------------------
Fred Knoll, Director

Dated: April 14, 2000


---------------------------
Dr. Ted Prince, Director

Dated: April 14, 2000


----------------------------
Fran Saldutti, Director

                                       23

<PAGE>

                              THINKING TOOLS, INC.

                     YEARS ENDED DECEMBER 31, 1999 AND 1998




<PAGE>



                              THINKING TOOLS, INC.

                          INDEX TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1999 AND 1998





                                                                       Page
                                                                      Number

INDEPENDENT AUDITORS' REPORT............................................F-2-3

FINANCIAL STATEMENTS

         Balance Sheets...................................................F-4

         Statements of Operations.........................................F-5

         Statements of Shareholders' Deficiency...........................F-6

         Statements of Cash Flows.........................................F-7

         Notes to Financial Statements.................................F-8-19



<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
         Thinking Tools, Inc.:

We have audited the accompanying balance sheets of Thinking Tools, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thinking Tools, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

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

DRUKER, RAHL & FEIN



Hamilton, New Jersey

March 15, 2000

                                       F-1


<PAGE>
                              THINKING TOOLS, INC.
                                 BALANCE SHEETS
                           December 31, 1999 and 1998

(In thousands, except share and per share amounts)

                                                     1999           1998
                                                 ------------   ------------
ASSETS

CURRENT ASSETS:
   Cash and equivalents                          $        112   $          2
   Accounts receivable                                     --             53
                                                 ------------   ------------
      Total current assets                                112             55

PROPERTY AND EQUIPMENT, Net                                10             56

OTHER ASSETS
   Deposits and other assets                               64             12
                                                 ------------   ------------
TOTAL ASSETS                                     $        186   $        123
                                                 ============   ============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
   Accounts payable                              $        232   $        282
   Accrued expenses                                       203            638
   Notes payable                                           --             85
   Deferred revenues                                       --             22
   Current portion of capital lease obligations            --              3
                                                 ------------   ------------
      Total current liabilities                           435          1,030

LONG TERM DEPOSITS                                          5             10
                                                 ------------   ------------
      Total liabilities                                   440          1,040
                                                 ------------   ------------
COMMITMENTS AND CONTINGENCIES

INVESTOR ADVANCE                                          100             --
                                                 ------------   ------------
SHAREHOLDERS' DEFICIENCY
   Preferred stock, $.001 par value;
    3,000,000 shares authorized; no
    shares issued and outstanding                          --             --
   Common stock, $.001 par value;
    20,000,000 shares authorized;
    shares issued and outstanding;
    7,384,237 at 1999 and 4,641,758
    at 1998              `                                  7              5
   Additional paid-in capital                          16,010         11,288
   Deferred Stock Compensation                           (875)            --
   Accumulated deficit                                (15,496)       (12,210)
                                                 ------------   ------------
      Total shareholders' deficiency                     (354)          (917)
                                                 ------------   ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY   $        186   $        123
                                                 ============   ============


                       See notes to financial statements.

                                       F-2

<PAGE>
                              THINKING TOOLS, INC.
                                 BALANCE SHEETS
                           December 31, 1999 and 1998

(In thousands, except per share amounts)

                                                     1999           1998
                                                 ------------   ------------
REVENUES
   Product                                       $         92   $        358
                                                 ------------   ------------

OPERATING EXPENSES
   Selling, general and administrative                  2,981          2,215
   Research and development                               121          1,427
                                                 ------------   ------------

      Total operating expenses                          3,102          3,642
                                                 ------------   ------------

LOSS FROM OPERATIONS                                   (3,010)        (3,284)
                                                 ------------   ------------

OTHER INCOME (EXPENSE)
   Interest expense                                      (276)            --
   Interest income                                         --             48
   Other expense                                           --           (248)
                                                 ------------   ------------

      Total other expense                                (276)          (200)
                                                 ------------   ------------

NET LOSS                                         $     (3,286)  $     (3,484)
                                                 ============   ============

BASIC AND DILUTED NET LOSS PER SHARE             $      (0.67)  $      (0.75)
                                                 ============   ============


SHARES USED IN CALCULATION OF NET
 LOSS PER SHARE                                  $      4,870   $      4,642
                                                 ============   ============


                       See notes to financial statements.

                                       F-3
<PAGE>
                              THINKING TOOLS, INC.
                     STATEMENTS OF SHAREHOLDERS' DEFICIENCY
                     YEARS ENDED DECEMBER 31, 1999 AND 1998

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                                      Total
                               Common Stock               Additional          Deferred                            Shareholders'
                       ---------------------------         Paid-in             Stock           Accumulated           Equity
                         Shares           Amount           Capital          Compensation         Deficit          (Deficiency)
                       ----------       ----------        ----------        ------------       -----------        -------------
<S>        <C>          <C>             <C>               <C>               <C>                <C>                <C>
BALANCES,
   January 1, 1998      4,641,758       $        5        $   11,288        $       (198)      $    (8,726)       $       2,369

Amortization of
 deferred stock
 compensation                  --               --                --                 198                --                  198

Net loss                       --               --                --                  --            (3,484)              (3,484)
                       ----------       ----------        ----------        ------------       -----------        -------------

BALANCES,
   December 31, 1998    4,641,758                5            11,288                  --           (12,210)                (917)

Interest attributable
 to beneficial
 conversion feature            --               --               247                  --                --                  247

Conversion of notes
 payable into
 common stock           2,742,479                2               546                  --                --                  548

Stock compensation
 relating to
  warrants                     --               --             1,375                  --                --                1,375
  option grants                --               --             2,554                (875)               --                1,679

Net Loss                       --               --                --                  --            (3,286)              (3,286)
                       ----------       ----------        ----------        ------------       -----------        -------------

BALANCES,
   December 31, 1999    7,384,237       $        7        $   16,010        $       (875)      $   (15,496)       $        (354)
                       ==========       ==========        ==========        ============       ===========        =============
</TABLE>



                      See notes to financial statements.

                                       F-4

<PAGE>
                              THINKING TOOLS, INC.
                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
                                 (In thousands)

                                                        1999           1998
                                                    ------------   ------------
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES

   Net Loss                                         $     (3,286)  $     (3,484)

   Adjustments to reconcile net loss to net cash
    used in operating activities

      Depreciation                                             1             80
      Impairment of assets                                    --            113
      Loss on sale of property and equipment                  --             26
      Stock Compensation Expense                           2,877            198
      Interest expense and interest attributable
       to beneficial conversion feature on bridge
       notes payable converted to stock                      277             --
      Cancelation of accrued employee bonuses               (261)            --
   Changes in assets and liabilities:
      Accounts Receivable                                     53            (45)
      Prepaid expenses and other assets                      (64)           150
      Accounts payable                                       (50)            82
      Accrued Expenses                                        41            273
      Deferred Revenues                                      (22)            22
                                                    ------------   ------------
   Net cash provided (used) by operating activities         (434)        (2,585)
                                                    ------------   ------------

CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES

   Proceeds from sale of equipment                            13             --
   Purchases of property and equipment                        --             (7)
                                                    ------------   ------------
   Net cash provided (used) by investing activities           13             (7)
                                                    ------------   ------------

CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES

   Advance from investor                                     100             --
   Principal payments on notes payable                        --            (88)
   Proceeds from issuance of convertible bridge notes        434             85
   Principal payments on capital lease obligations            (3)           (10)
   Proceeds from long term deposits                           --             10
                                                    ------------   ------------
   Net cash provided (used) by financing
    activities                                               531             (3)
                                                    ------------   ------------
Net Increase (Decrease) in cash                              110         (2,595)
                                                    ------------   ------------
CASH AND EQUIVALENTS, beginning of year                        2          2,597
                                                    ------------   ------------
CASH AND EQUIVALENTS, end of year                   $        112   $          2
                                                    ============   ============

SUPPLEMENTAL, SCHEDULE OF NONCASH OPERATING,
 INVESTING AND FINANCING ACTIVITIES:
   Conversion of convertible bridge notes to stock
      Proceeds of issuance                          $        519   $         --
      Accumulated interest                                    29             --
      Interest attributable to beneficial
       conversion feature                                    247             --
   Grant of stock option to satisfy liability
    for consulting compensation                              177             --
   Equipment given in satisfaction of liabilities             32             --


                       See notes to financial statements.

                                       F-5

<PAGE>


                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998

1.   BUSINESS AND BASIS OF PRESENTATION

Business - Thinking Tools, Inc. (the "Company") was incorporated in Delaware on
August 8, 1996, as a wholly-owned subsidiary of Thinking Tools, Inc., a
California corporation (the "Predecessor Corporation"). On August 28, 1996, the
Predecessor Corporation was merged with and into the Company. References herein
to the "Company" include the Predecessor Corporation.

The Company was formed on December 30, 1993, to purchase certain assets of the
Business Simulation Division (the "Division") of Maxis, Inc., a leading computer
game company and creator of the simulation game SimCity(TM). Through the
purchase agreement with Maxis, Inc., the Company acquired the Division's
equipment, staff, work-in-progress, customers, prospective customers, software
tools, libraries and processes. The Company's products included SimRefinery, a
refinery simulation product, SimHealth, a health care reform simulation product
and TelSim, a local telephone exchange simulation product.

The Company commenced operations in December 1993 to develop and market business
simulation software. From its inception until March 1999, the Company was
engaged in research and development activities and organizational efforts,
including the development of its initial products, recruiting personnel, and
establishing marketing and manufacturing capabilities and raising capital. The
Company commenced commercial activities in January 1994, but to date has not
generated substantial revenues from the sale of its products.

In September 1997, the Company introduced Think 2000, the first simulation
product that the Company internally funded and brought to a broader market. The
Company made a significant investment in the development and commercialization
of Think 2000, but changes in market conditions for products relating to the
Year 2000 issue and the Company's failure to successfully commercialize Think
2000 had a material adverse effect on the Company.

From November 1998 through December, 1999, the Company received approximately
$369,000 of proceeds of a secured convertible note to Thinking Technologies,
L.P. and approximately $150,000 of proceeds from the issuance of an unsecured
convertible note to Gem Management Ltd. These amounts have been used for working
capital and pursuing strategic business combinations.

The Company acquired substantially all of the assets and assumed specific
liabilities of Tritium Network, Inc. ("Tritium") on March 7, 2000, through the
issuance of preferred stock. Concurrently, working capital financing needed for
the acquired operations has been provided by proceeds of the sale of the
Company's common stock to an investor of $1,150,000 on March 7, 2000. (See
Note 14.)

                                       F-6
<PAGE>


                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998

1.   BUSINESS AND BASIS OF PRESENTATION (CONTINUED)


Basis of Presentation - The Company's financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. As shown in the accompanying
financial statements, the Company incurred a net loss of $3,286,000 for the year
ended December 31, 1999, and as of December 31, 1999, had an accumulated deficit
of $15,496,000. Further, current liabilities exceed current assets by $323,000.

Management has redirected the Company's strategy to reposition itself to serve
as a technology holding company. The Company acquired Tritium (See Note 14) and
intends to continue to locate and enter into transactions with existing, public
or privately-held companies that, in management's view, have growth potential
and may be involved in the software or technology industry. To that end, the
Company is currently engaged in negotiations with several candidates. The
Company's continued existence is dependent on its ability to negotiate
additional acquisitions, to raise additional financing and to develop successful
future operations. Management believes that the actions presently being taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Product Revenues - The Company generally recognizes revenue for software product
sales upon delivery of the software and at the time at which all criteria for
revenue recognition have been met in accordance with American Institute of
Certified Public Accountants Statement of Position 97-2 "Software Revenue
Recognition." For multiple-element arrangements involving either licensing of a
product or post-delivery customer support, a portion of the revenue based upon
the fair value of the respective element is deferred and recognized ratably over
the life of the license or technical support period.

                                       F-7
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity date of three months or less to be cash
equivalents.

Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentration of credit risk are cash and equivalents and
accounts receivable. Risks associated with cash and equivalents are mitigated by
banking with credit-worthy institutions. The Company performs an ongoing
evaluation of its customers' creditworthiness and generally requires no
collateral.

Property and Equipment - Property and equipment are stated at the lower of cost
or fair value. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets of three to seven years. Leasehold
improvements are amortized over the shorter of the estimated useful lives or the
underlying lease term. The Company evaluates the recoverability of long-lived
assets on an on-going basis.

As of December 31, 1998, certain property and equipment were deemed to be
impaired and were written down to their fair value. An impairment loss of
approximately $113,000 has been charged to research and development expenses and
other expenses in 1998.

Research and Development - Research and development costs are charged to expense
as incurred, while software development costs incurred between the establishment
of technological feasibility and general production release are capitalized.
Since the Company's development process generally results in the establishment
of technological feasibility concurrent with general production release, no
software development costs were capitalized in 1999 or 1998.

Income Taxes - The Company records income taxes using the asset and liability
approach, whereby deferred tax assets, net of valuation allowances, and
liabilities are recorded for the future tax consequences of temporary
differences between financial statement and tax bases of assets and liabilities
and for the benefit of net operating loss carry forwards.


                                       F-8
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock Compensation - The Company accounts for stock-based awards granted to
directors and employees based on the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees."

Net Loss Per Share - The Company follows Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share." Due to the Company's net loss,
all convertible securities, options and warrants are antidilutive; hence both
basic and diluted loss per share are computed based on the weighted average
number of shares of common stock outstanding during the period.

3.  PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1999 and 1998 are as follows (in
thousands):


                                                        1999           1998
                                                    ------------   ------------
    Equipment                                       $         26   $         71

    Furniture and fixtures                                     3              3
                                                    ------------   ------------

        Total property and equipment                          29             74

    Accumulated depreciation and amortization                (19)           (18)
                                                    ------------   ------------

        Property and equipment, net                 $         10   $         56
                                                    ============   ============


At December 31, 1998, property and equipment included assets leased under
capital leases of approximately $3,000, net of accumulated amortization of
$4,000. At December 31, 1999, there were no property and equipment under capital
leases.


                                       F-9
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


4.  ACCRUED EXPENSES

Accrued expenses at December 31, 1999 and 1998 are as follows (in thousands):


                                                        1999           1998
                                                    ------------   ------------
        Lease abandonment costs                     $         58   $         75

        Legal and professional fees                           80             79

        Payroll and related benefits                          --            292

        Advance of acquisition costs by Tritium               58             --

        Consulting fee due to related party                   --            177

        Other                                                  7             15
                                                    ------------   ------------
                                                    $        203   $        638
                                                    ============   ============

5.   LEASES

The Company leased office space in San Jose and Monterey, California under two
noncancelable operating leases. The San Jose office lease expires in 2001 and
the Monterey office lease expired September 1999. The Company consolidated its
locations and sub-leased the San Jose office in March 1998, prior to expiration
of the lease. This resulted in a lease abandonment accrual of $75,000 at
December 31, 1998. Lease abandonment costs for remaining lease obligations of
$58,000 are included in accrued expenses at December 31, 1999.

Future minimum rental commitments for the San Jose facility at December 31,
1999, are as follows (in thousands):

             Years Ending December 31,

                       2000                     $       71

                       2001                             30
                                                ----------

                                                $      101
                                                ==========

                                      F-10
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


5.   LEASES (CONTINUED)

The minimum future rental commitments have not been reduced by approximately
$90,000 of sublease rentals to be received in the future under non-cancelable
subleases.

Total rent expense was approximately $38,000 and $184,000, including lease
abandonment accruals, for the years ended December 31, 1999 and 1998,
respectively.

6.  INCOME TAXES

Due to the Company's history of net losses, the Company has fully reserved its
net deferred tax benefits and, consequently, its tax provision (benefit) is nil.

Calculations for deferred tax assets and liabilities at December 31, 1999 and
1998, are as follows (in thousands):


                                                        1999           1998
                                                    ------------   ------------
    Deferred tax assets
       Net operating loss carry forwards            $      4,161   $      3,868
       Tax credits                                           261            261
       Accruals and reserves not currently deductible         70            308
       Stock compensation                                  1,144              -
                                                    ------------   ------------
    Total deferred tax assets                              5,636          4,437

    Less valuation allowance                              (5,636)        (4,437)
                                                    ------------   ------------

    Net deferred tax assets                         $         --   $         --
                                                    ============   ============

As of December 31, 1999, the Company has net operating loss carryforwards of
$10,403,000 and $10,532,000 for federal and state purposes, respectively. As of
December 31, 1999, the Company also has tax credit carryforwards of $261,000 and
$133,000 for federal and state purposes. The losses expire beginning in 2009 and
2002, respectively. Federal and State of California tax laws impose significant
restrictions on the utilization of net operating loss carryforwards in the event
of a change in ownership as defined by the Internal Revenue Service Code Section
382. In addition, in order to realize the benefits of the state net operating
loss and tax credit carryforwards, the Company will have to re-establish its
business presence in the State of California.

                                      F-11
<PAGE>


                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


7.   NOTES PAYABLE

In November 1998, the Company approved a bridge financing offer from Thinking
Technologies, L.P ("Technologies"), under which Technologies was granted the
right to purchase up to $350,000 of Senior Secured Convertible Notes due within
90 days at 10% interest per annum, and warrants to purchase shares of common
stock of the Company. Each $1,000 note was convertible into 5,000 shares of
Common Stock, with expiration of the warrants upon conversion. During 1999, the
Board approved an increase in the Bridge financing offer to Thinking
Technologies to include expenses incurred on behalf of the Company and
accumulated interest. Thinking Technologies advanced the Company cash and
accumulated interest of $392,992 through December 31, 1999. These advances were
converted to 1,964,961 shares of the Company's common stock at the exercise
price of $.20 per share from November 16, 1999 through December 31, 1999. All
warrants expired with the conversions.

In July 1999, the Company borrowed $150,000 from Gem Management by issuing an
additional unsecured convertible note, with interest of 10% per annum and with
warrants to purchase common stock. The note was convertible into shares of
Common Stock at $.20 per share. The note and $5,554 of accumulated interest were
converted into 777,518 shares of the Company's common stock at the exercise
price of $.20 per share on November 16, 1999. All warrants expired with the
conversion.

For the year ended December 31, 1999, the Company recorded noncash interest
expense of approximately $247,000 in connection with the beneficial conversion
feature of the warrants issued in the bridge financing and approximately $29,000
in connection with accumulated interest on the notes. Interest expense was
approximately $200 for the year ended December 31, 1998.


8.   INVESTOR ADVANCE

In December 1999, in connection with the Tritium acquisition, an investor
advanced $100,000 to the Company (See Note 14).

9.   SHAREHOLDERS' DEFICIENCY

Stock Issuance

As discussed in Note 7, the Company has issued 1,964,961 and 777,518 shares of
common stock at an exercise price of $.20 per share under a bridge financing
offer to Thinking Technologies, L.P. and a convertible note to Gem Management,
Ltd., respectively.

                                      F-12
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


9.   SHAREHOLDERS' DEFICIENCY (CONTINUED)

Warrants

The Company consumated a series of financing transactions in 1996. Warrants were
issued to Thinking Technologies, L.P. to purchase 468,242 shares of common stock
at an exercise price of $1.07 per share, expiring December 2006. Warrants to
purchase 456,250 shares of the Company's common stock at $3.90 per share
(156,250 to Thinking Technologies, L. P. and 300,000 to its Underwriter),
expiring August 2001, were also issued. In addition, in October and November
1996, the Company completed its initial public offering and issued 1,610,000
shares of common stock at $6.50 per share for net proceeds of approximately
$8,470,000. In connection with its initial public offering, the Company sold
options to purchase 140,000 common shares to its underwriter for $.001 per
option. These options are exercisable for a period of five years at an exercise
price equal to 160% of the initial public offering price ($10.40 per share). The
underwriter's 300,000 warrants and 140,000 options are subject to anti-dilution
adjustments.

On December 10, 1999, in connection with the acquisition of Tritium, the Company
issued 2,450,000 stock warrants at an exercise price of $.50 per share to an
acquisition consultant as compensation for services provided. These warrants
vested on March 7, 2000, and expire in December 2004. At December 31, 1999, the
Company determined the fair value of these warrants at $.50 per share. The fair
value is based on the November 1999 commitment by accredited investors to
purchase a comparable block of 2,000,000 shares of common stock at $.50 per
share and then again in March 2000 for an additional 300,000 shares at $.50 per
share. Therefore, at the interim valuation date, December 31, 1999, no value has
been assigned to these warrants. The warrants are subject to anti-dilution
adjustments. (See Note 14.)

On December 10, 1999, the Company's Chairman of the Board and its Chief
Executive Officer were granted warrants to purchase 549,800 and 550,000 shares
of common stock, respectively, at an exercise price of $.50 per share. The
warrants were issued as compensation for services rendered in facilitating the
Tritium acquisition. The warrants were vested on December 10, 1999, and are
exercisable until December 2004. The warrants are subject to adjustment as
provided therein. For the year ended December 31, 1999, the Company recorded
noncash compensation expense under APB 25 of $1,375,000 in connection with the
issuance and vesting of these warrants.


                                      F-13
<PAGE>
                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



9.   SHAREHOLDERS' DEFICIENCY (CONTINUED)

Stock Options

Plans

Under the Company's 1996 and 1997 Stock Option Plans (the "Plans"), options to
purchase up to an aggregate of 976,000 shares of common stock may be granted to
officers, directors, employees or consultants. The Plans provide for issuing
both incentive stock options and nonqualified stock options, which must be
granted at fair market value at the date of grant, as determined by the Plan
administrator. Options granted under the Plans become exercisable as determined
by the Board of Directors and must be exercised within ten years. Options
granted are forfeited 90 days after an employee's separation from the Company.

Due to the shutdown of operations in March 1999, all of the stock options
granted to employees under the Plans that were outstanding at December 31, 1998,
have been forfeited; however, the 41,036 stock options granted under the Plans
to four Board members at an exercise price of $1.00 per share remain outstanding
at December 31, 1999.

Other

In 1995, options were issued outside of the Plans to directors
and an unaffiliated person to purchase 58,964 shares and 15,000 shares at an
exercise price of $.79 and $1.00 per share, respectively.

On December 10, 1999, the Board of Directors granted options under the Plans to
Board members and employees for purchase of 1,690,000 shares of common stock at
an exercise price of $.50 per share. With the exception of 700,000 options
vesting in December 2000, these options vested upon issuance.

The Board of Directors also granted options outside of the Plans to the
Company's Chairman of the Board to purchase 352,900 shares of common stock at an
exercise price of $.50 per share in lieu of cash compensation owed for services
of approximately $176,000 as of December 31, 1998. These options were issued and
vested as of December 10, 1999.

For the year ended December 31, 1999, the Company recorded noncash compensation
expense under APB 25 of $1,679,000 in connection with the issuance and vesting
of options and noncash deferred stock compensation of $875,000 in connection
with the issuance of options that vest in December 2000.


                                      F-14
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



9.   SHAREHOLDERS' DEFICIENCY (CONTINUED)


A summary of the status of the Company's stock options as of December 31, 1999
and 1998, and the changes during the years ended December 31, 1999 and 1998, is
presented below:

                                                                   Range of
                                             Number of             Exercise
                                              Shares                Prices
                                             ---------          --------------
Outstanding at January 1, 1998                534,000           $ .794 - 5.000
Granted                                       535,500           $2.500 - 5.000
Exercised                                          --           $           --
Forfeited                                    (461,000)          $        0.794
                                            ---------
Outstanding at December 31, 1998              608,500           $ .794 - 5.000
Granted                                     2,042,900           $        0.500
Exercised                                          --           $
Forfeited                                    (493,500)          $ .794 - 5.000
                                            ---------
Outstanding at December 31, 1999            2,157,900           $  .50 - 1.000
                                            =========

Weighted-average fair value of options
   granted and remaining exercisable
   through year ended December 31, 1999     $    1.52
                                            =========
Weighted-average fair value of options
   granted and remaining exercisable
   through year ended December 31, 1998     $    1.43
                                            =========





                                      F-15
<PAGE>
                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



9.   SHAREHOLDERS' DEFICIENCY (CONTINUED)


The following table summarizes information about fixed stock options outstanding
as of December 31, 1999:

<TABLE>
<CAPTION>
                         Outstanding Options                  Exercisable Options
             ------------------------------------------   ----------------------------
                Number        Weighted-
             Outstanding       average       Weighted-        Number        Weighted-
 Range of         at          Remaining       average     Outstanding at     average
 Exercise    December 31,    Contractual     Exercise      December 31,     Exercise
  Prices         1999           Life           Price           1999           Price
----------   ------------    -----------     ---------    --------------   -----------
<S>               <C>          <C>              <C>            <C>              <C>
   1.00           56,036       6.6 years        1.00           56,036           1.00
   0.79           58,964       5.6 years        0.79           58,964           0.79
   0.50        2,042,900       9.9 years        0.50        1,342,900           0.50
             ------------                                 --------------
               2,157,900                                    1,457,900
             ============                                 ==============
</TABLE>

As discussed in Note 2, the Company accounts for its stock-based awards to
directors and employees using the intrinsic value method in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method for stock based
awards to directors and employees as of the beginning of fiscal 1995. Under SFAS
123, the fair value of the stock-based awards is calculated through the use of
the minimum value method for all periods prior to the initial public offering,
and subsequently through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock option price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum and Black-Scholes option pricing models with the
following weighted average assumptions: expected life of 30 to 40 months; stock
volatility, 61% subsequent to the initial public offering in 1996; risk-free
interest rates, approximately 6%; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1999 and 1998 awards had been amortized to expense over the vesting period of
the awards, pro forma net loss would have been $3,827,000 ($.79 per share) in
1999 and $3,705,000 ($.80 per share) in 1998.

                                      F-16

<PAGE>
                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


10.  MAJOR CUSTOMERS

Revenues were negligible during 1999 with 82% of sales occurring during the
first quarter of 1999. One customer accounted for 31% of revenue.

Three customers accounted for 15%, 13% and 10% each of software revenues for the
year ended December 31, 1998. One of these customers accounted for 50% and one
other customer accounted for 47% of the accounts receivable at December 31,
1998.

11.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reflected in the financial statements as of December 31,
1999 and 1998 for cash and equivalents and notes payable approximate their
respective fair values due to the short maturities of those instruments.


12.  ADVERTISING COSTS

Advertising costs, except for costs associated with direct-response advertising,
are charged to operations when incurred. The costs of direct-response
advertising are capitalized and amortized over the period during which future
benefits are expected to be received. Advertising expense was $428,000 for the
year ended December 31, 1998. There was no advertising expense for the year
ended December 31, 1999.


13.  RELATED PARTY TRANSACTIONS

The Company's Chairman of the Board controls Thinking Technologies, L.P., which
owned approximately 53% and 42% of the Company's outstanding common stock as of
December 31, 1999 and 1998, respectively, and as of December 31, 1999, owns
warrants to purchase 624,492 additional shares of common stock. As of December
31, 1999, Mr. Knoll, as an individual, owns options for 352,900 shares and
warrants for 549,800 shares of common stock as compensation for his services.
(See Note 9).

14.  SUBSEQUENT EVENTS

Subsequent Events

On March 6, 2000, the Company formed a wholly owned subsidiary, StartFree.com,
Inc., a Delaware corporation. On March 7, 2000, StartFree.com, Inc. acquired
substantially all of the assets and assumed specified liabilities of Tritium.
The specified liabilities included the $500,000 bridge note

                                      F-17
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


14.  SUBSEQUENT EVENTS (CONTINUED)

to Tritium (see below). The consideration for the acquisition was paid through
the issuance of 1,148,798.5 shares of a new Series A convertible preferred
stock. The preferred stock is convertible into 11,487,985 shares of Thinking
Tools common stock when the Company files with the Secretary of State of the
State of Delaware to increase the authorized number of shares to at least
35,000,000 shares.

Tritium was an internet service provider based in Cincinnati, Ohio at the time
of the acquisition transaction. Tritium provided free internet service for
subscribers in exchange for the display of advertisements on the lower portion
of the subscriber's screen. AdSmart Corporation agreed to provide internet-based
advertising and to pay royalties to Tritium based upon the number of individual
advertisements viewed. In addition, one supplier provides connectivity for its
internet network services. These agreements have been assumed by StartFree.com,
Inc. and continue in effect.

Presently, the Company anticipates that the acquisition of the assets and
specified liabilities of Tritium will be accounted for under the purchase method
of accounting for business combinations. In connection with the accounting for
this transaction, a substantial amount of goodwill is expected to be recorded.
The Company anticipates that the amortization of such goodwill will
substantially impact upon the results of operations in future years.

In connection with the acquisition, in November 1999, the Company entered into a
financing arrangement for $1,000,000 with an investor, which included the bridge
note to Tritium, for 2,000,000 shares of the Company's common stock at $.50 per
share. Upon approval by the Company's Board of Directors of the acquisition on
December 10, 1999, the investor advanced $100,000 to the Company. Concurrently,
the investor advanced $500,000 under a bridge note to Tritium. On the closing
date of the acquisition the outstanding bridge note was repaid through applying
the amount owed to the purchase of the shares, investors provided the remaining
$400,000 under the agreement and 2,000,000 shares of the Company's stock were
issued. Investors also purchased 300,000 additional shares of common stock at
$.50 per share; yielding an additional $150,000 of financing to the Company.

In connection with the Tritium acquisition, the Company issued warrants to an
acquisition consultant to purchase 2,450,000 shares of the Company's common
stock exercisable at $.50 per share. These warrants were issued on December 10,
1999, and vested on March 7, 2000, when all contractual obligations had been
met. The warrants are subject to anti-dilution adjustments. (See Note 9.)


                                      F-18
<PAGE>

                              THINKING TOOLS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


14.  SUBSEQUENT EVENTS (CONTINUED)

In addition, in connection with the Tritium acquisition, the Company contributed
a warrant to purchase 1,262,275 shares of its common stock to the capital of
StartFree.com, Inc. in order for StartFree.com, Inc. to deliver the warrant to
AdSmart Corporation ("AdSmart") in connection with its advertising agreement
with AdSmart. As of March 7, 2000, AdSmart can exercise warrants for 500,400
shares of common stock. The remainder will vest upon the occurrence of certain
events. The warrants are exercisable at $.01 per share. The warrants are subject
to anti-dilution adjustments.

In connection with the Tritium acquisition, the Company will effect an increase
in the authorized common and preferred stock to 75,000,000 and 5,000,000 shares,
respectively. In addition, 200 shares of Series B Convertible Preferred Stock,
$.001 par value per share were issued to the Company's Chairman of the Board.
The Series B Preferred Stock has certain voting control rights until March 7,
2005.



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