<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                  FORM 10-KSB/A
                                 AMENDMENT NO. 1


(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.
        -----------------------------------------------------------------
                 (Name of small business issuer in its charter)

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

200 Park Avenue  Ste 3900
New York,  New York                                      10166
--------------------------------------------------------------------------------
(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:
<PAGE>

                          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  [ ]   No  [X]

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

DOCUMENTS INCORPORATED BY REFERENCE. No documents are incorporated by reference
into this Report except those Exhibits so incorporated as set forth in the
Exhibit Index.


                                       2
<PAGE>



PART III

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

         The executive officers and directors as of April 28, 2000 are as
follows:

Name                      Age     Position
----                     ----     --------
Mr. Fred Knoll            45      Chairman of the Board, Director
Mr. Moshe Zarmi           62      President, Chief Executive Officer, Director
Mr. Marc Cooper           38      Director
Ms. Esther Dyson          49      Director
Mr. Frederick Gluck       65      Director
Dr. Ted Prince            53      Director
Mr. Fran Saldutti         52      Director



         Fred Knoll has been a member of the board of directors since September
1994 and Chairman of the Board since 1996. From 1987 to the present, Mr. Knoll
has been the principal of Knoll Capital Management, L.P., a venture capital firm
specializing in the information technology industry. From 1985 to 1987, Mr.
Knoll was an investment manager for General American Investors, responsible for
the technology portfolio, and served as the United States representative on
investments in leveraged buy-outs and venture capital for Murray Johnstone, Ltd.
of Glasgow, Scotland. From 1983 to 1985, Mr. Knoll served as manager of venture
investments for Robert Fleming, Inc., a U.K. merchant bank in New York and was
responsible for managing a venture capital fund as well as managing a team whose
responsibility was to identify public investment opportunities. Mr. Knoll also
held investment positions with the Capital Group (Capital Research/Capital
Guardian) from 1982 to 1983. During the 1970's, Mr. Knoll worked in sales and
marketing management for Data General and Wang Laboratories, Inc. and as a
computer engineer at Computer Sciences Corporation. Mr. Knoll is a director of
numerous companies, including Hello Network, a video Internet technology
company, and ISurfTV Corporation, an Internet company. Mr. Knoll holds a B.S. in
Computer Science from M.I.T. and an M.B.A. from Columbia University in Finance
and International Business.

         Moshe Zarmi has been President, Chief Executive Officer, and a director
of Thinking Tools, Inc. since February 12, 1998. From July 1997 to December
1997, Mr. Zarmi was a consultant to us and joined us as Chief Operating Officer
on January 1, 1998. Mr. Zarmi has 30 years experience, primarily in high
technology industries. From February 1993 to January 1997, Mr. Zarmi was CEO of
Geotest, a leading Automated Test Equipment company based in Southern
California. His extensive business experience includes a tenure at Israel
Aircraft Industries (IAI), where he held various positions in finance and
administration, as well as head of US marketing and sales. Mr. Zarmi also served
as President of ATG, the Canadian subsidiary of IAI. Additionally, Mr. Zarmi
headed his own company which specialized in technology transfer and worked
mainly with Israeli high technology companies doing business in the United
States. Mr. Zarmi attended Tel Aviv University and holds a MBA from Columbia
University.


                                       3
<PAGE>


         Marc S. Cooper has been a member of the board of directors since
January 1997. Mr. Cooper has been a Managing Director of Peter J. Solomon
Company since June 1999. Prior to that, he served as Vice Chairman of Barington
Capital Group, L.P. from January 1998 to June 1999 and as the Executive Vice
President - Director of Investment Banking and Research for Barington Capital
Group, L.P. from March 1992 until January 1998. From April 1989 to March 1992,
Mr. Cooper was a partner of Scharf Brothers, a private merchant bank involved in
acquisitions of domestic and international industrial and technology companies.
From April 1987 to April 1989, Mr. Cooper was a Vice President in the corporate
finance department of Kidder Peabody & Co., Inc., where he was involved in
structuring and negotiating a wide variety of merchant banking and merger and
acquisition transactions. From 1982 to 1987, Mr. Cooper was an associate in
investment banking at Dean Witter Reynolds, Inc. Mr. Cooper received an M.B.A.
from the New York University Graduate School of Business Administration, and a
B.S. in Management and Economics from New York University.

         Esther Dyson has been a member of the board of directors since October
1994. From 1983 to 1997 Ms. Dyson served as president of EDventure Holdings, and
now is EDventure Holdings chairman. EDventure Holdings is a diversified company
focusing on emerging information technology worldwide and on the emerging
computer markets of Central and Eastern Europe. Since 1997, Ms. Dyson has been
chairman of the Electronic Frontier Foundation. Ms. Dyson is a member of the
board of directors of the Global Business Network, ComputerLand Poland and
Cygnus Solutions, and she is a member of the advisory board of Perot Systems.
She is a limited partner in the Maryfield Software Fund. Ms. Dyson has also
written articles on industry topics for the Harvard Business Review, The New
York Times, The New York Times Magazine, WIRED Magazine and Forbes Magazine,
among others.

         Frederick W. Gluck has been a member of the board of directors since
October 1994. He is currently serving as a consultant to McKinsey & Company,
Inc. Mr. Gluck served as vice-chairman and a director of Bechtel Group, Inc. and
as a member of the Board of Directors of Bechtel Enterprises, Inc. from 1995 to
1998. He also served as a member of both companies' executive committees. Prior
to joining Bechtel, Mr. Gluck spent more than 25 years with McKinsey & Company,
and was ultimately its managing director. Mr. Gluck serves on the Harvard
Business School Board of Directors of the Associates, the Management Education
Council of the Wharton School, the U.S./ Hong Kong Economic Cooperation
Committee, the Council on Foreign Relations and the Board of the International
Executive Service Corps. Mr. Gluck is also a member of the Board of Directors of
several public and private companies including ACT Networks, Inc.


                                       4
<PAGE>


         Ted Prince has been a member of the board of directors since October
1994. Since 1992, Dr. Prince has been the President of Perth Ventures, Inc., an
investment banking and public relations firm which he founded in 1992. Perth
Ventures specializes in the emerging information technology area. Since 1995,
Dr. Prince has been the Chairman and CEO of INSCI Corporation. Dr. Prince is
also an author, publisher and speaker in the area of emerging information
technologies and market trends. He is the author and publisher of The Technology
Fundamentalist, a national newsletter focusing on emerging computer technologies
and market trends. Dr. Prince has founded several information technology
companies including CP International, a company specializing in text retrieval
software, and Harwell Computer Power, a startup in the same field. From 1984 to
1992, he served as President and CEO of several companies, including the
national computer services company, Computer Power Group. From 1979 to 1984, Dr.
Prince was the Chief Information Officer of the Australian Social Security
Agency where he was responsible for designing the new national social welfare
system.

         Fran Saldutti has been a member of the board of directors since October
1994. Mr. Saldutti has been, since 1995, a managing general partner of Ardent
Research Partners, L.P., a limited partnership founded in 1992 to invest
exclusively in the information technology markets. From 1990 through February
1995, Mr. Saldutti served as senior technology analyst for Amerindo Investment
Advisers. From 1984 through 1986 he served as Senior Vice President and Director
of Research for Gartner Securities and from 1986 to 1988 as Director of
Technology Research for L.F. Rothschild. Mr. Saldutti moved to the buy side in
1989 as senior technology analyst with Merrill Lynch Asset Management's Sci/Tech
Fund. From 1975 to 1989 Mr. Saldutti either produced, sold or directed
technology research for several leading technology brokerage firms. Mr. Saldutti
maintains board directorships in other technology companies, including Kraft
Kennedy, Lesser, a LAN industry systems integrator, and Meta Group, a market
research firm specializing in information technology, on which he also serves on
the compensation committee. He is a member of the Software and Services Splinter
Group of the New York Society of Securities Analysts.

         In addition, Mort Meyerson is an advisor to us. Mr. Meyerson is
Chairman and CEO of 2M Companies, Inc., a private investment firm. Mr. Meyerson
was Chairman of Perot Systems from 1992 to 1998. From 1979 to 1986 he was
President and Chief Executive Officer of EDS Information Systems. Mr. Meyerson
has had extensive experience in the software industry, in running large
technology companies and in investing in, growing and capitalizing emerging
technology companies.


                                       5

<PAGE>



Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our Directors, executive officers, and persons who own more than 10% of
a registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our shares and other equity securities. Directors, officers and
greater than 10% shareholders are required to furnish us with copies of all
Section 16(a) forms that they file. As of the date hereof, none of the
above-mentioned individuals and 10% holders have filed the requisite reports
during the year ended December 31, 1999. As of the date hereof, we are assisting
such individuals to file such reports promptly. All information required to be
filed in such reports has been disclosed, however, in this Form 10-KSB/A.

Item 10. EXECUTIVE COMPENSATION

         The following table sets forth compensation paid for the last three
fiscal years ended December 31, 1999 to those persons who were, at December 31,
1999, (i) the chief executive officer and (ii) our two other most highly
compensated executive officers, who were our only other executive officers who
received over $100,000 in compensation during this time period (collectively,
the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                    Annual Compensation                Long-Term Compensation
Name and Principal          Year       Salary($)     Bonus($)        Other Annual      Securities        All Other
Position                                                             Compensation ($)  Underlying        Compensation
                                                                                       Options/SARs

<S>                         <C>        <C>          <C>               <C>              <C>               <C>
Fred Knoll (1)              1999       --                                              1,102,700 (2)
Chairman                    1998       $140,450(3)
                            1997       $ 36,000(3)

Moshe Zarmi (4)   CEO &     1999       $ 22,000      --              --                750,000 (5)       --
President                   1998       $157,500      --              --                --                --
                            1997       --

John Hiles (5)              1999       $ 18,000      --              --                --                --
                            1998       $144,000      --              --                --                --
                            1997       $158,758
</TABLE>


                                       6
<PAGE>



(1)  Mr. Knoll has been our Chairman since 1996. Since October 1994 Mr. Knoll
     has provided executive and related consulting services to us.

(2)  In December 1999, Mr. Knoll received an aggregate of 200,000 options to
     purchase shares of Common Stock at a purchase price of $.50 per share;
     100,000 of these options vest immediately, and the remaining 100,000 of
     these options vest one year from the date of issuance. In December 1999,
     Mr. Knoll received five year warrants to purchase 549,800 shares of Common
     Stock, at an exercise price of $.50 per share. Also, in December 1999, Mr.
     Knoll converted 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 $.50 per
     share. In March 2000, Mr. Knoll received 200 shares of Series B Preferred
     Stock convertible into 200 shares of Common Stock.

(3)  The compensation reflected in the table accrued to Mr. Knoll and was
     converted in December 1999 into options to purchase 352,900 shares of
     Common Stock, at an exercise price of $.50 per share.

(4)  Mr. Zarmi joined the Company in December 1997. Mr. Zarmi become Chief
     Executive Officer and President in February 1998. However, during the
     period from February 1999 to December 10, 1999, Mr. Zarmi was not employed
     by the Company. As a result, all options issued prior to such time to Mr.
     Zarmi have been forfeited. Mr. Zarmi is currently our Chief Executive
     Officer and President.

(5)  In December 1999, Mr. Zarmi received options to purchase an aggregate of
     200,000 shares of Common Stock, at a purchase price of $.50 per share;
     100,000 of these options vest immediately, and the remaining 100,000 of
     these options vest one year from the date of issuance. In December 1999,
     Mr. Zarmi received five year warrants to purchase 550,000 shares of Common
     Stock, at an exercise price of $.50 per share.

(6)  Mr. Hiles was our President from August 1996 through November 1996 and our
     Chief Technology Officer and Secretary from August 1996 through April 1999.
     Mr. Hiles resigned as a Director of the Company in October 1999.


                                       7
<PAGE>


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (INDIVIDUAL GRANTS)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Name                    Number of            Percent of Total    Exercise or Base     Expiration Date
                        Securities           Options/SARs        Price ($/sh)
                        Underlying           Granted to
                        Options/SARs         Employees in
                        Granted              Fiscal Year
---------------------------------------------------------------------------------------------------------
<S>                     <C>                  <C>                 <C>                  <C>   <C>
Moshe Zarmi             200,000              40%                 $.50                 12/10/2009
                        550,000                                  $.50                 12/10/2004

---------------------------------------------------------------------------------------------------------
Fred Knoll              200,000              60%                 $.50                 12/10/2009
                        549,800                                  $.50                 12/10/2004
                        352,900                                  $.50                 12/10/2009
---------------------------------------------------------------------------------------------------------
</TABLE>


     Aggregated Option Exercises during 1999 and Year End 1999 Option Values

         The following table shows the values of options held by the Named
Executive Officers as of December 31, 1999. No options were exercised by the
Named Executive Officers during 1999.


                       Number of Securities           Value of Unexercised
                      Underlying Unexercised          In-the-Money Options
                   Options at December 31, 1999   at Fiscal December 31, 1999(1)
                   ----------------------------   ------------------------------
Name               Exercisable    Unexercisable    Exercisable   Unexercisable
----               -----------    -------------    -----------   -------------

Moshe Zarmi           650,000        100,000       $1,625,000      $250,000
Fred Knoll          1,002,700        100,000       $2,506,750      $250,000
John Hiles              --             --               --            --

---------------
(1) Based on a closing price of the Common Stock on the NASD OTC Bulletin Board
    of $3.00 per share on December 31, 1999.


Stock Option Grants

         We strive to distribute stock option awards broadly throughout the
organization. Stock option awards are based on the individual's position and
contribution to us. Our long term performance ultimately determines compensation
from stock options because stock option value is entirely dependent on the long
term growth of our Common Stock price.

Compensation Committee

         The Compensation Committee of the Board of Directors is responsible for
determining the compensation of our executive officers and to administer our
Plan. Messrs. Prince and Saldutti, who are disinterested directors, comprise the
Compensation Committee.

General Policy Regarding Stock Options.

         Stock options are currently our sole long term compensation vehicle.
The stock options are intended to provide employees with sufficient incentive to
manage from the perspective of an owner with an equity stake in the business.

         In determining the size of individual option grants, the Compensation
Committee considers the aggregate number of shares available for grant, the
number of individuals to be considered for an award of stock options, and the
range of potential compensation levels that the option awards may yield. The
number and timing of stock option grants to executive officers are decided by
the Compensation Committee based on its subjective assessment of the performance
of each grantee. In determining the size and timing of option grants, the
Compensation Committee weighs any factors it considers relevant and gives such
factors the relative weight it considers appropriate under the circumstances
then prevailing. While an ancillary goal of the Compensation Committee in
awarding stock options is to increase the stock ownership of our management, the
Compensation Committee does not, when determining the amount of stock options to
award, consider the amount of stock already owned by an officer. The
Compensation Committee believes that to do so could have the effect of
inappropriately or inequitably penalizing or rewarding executives based upon
their personal decisions as to stock ownership and option exercises.

                                       8

<PAGE>


Arrangements with Directors and Executive Officers

         Our Directors do not receive any cash compensation for their
participation on the board. On December 10,1999, our Board of Directors received
the following option grants: (i) options to purchase 110,000 shares of Common
Stock at an exercise price of $.50 per share, vesting immediately were issued to
each of Esther Dyson, Frederick Gluck, Ted Prince, Fran Saldutti and Marc
Cooper; (ii) options to purchase 100,000 shares of Common Stock, at an exercise
price of $.50 per share vesting immediately were issued to each of Mr. Knoll and
Mr. Zarmi; (iii) options to purchase 100,000 shares of Common Stock at an
exercise price of $.50 per share vesting May 15, 2000 were issued to Marc
Cooper; and (iv) options to purchase 100,000 shares of Common Stock at an
exercise price of $.50 per share, vesting one year from the date of issuance
were issued, to each of Mr. Cooper, Ms. Dyson, Mr. Gluck, Mr. Prince, Mr.
Saldutti, Mr. Knoll and Mr. Zarmi.

         In addition to annual salary, in connection with his employment, Mr.
Zarmi received in 1998 (i) options under our 1996 Stock Option Plan to purchase
230,000 shares of Common Stock at $2.50 per share, such option vesting in equal
annual installments over four years; and (ii) options under our 1997 Stock
Option Plan to purchase 190,000 shares of Common Stock at $4.50 per share, such
option vesting in equal installments over four years. Mr. Zarmi was not employed
by us from February 1999 to December 10, 1999. As a result, Mr. Zarmi forfeited
all such stock options issued under the Plans. In December 1999, Messrs. Zarmi
and Knoll each received warrants to purchase 550,000 and 549,800 shares of
Common Stock, respectively, at an exercise price of $.50 per share. In March
2000, Mr. Knoll received 200 shares of Series B Preferred Stock Convertible into
200 Shares of Common Stock.

         From October 1997 through December 1999, Mr. Knoll provided certain
executive and related consulting services to us as requested by us, including,
serving as Chairman of the Board. From October 1, 1997 through December 31,
1998, Mr. Knoll accrued compensation for consulting on various aspects of our
business and negotiating certain contractual and employment arrangements. The
compensation was based on a rate of $150,000 per annum, plus reimbursement of
expenses. In December 1999, Mr. Knoll converted such accrued compensation of
$176,450 owed to him for options to purchase 352,900 shares of Common Stock, at
a purchase price of $.50 per share. Mr. Knoll received no cash compensation for
services rendered during 1999, except for certain reimbursements for expenses.




                                       9

<PAGE>


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth as of April 13, 2000, certain
information known to us with respect to the beneficial ownership of our voting
securities by (i) each person who is known by us to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of our
directors and Named Executive Officers, and (iii) all our directors and
executive officers as a group. Except as otherwise indicated, the stockholders
listed in the table have sole voting and investment powers with respect to the
shares indicated.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Name and Address of                  Amount and Nature of               Percentage of Class (1)
Beneficial Owner                     Beneficial Ownership
-----------------------------------------------------------------------------------------------------------
<S>                                  <C>                                <C>
Thinking Technologies, L.P. (2)      4,544,534  (3)                     44%
-----------------------------------------------------------------------------------------------------------
Mr. Fred Knoll (4)                   5,547,234  (5)(11)                 49%
-----------------------------------------------------------------------------------------------------------
Mr. Marc Cooper (6)                    210,000  (7)(11)(12)              2.1%
-----------------------------------------------------------------------------------------------------------
Ms. Esther Dyson (8)                   135,000  (7)(9)(11)               1.4%
-----------------------------------------------------------------------------------------------------------
Mr. Frederick Gluck (10)               135,000  (7)(9)(11)               1.4%
-----------------------------------------------------------------------------------------------------------
Dr. Ted Prince (13)                    135,000  (7)(9)(11)               1.4%
-----------------------------------------------------------------------------------------------------------
Mr. Fran Saldutti (14)                 135,000  (7)(9)(11)               1.4%
-----------------------------------------------------------------------------------------------------------
Mr. Moshe Zarmi (15)                   650,000  (11)(16)                 6.3%
-----------------------------------------------------------------------------------------------------------
Bruce Galloway (17)                    672,500  (18)                     6.9%
-----------------------------------------------------------------------------------------------------------
Digital Creative Development
Corp. (19)                             700,000  (20)                     7.2%
-----------------------------------------------------------------------------------------------------------
All directors and Executive
officers as a group (7 persons)      6,947,234                          54.7%
-----------------------------------------------------------------------------------------------------------
</TABLE>


*   The foregoing table does not reflect the (a) 1,148,798.5 shares of Series A
    Preferred Stock, $.001 par value per share beneficially owned by Tritium
    Network, Inc. and the (b) 200 shares of Series B Preferred Stock, $.001 par
    value per share beneficially owned by Fred Knoll. The shares of the Series A
    Preferred Stock are convertible into an aggregate of 11,487,985 shares of
    Common Stock at such time as we have a sufficient number of shares of Common
    Stock authorized to convert such shares of Series A Preferred Stock, and the
    Series B Preferred Stock is convertible into 200 shares of Common Stock, at
    any time at the option of the holder.

(1) Percentage of ownership is based on 9,684,237 shares of Common Stock
    outstanding. For each beneficial owner, shares of Common Stock subject to
    convertible securities exercisable within 60 days of the date of this Form
    10-KSB/A are deemed outstanding for computing the percentage of such
    beneficial ownership.



                                       10

<PAGE>


(2)      The address of Thinking Technologies, L.P. is 200 Park Avenue, Suite
         3900, New York, New York 10166.

(3)      Includes (i) 468,242 shares of Common Stock issuable upon the exercise
         of warrants issued in July 1996 to Thinking Technologies, L.P.
         ("Technologies"), at an exercise price of $1.07 per share, which
         warrants expire in December 2006; and (ii)156,250 shares of Common
         Stock issuable upon the exercise of warrants issued in August 1996 to
         Technologies, at an exercise price of $3.90 per share, which warrants
         expire in August 2001.

(4)      The address of Mr. Knoll is c/o Knoll Capital Management, 200 Park
         Avenue, Suite 3900, New York, New York 10166.

(5)      Includes (i) the 4,544,534 shares of Common Stock beneficially owned by
         Technologies, of which Knoll Capital Management is the General Partner.
         Knoll Capital Management is an affiliate of Mr. Knoll; (ii) warrants to
         purchase 549,800 shares of Common Stock at $.50 per share; (iii)
         options to purchase 352,900 shares of Common Stock at $.50 per share;
         and (iv) options to purchase 100,000 shares of Common Stock at $.50 per
         share.

(6)      The address of Mr. Cooper is c/o Peter J. Solomon Company, 767 Fifth
         Avenue, New York, New York 10153.

(7)      Includes options to purchase 110,000 shares of Common Stock at $.50 per
         share issued to each non-affiliated director.

(8)      The address of Ms. Dyson is c/o EDventure Holdings, Inc., 104 Fifth
         Avenue,10th Floor, New York, New York 10011-6987.

(9)      Includes options to purchase 14,741 shares of Common Stock exercisable
         at $.79 per share and options to purchase 10,259 shares of Common Stock
         exercisable at $1.00 per share.

(10)     The address of Mr. Gluck is c/o McKinsey & Co., 400 South Hope Street,
         Los Angeles, California 90071.


                                       11
<PAGE>


(11)     Excludes options to purchase 100,000 shares of Common Stock at $.50 per
         share, which options vest on December 10, 2000. .

(12)     Includes options to purchase 100,000 shares of Common Stock at $.50 per
         share, which options vest on May 15, 2000.

(13)     The address of Dr. Prince is 10 West 74th Street, #2F, New York, New
         York 10023.

(14)     The address of Mr. Saldutti is /co Ardent Research Partners, 153 East
         53rd Street, Suite 4800, New York, New York 10022.

(15)     The address of Mr. Zarmi is 215 Frankel Boulevard, Merrick, New York
         11566.

(16)     Includes (i) warrants to purchase 550,000 shares of Common Stock at
         $.50 per share and (ii) options to purchase 100,000 shares of Common
         Stock at $.50 per share.

(17)     The address of Mr. Galloway is c/o Burnham Securities, 1325 Sixth
         Avenue, New York, New York 10019.

(18)     Includes (i) 5,000 shares of Common Stock held by the Sara Galloway
         IRA; (ii) 257,500 shares of Common Stock held by the Bruce Galloway
         IRA; (iii) an aggregate of 10,000 shares of Common Stock held by minor
         children of Bruce Galloway; and (iv) 200,000 shares owned by Jacombs
         Investments, Inc. ("Jacombs"). Mr. Galloway is the principal
         shareholder and President of Jacombs.

(19)     The address of Digital Creative Development Corp. is c/o Ralph
         Sorrentino, 67 Irving Place North, 4th Floor, New York, New York 10003.

(20)     Includes the 100,000 shares of Common Stock held by Ralph Sorrentino.
         Mr. Sorrentino is the President and Chief Executive Officer of Digital
         Creative Corp.


         To our knowledge, (i) Gem Management Limited is the beneficial owner of
777,518 shares of Common Stock, which constitutes 8% of the outstanding shares
of our Common Stock; and (ii) Global e-Markets is the beneficial owner of
2,450,000 shares of Common Stock underlying five year warrants exercisable at
$.50 per share, issued to Global e-Markets in December 1999, which constitutes
20.2% of the outstanding shares of our Common Stock.

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In November 1998, we granted Thinking Technologies, L.P.
("Technologies") the right to purchase 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 (including accrued interest and certain expenses incurred
by Technologies in an amount equal to $93,000). As of December 31, 1999,
Technologies had converted all of the 393 Bridge Notes into 1,964,961 shares of
our Common Stock. There are no Bridge Units currently outstanding. The general
partner of Technologies is Knoll Capital Management, an affiliate of Mr. Knoll,
who is our Chairman. Mr. Mort Meyerson, an advisor to us, is a limited partner
in Technologies.



                                       12

<PAGE>


         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 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 converted 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 $.50 per share. Also, effective as of December 10,
1999, we issued (a) warrants to Mr. Knoll to purchase 549,800 shares of Common
Stock at an exercise price of $.50 per share; and (b) warrants to Mr. Zarmi to
purchase 550,000 shares of Common Stock at an exercise price of $.50 per share.
On December 10, 2000, we issued warrants to Global e-Markets to purchase an
aggregate of 2,450,000 shares of Common Stock at a purchase price of $.50 per
share. In December 1999, certain investors, including Bruce Galloway and Digital
Creative Development Corporation, subscribed to purchase an aggregate of
1,600,000 shares of Common Stock at a purchase price of $.50 per share. The
purchase was consummated in March 2000.


Item 13.  EXHIBITS AND REPORTS ON FORM 8-K.

 (a) The following documents are filed as part of this report:

Exhibit  Description
No.

(2)(a)   Voting Agreement dated as of March 7, 2000 by and among Thinking Tools,
         Inc., Thinking Technologies, L.P., Fred Knoll, Tritium Network, Inc.
         and the stockholders of Tritium whose names appear on the signature
         pages of the agreement (7)

(2)(b)   Asset Purchase Agreement and Plan of Reorganization dated as of March
         7, 2000 by and among Thinking Tools, Inc., StartFree.com, Inc., Tritium
         Network, Inc. and Michael W. Lee (7)

3.1      Certificate of Incorporation of Thinking Tools, Inc. (1)

3.2      By-Laws of Thinking Tools, Inc. (1)



                                       13

<PAGE>


4.1      Form of Underwriter's Option Agreement(1)

4.2      1996 Stock Option Plan (1)

4.3      Form of Stock Certificate (2)

4.4      Form of Private Placement Investors' Warrant (1)

4.5      Technologies Warrant (2)

4.6      Form of Private Placement Note (1)

4.7      Form of Lock-Up Agreement (2)

4(a)     Certificate of the Designations, Powers, Preferences and Rights of the
         Series A Convertible Preferred Stock of Thinking Tools, Inc. (7)

4(b)     Certificate of the Designations, Powers, Preferences and Rights of the
         Series B Convertible Preferred Stock of Thinking Tools, Inc. (7)

4.8      1997 Stock Option Plan (3)

4.9      AdSmart Warrant

10.1     Form of Consulting Agreement (1)

10.2     Technologies Agreement between the Company and Technologies dated
         September 26, 1994 (2)

10.3     Consent, Waiver and Amendment between the Company and Technologies
         dated August 31, 1996 (2)

10.4     Lease between the Company and KI Monterey Research, Inc. dated August
         19, 1994, as amended (2)

10.5     Representation Agreement between AdSmart Corporation and Tritium
         Network, Inc. dated June 11, 1999

10.6     Consent to Assignment and Amendment of Representation Agreement between
         AdSmart Corporation and Tritium Network, Inc. dated February 25, 2000

16.1     Letter on change in certifying accountant (4)

16.2     Letter on change in certifying accountant (5)

16.3     Letter on change in certifying accountant (6)

27.1     Financial Data Schedule

                                       14

<PAGE>


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

(1)  Incorporated herein by reference to the our Registration Statement on Form
     SB-2 (Registration No. 33-11321), as filed with the Securities and Exchange
     Commission (the "Commission") on September 3, 1996 (the "Registration
     Statement").

(2)  Incorporated herein by reference to Amendment No. 1 to the Registration
     Statement, as filed with the Commission on October 11, 1996.

(3)  Incorporated herein by reference to Exhibit A of our Proxy Statement, dated
     November 13, 1997.

(4)  Incorporated herein by reference to our Current Report on Form 8-K, as
     filed with the Commission on March 7, 1997, and Amendment No. 1 thereto on
     Form 8-K/4, as filed with the Commission on March 14, 1997.

(5)  Incorporated herein by reference to our Current Report on Form 8-K, as
     filed with the Commission on July 23, 1999, and Amendment No. 1 thereto on
     Form 8-K/A, as filed with the Commission on July 30, 1999.

(6)  Incorporated herein by reference to our Current Report on Form 8-K, as
     filed with the Commission on August 17, 1999.

(7)  Incorporated herein by reference to our Current Report on Form 8-K, as
     filed with the Commission on March 21, 2000.

(b) Reports on Form 8-K

         We filed with the Commission a Current Report on Form 8-K on March 21,
2000.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on our behalf
by the undersigned, thereunto duly authorized.

Dated:  May 1, 2000                  THINKING TOOLS, INC.

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


                                       15


<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 outside of 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 100,000
options vesting in May 2000 and 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 certain investors, 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
and $500,000 under a bridge note to Tritium. 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.



                                      F-19