<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 7, 2000
THINKING TOOLS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
DELAWARE 000-21295 77-0436410
<S> <C> <C>
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
</TABLE>
200 Park Avenue, Suite 3900, New York, NY 10166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 808-7474
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
Item 7. (a) Financial Statements, Pro Forma Financial Information and Exhibits
Financial Statements of Business Acquired
Tritium Network, Inc. and InterAd Group, Inc. Financial Statements
for the Years Ended December 31, 1999 and 1998.
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Financial Statements
<PAGE>
TRITIUM NETWORK, INC.
AND INTERAD GROUP, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................................................F-1
FINANCIAL STATEMENTS
Balance Sheet for Tritium Network, Inc. at December 31, 1999........................................F-2
1999 Combined Statement of Operations and 1998 Statement of Operations
for InterAd Group, Inc. (Only)..............................................................F-3
1999 Combined Statement of Shareholders' Deficiency and 1998 Statement
of Shareholders' Deficiency for InterAd Group, Inc. (Only)..................................F-4
1999 Combined Statement of Cash Flows and 1998 Statement of Cash Flows
for InterAd Group, Inc. (Only)..............................................................F-5
Notes to Financial Statements....................................................................F-6-12
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Thinking Tools, Inc.:
We have audited the accompanying balance sheet of Tritium Network, Inc. as of
December 31, 1999, the combined statements of operations, shareholders'
deficiency and cash flows of Tritium Network, Inc. and InterAd Group, Inc. for
the year ended December 31, 1999, and the statements of operations,
shareholders' deficiency and cash flows of InterAd Group, Inc. for the year
ended December 31, 1998. These financial statements are the responsibility of
the Companies' 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 Tritium Network, Inc. as of
December 31, 1999, the combined results of operations and cash flows of Tritium
Network, Inc. and InterAd Group, Inc. for the year then ended and the results of
operations and cash flows of InterAd Group, Inc. for the year ended December 31,
1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Companies will continue as a going concern. As discussed in Note 1 to the
financial statements, the Companies' recurring losses raise substantial doubt
about their 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 these
uncertainties.
DRUKER, RAHL & FEIN
Hamilton, New Jersey
March 15, 2000, except for Notes 9 and 12 as to which the date is May 31, 2000.
F-1
<PAGE>
TRITIUM NETWORK, INC.
BALANCE SHEET FOR TRITIUM NETWORK, INC.
December 31, 1999
(In thousands)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 279
Accounts receivable 19
------
Total current assets 298
------
PROPERTY AND EQUIPMENT, Net 11
------
OTHER ASSETS
Deposits and other 74
------
TOTAL ASSETS $ 383
======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 90
Accrued expenses 117
Bridge note payable 500
Shareholders' loans 11
------
Total current liabilities 718
------
CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common stock, no par value, 2,500 shares authorized,
1,603 shares issued and outstanding 233
Accumulated deficit (568)
------
Total shareholders' deficiency (335)
------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 383
======
See notes to financial statements.
F-2
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
1999 COMBINED STATEMENT OF OPERATIONS AND
1998 STATEMENT OF OPERATIONS FOR INTERAD GROUP, INC. (ONLY)
Years Ended December 31, 1999 and 1998
(In thousands)
InterAd Group,
(Combined) Inc. (Only)
1999 1998
---------- --------------
REVENUES
Advertising $ 22 $ 9
COST AND EXPENSES
Internet connection 228 622
Software development and maintenance costs 176 593
Selling, general and administrative 222 907
------- --------
Total costs and expenses 626 2,122
------- --------
NET LOSS $ (604) $ (2,113)
======= ========
See notes to financial statements.
F-3
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
1999 COMBINED STATEMENT OF SHAREHOLDERS' DEFICIENCY AND
1998 STATEMENT OF SHAREHOLDERS' DEFICIENCY FOR INTERAD GROUP, INC. (ONLY)
Years Ended December 31, 1999 and 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit (Deficiency)
------ ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
InterAd Group, Inc. (Only)
BALANCES,
January 1, 1998 100 $ 1 $ - $ (1,177) $ (1,176)
Issuance of common stock - - 506 - 506
Net loss - - - (2,113) (2,113)
----- ----- ------ -------- -------
BALANCES,
December 31, 1998 100 1 506 (3,290) (2,783)
Issuance of common stock for
(Tritium Network, Inc. (Only))
Cash 1,380 65 - - 65
Services performed 223 168 - - 168
Net Loss (Combined) - - - (604) (604)
Adjustment: Elimination of
InterAd Group, Inc. (100) (1) (506) 3,326 2,819
----- ----- ------ -------- -------
BALANCES, December 31, 1999,
Tritium Network, Inc. (Only) 1,603 $ 233 $ - $ (568) $ (335)
===== ===== ====== ======== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
1999 COMBINED STATEMENT OF CASH FLOWS AND
1998 STATEMENT OF CASH FLOWS FOR INTERAD GROUP, INC. (ONLY)
Years Ended December 31, 1999 and 1998
(In thousands)
InterAd Group,
(Combined) Inc. (Only)
1999 1998
---------- --------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net Loss $ (604) $ (2,113)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 3 87
Impairment of equipment - 138
Impairment of software development costs - 593
Stock compensation expense 168 -
Changes in assets and liabilities
Accounts receivable (23) 2
Prepaid expenses and other assets (71) 1
Accounts payable 103 666
Accrued expenses 129 38
------ --------
Net cash used in operating activities (295) (588)
------ --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment (5) -
Software development costs - (593)
------ --------
Net cash used in investing activities (5) (593)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from investors 500 -
Principal payments on notes payable (2) -
Proceeds from note payable - 2
Proceeds from shareholders' loans 15 674
Proceeds from issuance of common stock 65 506
------ --------
Net cash provided by financing activities 578 1,182
------ --------
Net Increase in cash 278 1
CASH AND EQUIVALENTS, beginning of year 1 -
------ --------
CASH AND EQUIVALENTS, end of year $ 279 $ 1
====== ========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
Common stock granted for services performed $ 168 $ -
Equipment given in satisfaction of liabilities - 30
See notes to financial statements.
F-5
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
1. BASIS OF PRESENTATION AND BUSINESS
Basis of Presentation - The accompanying financial statements present the
balance sheet of Tritium Network, Inc. (Only) as of December 31, 1999, the
combined statements of operations, shareholders' deficiency and cash flows of
Tritium Network, Inc. and InterAd Group, Inc. for the year ended December 31,
1999, and the statements of operations, shareholders' deficiency and cash flows
of InterAd Group, Inc. (Only) for the year ended December 31, 1998. The 1999
combined statement of shareholders' deficiency contains an adjustment to
eliminate InterAd Group, Inc. from the Tritium Network, Inc. (Only) common
stock, accumulated deficit and total shareholders' deficiency balances at
December 31, 1999. InterAd Group, Inc. and Tritium Network, Inc. are
closely-held companies whose shares are not publicly traded.
The Companies' financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate the continuation of
the Companies (Combined) as a going concern. As shown in the accompanying
financial statements, the Companies (Combined) incurred a net loss of $604,000
for the year ended December 31, 1999, and as of December 31, 1999, Tritium
Network, Inc. (Only) had an accumulated deficit of $568,000. The Companies have
not generated significant revenues nor have they operated profitably at any time
during their existence. InterAd Group, Inc. has no remaining assets as of
December 31, 1999. Tritium Network, Inc. expects to recover its asset values
through the sale of substantially all of its assets to StartFree.com, Inc. on
March 7, 2000 and by subsequent liquidation.
Business - Tritium Network, Inc. ("Tritium") was incorporated in Delaware in
January 1999. Tritium's offices are located in Montgomery, Ohio, a suburb of
Cincinnati. The Company was founded by the majority shareholder to provide
internet-related and other advertising services to the general public. This
shareholder is also the majority owner of InterAd Group, Inc., d/b/a Tritium
Network ("InterAd"). InterAd was incorporated in Ohio in October 1995 as InterAd
Corporation and in February 1996 was renamed InterAd Group, Inc. InterAd was
formed to provide internet-related and other advertising services to the general
public. InterAd ceased active operations in September 1998, terminated its
employees and was informally liquidated during 1999, although it has continued
to maintain its corporate existence through December 31, 1999. Due to certain
commonalties between Tritium and InterAd, including management, ownership,
methods of operation, and lines of business, InterAd is considered a predecessor
to Tritium. References herein to the "Company" include both Tritium and InterAd.
F-6
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
1. BASIS OF PRESENTATION AND BUSINESS (CONTINUED)
Business (Continued) - InterAd was a pioneer in the concept of providing free
internet access to subscribers in return for the viewing of advertisements on
the lower portion of their computer screens. The founding shareholder developed
the technology of "dead band-width" technology for which a patent application is
currently pending.
The "dead band-width" technology provides for downloading advertisements or
other information to subscribers' screens during the time the modem is not
otherwise transmitting or receiving data from the Internet. This provides for
greater speed and responsiveness in accessing information on the Internet. In
April 1998, InterAd launched its network under the name of Tritium Network,
introducing free Internet access in the Cincinnati area. Due to certain
operational and design deficiencies, InterAd generated minimal revenue and
incurred significant losses.
Tritium was founded in January 1999 to take advantage of the rapid changes in
the Internet free access marketplace that were occurring. Tritium corrected
design flaws in the Internet access software and arranged less costly telephone
accessibility. In an effort to ensure a consistent revenue flow, Tritium entered
into a contract with an advertising supplier in July 1999 whereby the supplier
agreed to pay Tritium a share of revenue from the display of advertisements on
both the Tritium website and as subscribers access the internet. In exchange,
Tritium granted to this supplier the opportunity to receive up to 9.9% of the
outstanding common stock of Tritium subject to fulfilling certain conditions and
based on the supplier remitting commissions and fees earned to Tritium
quarterly. Tritium launched its free Internet access network in January 2000.
Shortly after the network's launch, Tritium had approximately 141,000
subscribers.
In November 1999, Tritium entered into a letter of intent for a business
combination with Thinking Tools, Inc. ("TTI"). On March 7, 2000, a wholly owned
subsidiary of TTI, StartFree.com, Inc. acquired substantially all of the assets
and assumed certain specified liabilities of Tritium through the issuance of
convertible preferred stock (see Note 12).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination - The combined statements of operations, shareholders'
deficiency and cash flows of Tritium and InterAd for the year ended December 31,
1999 include the accounts of Tritium Network, Inc. and InterAd Group, Inc. All
significant intercompany balances and transactions have been eliminated.
F-7
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Revenues - The Company generally recognizes revenue on a monthly basis as it is
earned. Revenue consists of commissions based on the number of advertisements
viewed by subscribers while utilizing the Company's internet access.
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.
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. 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 based upon condition of the property and technological obsolescence and
were written down to their fair value. An impairment loss of approximately
$138,000 has been charged to expense in 1998 and included in selling, general
and administrative expense.
Software development costs - The Company follows the guidance provided by the
American Institute of Certified Public Accountants' Statement of Position 98-1
("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" which requires that certain costs related to the
development of software used internally should be capitalized. The Company
considers the costs incurred to develop the software to provide Internet
services and advertisement connections which meet the criteria of SOP 98-1 to be
subject to the guidance provided by the provisions of Financial Accounting
Standard No. 121, ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
F-8
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Software development costs (Continued) - Under the provisions of SFAS 121,
software development costs that are deemed to be impaired are written down to
their fair value in the period the impairment is determined. For the year ended
December 31, 1998, an impairment loss of approximately $593,000 has been charged
to expense due to rapid changes in technology. As of December 31, 1999, the
Company has no unamortized costs related to internal use software.
3. CONCENTRATION OF BUSINESS AND CREDIT RISKS
Tritium is dependent upon one advertising supplier for substantially all of its
revenue. In addition, Tritium is reliant upon single suppliers for each of
Internet connectivity and dial-up services. Although there are other suppliers
of these services, a change in suppliers could result in Tritium's inability to
generate revenues and maintain subscribers until replacement suppliers could be
found, thus potentially affecting operating results.
Financial instruments that potentially subject Tritium 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. Accounts Receivable as of December 31, 1999 consist solely of
advertising revenues due from the single advertising supplier.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 are as follows (in thousands):
Equipment $ 13
Furniture and fixtures 1
-----
Total property and equipment 14
Accumulated depreciation (3)
-----
Property and equipment, net $ 11
=====
Depreciation expense was $3,000 for 1999 and $87,000 for 1998.
F-9
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 are as follows (in thousands):
Payroll and related costs $ 40
Settlement of shareholder lawsuit (see note 12) 67
Other 10
-----
Total $ 117
=====
6. INCOME TAXES
For the year ended December 31, 1998, InterAd elected to be treated as an "S
Corporation" for federal and state income tax purposes. Because the income or
loss of an S Corporation is reported only on the income tax returns of its
owners, no provision has been made for corporate income taxes in the
accompanying financial statements for 1998. Tritium has elected to be taxed
directly as a "C Corporation." Tritium's 1999 loss for federal and state income
tax purposes of approximately $403,000 must be carried forward to future
periods. Tritium has recorded a deferred income tax asset to recognize the
potential future benefit of the loss carryforward. Tritium has increased the
deferred income tax asset to recognize the potential future benefit of the
$235,000 of stock compensation expense (see Note 9). However, because of the
Company's history of losses, Tritium has established a valuation allowance to
reduce the deferred income tax asset to zero at December 31, 1999.
The components of the deferred income tax asset at December 31, 1999 are as
follows (in thousands):
Deferred income tax asset
Net operating loss carryforwards $ 153
Stock compensation 89
------
242
Less valuation allowance (242)
------
Net deferred income tax asset $ -
======
Tritium's loss carryforward expires in 2019 for federal income tax purposes and
2014 for state income tax purposes. Federal and State of Ohio 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 Code
Section 382.
F-10
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
7. BRIDGE NOTE PAYABLE
In December 1999, in connection with the acquisition of Tritium's assets by a
TTI company, investors of TTI advanced $500,000 under a bridge note to Tritium
(See Note 12). The bridge note was due by June 7, 2000 or upon the earlier
occurrence of certain events. The note provided conversion features to the
investors in the event the Company was purchased by other than a TTI entity, and
at the investors' option, to either supply shares representing 30% of the
Company or to pay $1,000,000. In addition, the Company granted warrants to the
investors for 222 shares of its stock, exercisable at $.01 per share from June
7, 2000 until June 29, 2009. These warrants were cancelled upon the acquisition
of Tritium's assets by a TTI Company.
8. SHAREHOLDERS' LOANS
Shareholders' loans at December 31, 1999 consist of unsecured advances to
Tritium by shareholders. These loans bear no interest and have no set repayment
dates.
9. STOCK GRANTED FOR SERVICES PERFORMED
During 1999, certain Tritium employees and service providers received 223 shares
of common stock as compensation for services valued at approximately $168,000.
For the year ended December 31, 1999, the Company recorded noncash compensation
expense of $168,000 in connection with the issuance of this common stock.
10. CONTINGENCIES
InterAd substantially ceased operations in September 1998. As of December 31,
1999 and 1998, InterAd owed trade creditors $882,000. InterAd has not obtained
binding releases from its creditors. In connection with the cessation of
InterAd's operations, several employees did not receive payment for earned
compensation of approximately $25,000 in aggregate. Tritium cannot, at this
time, predict whether it could be held responsible for these obligations.
Accordingly, no provision for any estimated loss is reflected in the
accompanying financial statements.
11. ADVERTISING EXPENSE
Advertising expense was approximately $145,000 and $98,000 for the years ended
December 31, 1999 and 1998, respectively.
F-11
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
12. SUBSEQUENT EVENTS
On March 7, 2000, StartFree.com, Inc, a wholly owned subsidiary of TTI (see Note
1), acquired substantially all of the assets and assumed specified liabilities
of Tritium (Only). The specified liabilities included the $500,000 bridge note
payable by Tritium. In addition, StartFree.com, Inc. assumed Tritium's
advertising and suppliers' agreements. Consideration for the acquisition was
paid by TTI 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 TTI common stock when TTI files an application with the Secretary of
State of the State of Delaware to increase the authorized number of shares of
common stock.
In addition, in connection with the Tritium acquisition, TTI contributed a
warrant to purchase 1,262,275 shares of its common stock to StartFree.com, Inc.,
which StartFree.com, Inc. recorded as a capital contribution, and StartFree.com,
Inc. delivered the warrant to Tritium's advertising supplier as consideration
for the assignment of the advertising agreement to StartFree.com, Inc.
In February 2000, an InterAd shareholder received 90 shares of Tritium stock
valued at $67,000 in settlement of the shareholder's lawsuit against Tritium.
This obligation has been included in accrued expenses at December 31, 1999 (See
Note 5).
F-12
<PAGE>
TRITIUM NETWORK, INC. AND INTERAD GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
THINKING TOOLS, INC.
Unaudited Pro Forma Condensed Financial Statements
The following unaudited pro forma condensed financial statements of Thinking
Tools, Inc. ("TTI") have been prepared to indicate how the financial statements
of TTI might have looked if the acquisition of Tritium Network, Inc. ("Tritium")
and transactions related to that acquisition had occurred as of the date or at
the beginning of the period presented.
On March 7, 2000, TTI through a newly formed wholly-owned subsidiary,
StartFree.com, Inc., consummated the acquisition of substantially all of the
assets and certain liabilities of Tritium. This was accomplished through the
issuance of 1,148,798.5 shares of Series A Convertible Preferred Stock of TTI to
Tritium shareholders. Tritium was an Internet service provider headquartered in
the Cincinnati, Ohio metropolitan area. Tritium earns commissions based on the
number of advertisements viewed by subscribers while utilizing Tritium's free
internet access.
The pro forma condensed financial statements have been prepared using the
audited historical financial statements of TTI and Tritium as of and for the
year ended December 31, 1999. The acquisition is being accounted for under the
purchase method of accounting for business combinations. The pro forma
adjustments are described in the accompanying notes and include an estimate of
the direct costs of the acquisition. Such estimate is subject to final
determination.
The pro forma condensed financial statements should be read in conjunction with
a reading of the historical financial statements of TTI and Tritium. The pro
forma condensed financial statements are presented for illustrative purposes
only and are not intended to be indicative of actual financial condition or
results of operations had the acquisition been in effect during the periods
presented, or of financial condition or results of operations that may be
reported in the future.
F-13
<PAGE>
THINKING TOOLS, INC.
UNAUDITED PROFORMA CONDENSED BALANCE SHEET
December 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------ ADJUSTMENTS
THINKING TRITIUM -------------------
TOOLS, INC. NETWORK, INC. AMOUNTS NOTES PRO FORMA
----------- ------------- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 112 $ 279 $ 550 (E) $ 455
(279) (A)
(207) (C)
Accounts receivable - 19 11 (A) 27
(3) (A)
-------- --------- -------- --------
Total current assets 112 298 72 482
-------- --------- -------- --------
PROPERTY AND EQUIPMENT, Net 10 11 - 21
-------- --------- -------- --------
OTHER ASSETS
Deposits and other 64 74 (61) (A) 77
Prepaid advertising, net - - 391 (G) 182
(209) (G)
Goodwill and other intangibles - - 3,100 (D) 2,205
207 (C)
-------- --------- -------- --------
Total other assets 64 74 2,326 2,464
-------- --------- -------- --------
TOTAL ASSETS $ 186 $ 383 $ 2,398 $ 2,967
======== ========= ======== ========
LIABILITIES AND
SHAREHOLDERFS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 232 $ 90 $ (38) (A) $ 284
Accrued expenses 203 117 (117) (A) 203
Notes payable - 500 (500) (E) -
Shareholders' loans - 11 (11) (A) -
-------- --------- -------- --------
Total current liabilities 435 718 (666) 487
LONG TERM DEPOSITS 5 - - 5
-------- --------- -------- --------
Total liabilities 440 718 (666) 492
-------- --------- -------- --------
COMMITMENTS AND CONTINGENCIES
INVESTOR ADVANCE 100 - (100) (E) -
-------- --------- -------- --------
SHAREHOLDERS' DEFICIENCY
Preferred convertible stock - - 1 (D) 1
Common stock 7 233 (233) (A) 9
2 (E)
Additional paid-in capital 16,010 - 1,148 (E) 20,147
2,598 (D)
391 (G)
Deferred Stock Compensation (875) - - (875)
Accumulated deficit (15,496) (568) 67 (A) (16,807)
501 (B)
(1,311) (H)
-------- --------- -------- --------
Total shareholders' deficiency (354) (335) 3,164 2,475
-------- --------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIENCY $ 186 $ 383 $ 2,398 $ 2,967
======== ========= ======== ========
</TABLE>
See notes to Pro Forma Condensed Financial Statements.
F-14
<PAGE>
THINKING TOOLS, INC.
UNAUDITED PROFORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------- ADJUSTMENTS
THINKING TRITIUM ------------------
TOOLS, INC. NETWORK, INC. AMOUNTS NOTES PRO FORMA
----------- ------------- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Product $ 92 $ 22 $ - $ 114
------- -------- ------- -------
COST AND EXPENSE
Internet Connection - 213 - 213
Selling, general and administration 2,981 201 209 (G) 3,391
Software development and maintenance costs 121 176 - 297
------- -------- ------- -------
Total Cost and Expense 3,102 590 209 3,901
------- -------- ------- -------
LOSS FROM OPERATIONS (3,010) (568) (209) (3,787)
------- -------- ------- -------
OTHER EXPENSES
Interest expense (276) - - (276)
Amortization of goodwill and other intangibles - - (1,102) (F) (1,102)
------- -------- ------- -------
Total other expenses (276) - (1,102) (1,378)
------- -------- ------- -------
NET LOSS $(3,286) $ (568) $(1,311) $(5,165)
======= ======== ======== =======
BASIC NET LOSS PER SHARE $ (0.67) $ (0.35) $ (0.72)
======= ======== =======
SHARES USED IN CALCULATION OF
BASIC NET LOSS PER SHARE 4,870 1,603 (I) 7,170
======= ======== =======
</TABLE>
See notes to Pro Forma Condensed Financial Statements.
F-15
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THINKING TOOLS, INC.
Notes to Unaudited Pro Forma Condensed
Financial Statements
A. These adjustments reflect the removal of assets, liabilities, and accumulated
deficit not acquired by StartFree.com/TTI as a part of the acquisition.
B. To eliminate the historical accumulated deficit of Tritium.
C. Represents professional fees incurred as a part of the acquisition of Tritium
and capitalized as direct costs of acquisition.
D. These adjustments reflect the allocation of the purchase price of Tritium,
determined to be $3,100,000, and amortization of these assets. Assets
purchased were primarily intangible assets consisting of customer lists
($900,000), intellectual property ($300,000) and goodwill ($1,900,000).
E. These adjustments reflect the agreements reached with investors to finance
the acquisition of Tritium through an advance of $100,000 to TTI and a
$500,000 bridge note to Tritium, the conversion of the advance and the bridge
note to common stock at the time of the acquisition of Tritium, and the
additional investment of $550,000 to purchase shares of TTI stock.
F. Amortization is provided using the straight-line method over the estimated
useful lives of three years. For purposes of the pro forma statements, one
year's amortization of $1,102,000 has been charged.
G. As a part of the acquisition, TTI issued a warrant to purchase shares of its
stock to the Tritium advertising supplier in order to induce the supplier to
transfer its marketing agreement to StartFree.com. The value of these
warrants was determined to be approximately $391,000. The original agreement
between the advertising supplier and Tritium was for a period of 30 months
beginning July 19, 1999. Because the warrants were issued on March 7, 2000 in
connection with the Tritium acquisition, their value will be amortized on a
straight-line basis over the remaining 22.5-month life of the contract. For
purposes of the pro forma statements, one year's amortization of $209,000 has
been charged.
H. Represents proforma adjustments from the unaudited pro forma condensed
statement of operations.
I. Basic pro forma net loss per share is computed using the weighted average
number of TTI common shares outstanding during the period plus shares of TTI
common stock issued in connection with the acquisition of Tritium. TTI common
stock issued in connection with the Tritium acquisition is assumed
outstanding at the beginning of the period.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
THINKING TOOLS, INC.
By: /s/ Moshe Zarmi
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Name: Moshe Zarmi
Title: President
Dated: August 7, 2000
