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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 000-25661

---

TenFold Corporation(Exact name of registrant as specified in its charter)

Delaware

83-0302610(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


698 West 10000 South
South Jordan, Utah 84095(Address of principal executive offices, including zip code)

(801) 495-1010(Registrant's telephone number, including area code)

---

Indicate
by check mark 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
preceding 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 ý    No o

As
of April 1, 2002, there were 37,283,580 shares of the registrant's Common Stock outstanding.





INDEX



|           |  |                                                                                                             
|---------- |  | ------------------------------------------------------------------------------------------------------------
|           |  | Forward-Looking Statements                                                                                  
|PART I.    |  | FINANCIAL INFORMATION                                                                                       
|Item 1.    |  | Condensed Consolidated Financial Statements                                                                 
|           |  | Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001                               
|           |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and March 31, 2001
|           |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and March 31, 2001
|           |  | Notes to Condensed Consolidated Financial Statements                                                        
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                  
|PART II.   |  | OTHER INFORMATION                                                                                           
|Item 1.    |  | Legal Proceedings                                                                                           
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                   
|Item 3.    |  | Defaults Upon Senior Securities                                                                             
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                            
|SIGNATURES





FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that may
cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as "expects," "intends," "anticipates," "should," "believes," "will,"
"plans," "estimates," "may," variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any
forward-looking statements whether as a result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained
in the forward-looking statements. These factors include: ability to generate sufficient cash flow or secure additional sources of financing; collectibility of project payments; future customer
revenue; increased employee and consultant costs due to project delays; ability to achieve cost reductions; the possibility of future customer or other complaints; shareholder complaints concerning
alleged violation of securities laws, and possible de-listing of our stock from Nasdaq; reduced comprehensive errors and omissions insurance coverage; attraction, training and retention of
employees and key management; variability of quarterly operating results; dependence on a small number of customers; customer's fulfillment of various responsibilities; completion of one remaining
fixed-time, fixed-price contract; risks associated with the functionality and timing of new product releases; longer than expected sales cycles; ability to accurately estimate resources
required for new and existing projects; changes in industry accounting guidance; competitive factors; the mix of revenues derived from license sales as compared to services; protection of intellectual
property; and entering into, maintaining and ending strategic partnerships. Such statements could be affected by general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency exchange rate fluctuations and other factors. Additional information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained from time to time in documents filed by TenFold Corporation with the Securities and Exchange Commission, including but not limited
to, the most recent reports on Forms 10-Q and 10-K. Some of these factors are described under the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of OperationsFactors That May Affect Future Results and Market Price of Stock."





PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

TENFOLD CORPORATION        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands, except share data)        (unaudited)

|                                      |                                                                                                        | March 31,
2002                                                                                                |                                             | December 31,
2001 |   
|------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------- | --
|Assets                                |                                                                                                        |                                                                                                               |                                             |                   |   
|Current assets:                       |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      | Cash and cash equivalents                                                                              |                                                                                                               | $                                           | 5,680             |   
|                                      | Accounts receivable, (net of allowances for doubtful accounts of $433 and $955, respectively)          |                                                                                                               |                                             | 1,438             |   
|                                      | Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $1,320, respectively) |                                                                                                               |                                             |                  |   
|                                      | Prepaid expenses and other assets                                                                      |                                                                                                               |                                             | 437               |   
|                                      | Income taxes receivable                                                                                |                                                                                                               |                                             | 14                |   
|                                      | Assets held for sale                                                                                   |                                                                                                               |                                             |                  |   
|                                      | Other assets, (net of allowances of $153 and $182, respectively)                                       |                                                                                                               |                                             | 399               |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total current assets                        |                   |   
|                                      | Restricted cash                                                                                        |                                                                                                               |                                             | 5,930             |   
|                                      | Property and equipment, net                                                                            |                                                                                                               |                                             | 3,737             |   
|                                      | Due from stockholders, (net of allowances of $400 and $800, respectively)                              |                                                                                                               |                                             |                  |   
|                                      | Other assets                                                                                           |                                                                                                               |                                             | 358               |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total assets                                |                   | $ 
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|Liabilities and Stockholders' Deficit |                                                                                                        |                                                                                                               |                                             |                   |   
|Current liabilities:                  |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      | Accounts payable                                                                                       |                                                                                                               | $                                           | 1,943             |   
|                                      | Income taxes payable                                                                                   |                                                                                                               |                                             | 1,768             |   
|                                      | Accrued liabilities                                                                                    |                                                                                                               |                                             | 10,771            |   
|                                      | Deferred revenue                                                                                       |                                                                                                               |                                             | 22,216            |   
|                                      | Current installments of obligations under capital leases                                               |                                                                                                               |                                             | 3,227             |   
|                                      | Current installments of notes payable                                                                  |                                                                                                               |                                             | 1,817             |   
|                                      | Other current liabilities                                                                              |                                                                                                               |                                             | 1,098             |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total current liabilities                   |                   |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|Long-term liabilities:                |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      | Obligations under capital leases, excluding current installments                                       |                                                                                                               |                                             | 1,022             |   
|                                      | Notes payable, excluding current installments                                                          |                                                                                                               |                                             | 2,018             |   
|                                      | Other long-term liabilities                                                                            |                                                                                                               |                                             | 41                |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total long-term liabilities                 |                   |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|Contingencies (Note 8)                |                                                                                                        |                                                                                                               |                                             |                   |   
|Stockholders' deficit:                |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      | Common stock, $0.001 par value:                                                                        |                                                                                                               |                                             |                   |   
|                                      | Authorized: 120,000,000 shares                                                                         |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        | Issued and outstanding shares: 37,283,580 shares at March 31, 2002 and 36,812,462 shares at December 31, 2001 |                                             |                   | 37
|                                      | Additional paid-in capital                                                                             |                                                                                                               |                                             | 66,146            |   
|                                      | Notes receivable from stockholders, (net of allowances of $609 and $786, respectively)                 |                                                                                                               |                                             | (284              | ) 
|                                      | Deferred compensation                                                                                  |                                                                                                               |                                             | (405              | ) 
|                                      | Accumulated deficit                                                                                    |                                                                                                               |                                             | (92,980           | ) 
|                                      | Accumulated other comprehensive loss                                                                   |                                                                                                               |                                             | (442              | ) 
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total stockholders' deficit                 |                   |   
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   
|                                      |                                                                                                        |                                                                                                               | Total liabilities and stockholders' deficit |                   | $ 
|                                      |                                                                                                        |                                                                                                               |                                             |                   |   

The accompanying notes are an integral part of these condensed consolidated financial statements



TENFOLD CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)        (unaudited)

|                                                                                                        |                                                                                             | Three Months Ended
March 31,      |       
|------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------- | ------
|
|Revenues:                                                                                               |                                                                                             |                                   |       
|                                                                                                        | License                                                                                     |                                   | $     
|                                                                                                        | Subscription                                                                                |                                   |       
|                                                                                                        | Services and other                                                                          |                                   |       
|                                                                                                        |                                                                                             |                                   |       
|                                                                                                        |                                                                                             | Total revenues                    |       
|                                                                                                        |                                                                                             |                                   |       
|Operating expenses:                                                                                     |                                                                                             |                                   |       
|                                                                                                        | Cost of revenues (exclusive of non-cash compensation of $30 and $64, respectively)          |                                   |       
|                                                                                                        | Sales and marketing (exclusive of non-cash compensation of $2 and $44, respectively)        |                                   |       
|                                                                                                        | Research and development (exclusive of non-cash compensation of $27 and $55, respectively)  |                                   |       
|                                                                                                        | General and administrative (exclusive of non-cash compensation of $5 and $12, respectively) |                                   |       
|                                                                                                        | Amortization of goodwill and acquired intangibles                                           |                                   |       
|                                                                                                        | Amortization of deferred compensation                                                       |                                   |       
|                                                                                                        | Special charges                                                                             |                                   |       
|                                                                                                        |                                                                                             |                                   |       
|                                                                                                        |                                                                                             | Total operating expenses          |       
|                                                                                                        |                                                                                             |                                   |       
|Loss from operations                                                                                    |                                                                                             |                                   | (3,486
|                                                                                                        |                                                                                             |                                   |       
|Other income (expense):                                                                                 |                                                                                             |                                   |       
|                                                                                                        | Interest income                                                                             |                                   |       
|                                                                                                        | Interest expense                                                                            |                                   |       
|                                                                                                        | Other income                                                                                |                                   |       
|                                                                                                        | Gain on sale of The LongView Group, Inc.                                                    |                                   |       
|                                                                                                        |                                                                                             |                                   |       
|                                                                                                        |                                                                                             | Total other income (expense), net |       
|                                                                                                        |                                                                                             |                                   |       
|Loss before income taxes                                                                                |                                                                                             |                                   | (3,550
|Provision (benefit) for income taxes                                                                    |                                                                                             |                                   | (508  
|                                                                                                        |                                                                                             |                                   |       
|Net loss                                                                                                |                                                                                             | $                                 | (3,042
|                                                                                                        |                                                                                             |                                   |       
|Basic and diluted loss per common share                                                                 |                                                                                             | $                                 | (0.08 
|                                                                                                        |                                                                                             |                                   |       
|Weighted average common and common equivalent shares used to calculate basic and diluted loss per share |                                                                                             |                                   | 36,998

The accompanying notes are an integral part of these condensed consolidated financial statements



TENFOLD CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)        (unaudited)

|                                                     |                                                                             | Three Months Ended
March 31,                              |                                          
|---------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:                |                                                                             |                                                           |                                          
|                                                     | Net loss                                                                    |                                                           | $                                        
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                                           |                                          
|                                                     |                                                                             | Deferred income tax provision (benefit)                   |                                          
|                                                     |                                                                             | Amortization of goodwill and acquired intangibles         |                                          
|                                                     |                                                                             | Depreciation and amortization                             |                                          
|                                                     |                                                                             | Impaired assets charge                                    |                                          
|                                                     |                                                                             | Provision for bad debts                                   |                                          
|                                                     |                                                                             | Amortization of deferred compensation                     |                                          
|                                                     |                                                                             | Compensation expense related to stock options             |                                          
|                                                     |                                                                             | Gain on sale of The LongView Group, Inc.                  |                                          
|                                                     | Changes in operating assets and liabilities:                                |                                                           |                                          
|                                                     |                                                                             | Accounts receivable                                       |                                          
|                                                     |                                                                             | Unbilled accounts receivable                              |                                          
|                                                     |                                                                             | Prepaid expenses and other assets                         |                                          
|                                                     |                                                                             | Accounts payable                                          |                                          
|                                                     |                                                                             | Income taxes payable                                      |                                          
|                                                     |                                                                             | Accrued liabilities                                       |                                          
|                                                     |                                                                             | Deferred revenues                                         |                                          
|                                                     |                                                                             | Other liabilities                                         |                                          
|                                                     |                                                                             |                                                           |                                          
|                                                     |                                                                             |                                                           | Net cash used in operating activities    
|                                                     |                                                                             |                                                           |                                          
|                                                     | Cash flows from investing activities:                                       |                                                           |                                          
|                                                     |                                                                             | Proceeds from sale of property and equipment              |                                          
|                                                     |                                                                             | Additions to property and equipment                       |                                          
|                                                     |                                                                             | Additions (decreases) to restricted cash                  |                                          
|                                                     |                                                                             | Net proceeds from sale of The LongView Group, Inc.        |                                          
|                                                     |                                                                             |                                                           |                                          
|                                                     |                                                                             |                                                           | Net cash provided by investing activities
|                                                     |                                                                             |                                                           |                                          
|                                                     | Cash flows from financing activities:                                       |                                                           |                                          
|                                                     |                                                                             | Proceeds from employee stock purchase plan stock issuance |                                          
|                                                     |                                                                             | Proceeds from common stock issuance                       |                                          
|                                                     |                                                                             | Exercise of common stock options                          |                                          
|                                                     |                                                                             | Repurchase of common stock                                |                                          
|                                                     |                                                                             | Principal payments on notes payable                       |                                          
|                                                     |                                                                             | Payments of notes receivable from stockholders            |                                          
|                                                     |                                                                             | Principal payments on obligations under capital leases    |                                          
|                                                     |                                                                             |                                                           |                                          
|                                                     |                                                                             |                                                           | Net cash used in financing activities    
|                                                     |                                                                             |                                                           |                                          
|Effect of exchange rate changes                      |                                                                             |                                                           | (442                                     
|                                                     |                                                                             |                                                           |                                          
|Net (decrease) increase in cash and cash equivalents |                                                                             |                                                           | (5,289                                   
|Cash and cash equivalents at beginning of period     |                                                                             |                                                           | 10,969                                   
|                                                     |                                                                             |                                                           |                                          
|Cash and cash equivalents at end of period           |                                                                             | $                                                         | 5,680                                    
|                                                     |                                                                             |                                                           |                                          
|Supplemental disclosure of cash flow information:    |                                                                             |                                                           |                                          
|                                                     |                                                                             | Cash paid for income taxes                                |                                          
|                                                     |                                                                             | Cash paid for interest                                    |                                          

The accompanying notes are an integral part of these condensed consolidated financial statements





TENFOLD CORPORATION        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements included herein have been prepared by TenFold Corporation (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. In management's opinion, the interim financial data presented includes all adjustments necessary for a fair presentation. All
intercompany accounts and transactions have been eliminated. Certain reclassifications have been made in the prior years' financial statements to conform to the current period's presentation.
Certain information required by generally accepted accounting principles has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results
for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2002.

This
report should be read in conjunction with the Company's audited Consolidated Financial Statements for the year ended December 31, 2001 included in its Annual Report on
Form 10-K filed with the Securities and Exchange Commission.

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, including for example,
estimated project costs and profitability and accounts receivable allowances. These assumptions 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 these estimates.

The
Company's financial statements have been prepared under the assumption that the Company will continue as a going concern. The independent auditors' report on our December 31,
2001 financial
statements, prepared by KPMG LLP, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern. The Company has been operationally cash flow
negative for the years ended December 31, 2001 and 2000, and the three months ended March 31, 2002. This ongoing negative cash flow has continued to place a burden on the Company
to obtain cash infusions beyond those generated from normal operations. The Company continues to seek additional sources of financing such as new sales to existing and new customers, asset sales or
equity financing, to sustain its operations. There can be no assurance that the Company will be successful in its efforts to generate sufficient cash flow to continue operations in the near term.

2. Revenue Recognition

The Company derives revenues from license fees, subscription fees, applications development and implementation services, support, and training services. License
revenues consist of fees for licensing the Universal Application as a tool, and license fees for the applications that the Company owns and resells. Subscription revenue consists of fees for licensing
the Universal Application, licensing new product releases of TenFold's ComponentWare, providing related time-and-material consulting, training, and support services during a
subscription period. Service revenues consist of fees for applications development and implementation, support and training.

The
Company follows the provisions of Statement of Position ("SOP") 97-2,Software Revenue Recognition, as modified by SOP
98-9,Modification of SOP 97-2 with Respect to Certain Transactions, and Statement of Position ("SOP") 81-1, Accounting for Performance of ConstructionType and Certain
ProductionType Contracts,in recognizing revenue under each of its
contracts.

The
Company generally enters into contracts that involve multiple elements, such as software products, enhancements, post-contract customer support, training, and
time-and-material services. The Company allocates a portion of the contract fee to each undelivered element based on the relative fair values of the elements and allocates the
fee for delivered software products using the residual method.

For
service revenue accounted for under SOP 81-1, the Company generally estimates a profit range and recognizes revenue as costs are incurred. The Company adjusts the
estimates as work progresses under the contract and the Company gains experience.

For
certain contracts including a subscription to future software products when and if they become available, the Company recognizes the fees for the software products ratably over the
subscription term beginning with delivery of the first software product. For contracts that include a service element for which the fair value is undeterminable, and the contract includes a
subscription to new product releases
on a "when and if available basis," the Company recognizes the entire contract fee ratably over the subscription period as subscription revenue.

The
Company's deferred revenue balance generally results from contractual commitments made by customers to pay amounts to the Company in advance of revenues earned. The Company's
unbilled accounts receivable represents revenue that the Company has earned but which the Company has not yet billed.

3. Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands except per share data):

Three Months Ended
March 31,2002

2001Numerator:Numerator for basic loss per sharenet loss available to common stockholders

$
(3,042
)
$
(5,198
)Numerator for diluted loss per share

$
(3,042
)
$
(5,198
)Denominator:Denominator for basic loss per shareweighted average shares


36,998


35,404Employee stock options





Denominator for diluted loss per share


36,998


35,404Loss per common share:Basic and diluted loss per common share

$
(0.08
)
$
(0.15
)


Employee
stock options of 14,520,809 and 16,252,776 outstanding during the three months ended March 31, 2002 and 2001, respectively, that have a weighted average exercise price of
$4.63 and $10.45 per share, respectively, and that could potentially dilute basic earnings per share in the future, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the period.

4. Restricted Cash

Restricted cash relates to $3.8 million held as collateral for the Company's letter of credit obligations used to secure leases on office space in Chicago,
Illinois, Dallas, Texas, and San Francisco, California; $2.0 million held in escrow to secure a lease on office space in South Jordan, Utah; and $100,000 held in a deposit account related to an
employment agreement.

5. Comprehensive Income (Loss)

The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130,Reporting Comprehensive
Income("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income (loss) and its components in financial statements. Comprehensive
loss for the three months ended March 31, 2002 and 2001, ignoring the insignificant impact of taxes on foreign currency translation, were as follows (in thousands):

Three Months Ended
March 31,2002

2001Net loss

$
(3,042
)
$
(5,198
)Foreign currency translation


157


192Comprehensive loss

$
(2,885
)
$
(5,006
)


6. Income Taxes

The benefit for income taxes for the three months ended March 31, 2002 relates primarily to reversing accrued Federal alternative minimum taxes from
2001 due to recently enacted tax legislation. The provision for income taxes for the three months ended March 31, 2001 relates primarily to income taxes on the gain from the sale of The
LongView Group, Inc. and foreign taxes. No tax benefit was recorded during the quarter for the Company's net operating losses.

The
valuation allowance as of March 31, 2002 was recorded in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, which requires that a valuation allowance be established when there is significant uncertainty as to the realizability of deferred tax assets.

7. Commitments

The Company has commitments under long-term operating leases, principally for office space and computer equipment. Future minimum lease payments under
non-cancelable operating lease obligations, in excess of one year and excluding obligations accrued as part of restructurings, at March 31, 2002 are as follows (in thousands):

Year

AmountQ2-4 2002

$
1,8322003


2,8132004


2,9512005


3,0412006


3,120Thereafter


16,434Total minimum lease commitments

$
30,191


In
2000, the Company entered into a 10-year lease for 102,569 square feet of office space in South Jordan, Utah. The lease commenced in March 2002. This lease will be
an operating lease. In April 2002, the Company negotiated with the developer to extend the term of the lease to eleven years and to reduce its monthly payment obligations. As of the date
of this filing, the Company is pursuing options to reduce this lease commitment further, including the sublease of a significant portion of this space.

Operating
lease obligations for properties that have been restructured are included in accrued liabilities in the Consolidated Balance Sheet at March 31, 2002. See Note 9
for more information.

During
the three months ended March 31, 2002, the Company replaced earlier stand-by letters of credit issued as security for the Company's Chicago, Illinois and
San Francisco, California office leases with letters of credit for $3.5 million terminating on June 30, 2008 from a new lender. The Company has other stand-by letters of
credit totaling $165,000 which will terminate by December 31, 2003. These letters of credit have not been drawn upon at March 31, 2002.

8. Legal Proceedings and Contingencies

Resolved Disputes

Since December 31, 2001, the Company has settled two customer disputes and a dispute with Perot Systems. In none of these settlement agreements did any
party admit liability.



On December 14, 2000, Crawford & Company ("Crawford") sent a letter alleging breach under the terms of the Company's Master Software License and
Services Agreement with Crawford. On March 8, 2002, the Company and Crawford entered a Confidential Settlement Agreement and Release that settled and resolved all claims between the two
companies. The Company's errors and omissions
insurance carrier paid the entire amount of the compromised and confidential settlement sums above the self-insurance retention the Company paid to cover legal defense costs.



On November 14, 2001, Cedars-Sinai Medical Center ("Cedars-Sinai"), a formerly disclosed unnamed customer, sent a letter alleging breach under the parties'
contract. On April 30, 2002, the Company and Cedars-Sinai entered into a number of agreements, including a Settlement Agreement, which provide the basis to resolve the dispute between the parties and beneficially restructure the
relationship between the parties. The Settlement Agreement provides for a three-phased release of Cedars-Sinai's alleged claims against the Company, a release of the Company's potential claims against
Cedars-Sinai and a restructuring of the parties' business arrangement. As part of the resolution, Cedars-Sinai will assume the obligations of completing the Patient Care Expert ("PCX") application
facilitated in part by the transfer of employees from the Company to Cedars-Sinai. The Company will continue to provide Universal Application license rights and support to Cedars-Sinai. Under the
agreements, the Company will also provide certain Universal Application training to Perot Systems Corporation ("Perot"), an interested party to the original transaction, and a continuing participant
in the restructured venture. As part of the arrangement, the Company also granted a subsidiary of Cedars-Sinai a license to resell the Universal Application in connection with their selling the PCX
application in the hospital and healthcare provider market globally. Should the Company fail to meet certain obligations, Cedars-Sinai may reassert certain claims against the Company. Should
Cedars-Sinai fail to meet certain obligations, the Company may reassert certain claims against Cedars-Sinai. If Cedars-Sinai were to reassert its claims, an unfavorable outcome of the matter may have
a material adverse impact on the Company's business, results of operations, financial position, or liquidity.



On November 19, 2001, the Company received a demand for arbitration from Perot Systems Corporation ("Perot") alleging that the Company had materially
breached its prior agreements with Perot relating to the termination of certain other agreements with Perot. On April 30, 2002, the Company and Perot entered into a number of agreements,
including a Compromise and Settlement Agreement, resolving the dispute between the parties and beneficially restructuring the relationship between the parties. As part of the resolution, Perot agreed
to withdraw the demand for arbitration without prejudice and the Company provided Perot with a limited license to the Universal Application and agreed to provide Perot with certain Universal
Application training. Perot also agreed to issue a general release to the Company, which would include the arbitration claim, when the Company has provided the Universal Application training to Perot
and met other conditions precedent relating to the Cedars-Sinai project noted above. If the Company fails to meet certain obligations, Perot may reinstate its demand for arbitration. If the Perot
fails to meet certain obligations, the Company may seek damages. If Perot were to reinstate its demand for arbitration, an unfavorable outcome of the matter
may have a material adverse impact on the Company's business, results of operations, financial position, or liquidity.





Unresolved Customer Dispute

The Company has one unresolved customer dispute.



In March 2001, SkyTel Communications, Inc. ("SkyTel") orally informed the Company of its intent to terminate the Master Software License and
Services Agreement between SkyTel and the Company (the "SkyTel Agreement"). On May 15, 2001, SkyTel sent the Company a letter purporting to terminate the SkyTel Agreement based on the Company's
alleged material breach of the SkyTel Agreement. SkyTel's letter also demands a refund of approximately $11 million paid by SkyTel. On September 24, 2001, SkyTel filed a complaint
against the Company in the First Circuit Court of the First Judicial District of Hinds County, Mississippi. SkyTel seeks monetary damages of at least $17.5 million, plus other damages it may
prove at trial, together with pre- and post-judgment interest, attorneys' fees and expenses and costs. On November 13, 2001, the Company filed an answer denying the
material allegations of the complaint. The Company also filed a counterclaim for unpaid fees and SkyTel's disclosure of confidential information. The Company's counterclaim seeks damages of at least
$7 million and punitive damages of at least $10 million. The parties have currently stayed discovery. Some of this claim may be covered by the supplemental extended reporting period
policy the Company maintains on one of its prior errors and omissions liability policies. The total contract value involved in this customer dispute is approximately $17.6 million, of which
$11.4 million has been received by the Company to date. An unfavorable outcome of this matter may have a material adverse impact on the Company's business, results of operations, financial
position, or liquidity. For the three months ended March 31, 2002, the Company recognized no revenue from the SkyTel Agreement and recognized $263,000 from SkyTel during the same period
in 2001.

Summary and Insurance

As a result of the legal proceedings and contingencies noted above, the Company has provided an allowance for doubtful accounts of $296,000 related to billed
accounts receivable, and has accrued liabilities of $2.7 million related to fees collected to date.

The
Company maintained errors and omissions and umbrella liability insurance coverage to protect itself in the event of claims for damages related to the performance of computer-related
services or the failure to perform computer-related services that occurred after March 1, 1998, but prior to March 1, 2001. The Company does not believe that the dispute with SkyTel will
be covered by the Company's original errors and omissions and umbrella liability insurance coverage. However, the Company also maintains a $2 million supplemental extended reporting period
policy on one of the Company's prior errors and omissions liability policies. The Company believes that this supplementary extended reporting insurance policy may cover some of the types of alleged
damages (but not unpaid or unbilled accounts receivable) claimed in the SkyTel dispute noted above, to the extent that they occurred during the policy periods. The Company also believes that this
supplementary extended reporting insurance policy may cover the costs of legal defense of the SkyTel dispute, subject to the policies' total limit, and any stated reservation of rights by the carrier
regarding conditions or findings that might exclude coverage for a particular matter. The Company has reserved against certain of the billed accounts receivable related to the disputed amounts for
which a loss is considered probable and estimable. An unfavorable outcome of any of these matters may have a material adverse impact on the Company's business, results of operations, financial position, or liquidity.

On
March 1, 2001, the Company secured an industry-standard, errors and omissions policy that covers claims made after March 1, 2001. The Company renewed this policy on
March 1, 2002. The Company's new policy excludes contractual related disputes such as cost and time guarantees, and only covers software errors or omissions that occur after the delivery of
software. The Company believes this policy provides adequate coverage for potential damages related to errors and omissions in the Company's delivered software.

Stockholder Matters

On or after August 12, 2000, six complaints were filed in the United States District Court of Utah alleging that the Company and certain of the Company's
officers violated certain federal securities laws. All six complaints were virtually identical and allege that 1) the Company improperly recognized revenues on some of the Company's projects;
2) the Company failed to maintain sufficient accounting reserves to cover the risk of contract disputes or cancellations; 3) the Company issued falsely optimistic statements that did not
disclose these accounting issues; and 4) TenFold insiders sold stock in early calendar year 2000 while knowing about these issues. On the Company's motion, the court consolidated the six
complaints into one class action complaint. On May 1, 2001, the plaintiffs filed an amended consolidated complaint. The Company filed a motion to dismiss the amended complaint on
June 19,
2001. On March 19, 2002, the court granted the Company's motion to dismiss the amended complaint, but allowed the plaintiffs leave to make a motion to amend their complaint. The Company has
stipulated with the plaintiffs that they have until May 20, 2002 to file such a motion.

On
November 6, 2001, a class action complaint alleging violations of the federal securities laws was filed in the United States District Court for the Southern District of New
York naming as defendants the Company, certain of its officers and directors, and certain underwriters of the Company's initial public offering. An amended complaint was filed on April 24,
2002, which alleges, among other things, that the underwriters of the Company's initial public offering violated the securities laws by failing to disclose certain alleged compensation arrangements
(such as undisclosed commissions or stock stabilization practices) in the offering's registration statement and by engaging in manipulative practices to artificially inflate the price of the Company's
stock in the after-market subsequent to the initial public offering. The Company defendants are named in the amended complaint pursuant to Section 11 of the Securities Act of 1933, and
Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 on the basis of an alleged failure to disclose the underwriters' alleged compensation arrangements
and manipulative practices. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998. The Company intends to defend this action vigorously
and expects that the costs of defense and/or resolution will be covered by insurance. Although no assurance can be given that this matter will be resolved in the Company's favor, the Company believes
that the resolution of this lawsuit will not have a material adverse effect on the Company's financial position, results of operations or cash flows. If this matter is not covered by insurance and if
there is an unfavorable outcome, there may be a material adverse impact on the Company's business.

SEC Inquiry

On May 26, 2000, the United States Securities and Exchange Commission ("SEC") issued a Formal Order Directing Private Investigation. The Order contained no
specific factual allegations. Since February 2001, the SEC has taken testimony from several of the Company's independent auditors and current and former customers, executives and staff.

On
March 20, 2002, the Company and five of its current and former officers and employees received notices from the SEC's Denver regional office indicating that the staff intends
to recommend that the SEC commence fraud and non-fraud (books and records) enforcement proceedings against the Company and these individuals. The SEC's potential remedies under such
enforcement proceedings include various forms of injunctive relief, monetary penalties, and orders barring individuals from future employment in public companies. It is too early in the inquiry to say
which of these remedies, if any, the SEC might seek against the Company and the individuals. Management and outside legal counsel believe that the Company has meritorious defenses to any allegations
that the SEC might make and intends to continue to cooperate fully with the SEC. At this time, the Company's outside legal counsel is not able to provide an opinion on the probable outcome of the
inquiry. Although no assurance can be given that this matter will be resolved in the Company's favor, the Company believes that the resolution of this lawsuit will not have a material adverse effect
on the Company's business.
However, protracted legal proceedings or an unfavorable outcome of this matter may have a material adverse impact on the Company's business.

9. Special Charges

The Company incurred $24,000 of asset impairment charges during the three months ended March 31, 2002. Special charges for the three months
ended March 31, 2001 include a $3.0 million asset impairment charge, and a $2.7 million restructuring charge.

Restructuring
reserves are included in accrued liabilities at March 31, 2002. Detail of the restructuring charges as of and for the three months ended March 31, 2002
are summarized below (in thousands):

|Restructuring Charges: |  | Balance at
December 31, 2001 |       | New
Charges |   | Adjustments |  | Utilized |   | Balance at
March 31, 2002
|---------------------- |  | ---------------------------- | ----- | ----------- | - | ----------- |  | -------- | - | -------------------------
|Employee related       |  | $                            | 106   |             | $ |            |  | $        |  |                          
|Facilities related     |  |                              | 5,521 |             |   |            |  |          |  |                          
|                       |  |                              |       |             |   |             |  |          |   |                          
|                       |  | $                            | 5,627 |             | $ |            |  | $        |  |                          
|                       |  |                              |       |             |   |             |  |          |   |                          

Asset Impairment Charge.During the three months ended March 31, 2002, the Company identified $24,000 of fixed
assets that had no future value to the Company and are no longer in active use, and
accordingly recorded an asset impairment charge of $24,000 for the three months ended March 31, 2002. During the three months ended March 31, 2001, the Company restructured
operations to reduce operating expenses, including closing several facilities, and recorded a related asset impairment charge of $3.0 million for leasehold improvements, computer equipment,
furniture and fixtures, and other assets that it determined had no future value to the Company and were no longer in active use.

First Quarter 2001 Restructuring Charge.During the three months ended March 31, 2001, the Company incurred a
restructuring charge of $2.7 million as part of its efforts to reduce operating expenses.

10. Operating Segments

The Company's CEO reviews financial information on a consolidated basis, identical in format to the accompanying Consolidated Statements of Operations. The
Company consolidates revenue and expense information for all other business groups for internal and external reporting and for decision-making purposes. The Company operates in a single operating
segment, which is applications products and services.

Revenues
from operations outside of North America were approximately 34 percent of total revenues for the three months ended March 31, 2002 as compared to
24 percent of total revenues for the same period in the prior year. The Company's long-lived assets continue to be deployed predominantly in the United States.

Three
customers accounted for 55 percent, 17 percent, and 11 percent of the Company's total revenues for the three months ended March 31, 2002,
compared to three customers accounting for 12 percent, 12 percent, and 11 percent of the Company's total revenues for the same period in 2001. No other single customer accounted
for more than 10 percent of the Company's total revenues for the three months ended March 31, 2002 or the same period in 2001.

11. Acquisition and Disposition

On October 7, 1999, the Company purchased the entire equity interest of Barclays California Corporation in its wholly owned subsidiary, The LongView
Group, Inc. ("LongView"). On March 15, 2001, the Company sold LongView for $29.0 million to Linedata Services. Accordingly, the operations of LongView have been included in the
accompanying consolidated statements of operations for the Company from the acquisition through March 15, 2001. The acquisition was accounted for using the purchase method of accounting.

The
gain recognized on the sale of LongView is summarized as follows (in thousands):

AmountTotal purchase price




$
29,000Less costs associated with sale





(885
)Net proceeds from sale





28,115Net book value of subsidiaryCurrent assets

$
(1,455
)Long-term assets


(19,042
)Current liabilities


5,745Long-term liabilities


(14,752
)Initial gain on sale (as of March 31, 2001)




$
13,363Proceeds for accounts receivable collection, less additional expenses





177Agreement to release escrowed funds to Linedata





(1,179
)Cumulative gain on sale (as of Sept. 30, 2001)




$
12,361


12. Fusion Capital Transaction

In February 2002, the Company entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC ("Fusion
Capital"), in connection with a private equity line financing transaction pursuant to which the company will offer and sell to Fusion Capital up to $10,000,000 of our Common Stock, over a period of up
to 40 months. As a condition to Fusion Capital's obligation to make purchases under the Purchase Agreement, the Common Stock to be offered and
sold to Fusion Capital must be registered in an effective registration statement with the Securities and Exchange Commission. Once the registration statement is effective, the Company may make draws
under the equity line, and can elect to draw up to $250,000 per month so long as the Company's stock price exceeds $0.25. However, the Company has not yet filed the registration statement, which the
Purchase Agreement required to be filed by March 29, 2002. Consequently, Fusion Capital may elect to cancel the Purchase Agreement. Through March 31, 2002, the Company has incurred
expenses of $282,000 in connection with the Fusion Capital private equity line.

13. Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141Business Combinationsand SFAS No. 142 Goodwill and Other
Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead
will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value.
The Company adopted the provisions of SFAS No. 141 immediately, and SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 141 and 142 did not have a material effect on the Company's business, results of operations, financial position, or liquidity.

In
August 2001, the FASB issued SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company adopted the
provisions of SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material effect on the Company's business, results of operations, financial position, or
liquidity.

In
November 2001, the FASB issued an announcement,Income Statement Characterization of Reimbursements Received for Out of Pocket Expense
Incurred. The announcement requires companies to characterize reimbursements received for out of pocket expenses as revenues in the statement of operations. Historically, the
Company netted reimbursements received for out of pocket expenses against the related expenses in the accompanying condensed consolidated statements of operations. The announcement is to be applied in
financial reporting periods beginning after December 15, 2001 and comparative financial statements for the prior year are to be reclassified to comply with the guidance in the announcement. The
Company adopted this announcement on January 1, 2002. The adoption of this announcement resulted in increased revenues and expenses by the same amount in each period of $144,000 and $827,000
for the three months ended March 31, 2002 and 2001, respectively.

In
July 2001, the FASB reached final consensus on EITF No. 00-25,Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products("EITF 00-25"). EITF 00-25
generally requires that consideration, including equity instruments, given to a customer be classified in a vendor's financial statements not as an expense, but as a reduction to revenue up to the
amount of cumulative revenue recognized or to be recognized. In November 2001, the EITF reached consensus on EITF No. 01-09,Accounting for a
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's Products("EITF 01-09"). EITF 01-09 clarifies and modifies certain items
discussed in EITF 00-25. In accordance with the transition guidance in EITF 00-25, adoption will require reclassification of financial statements for prior periods presented
for comparative purposes. The Company adopted EITF 00-25 and EITF 01-09 on January 1, 2002. The adoption of EITF 00-25 and EITF 01-09 did not
have a material effect on the Company's business, results of operations, financial position, or liquidity.

In
June 2001, the FASB issued SFAS No. 143Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. The Company is required to adopt the provisions of SFAS No. 143 on January 1, 2003. The Company is currently evaluating this statement but does
not expect that it will have a material effect on the Company's business, results of operations, financial position, or liquidity.





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Business Overview

TenFold is the provider of the Universal Application, a software applications platform that accelerates development and deployment and reduces costs
of maintaining complex enterprise applications. The Universal Application automates most of what applications programmers typically do, and thereby enables small teams of predominantly
non-technical business users to design, build, test, deploy, and maintain complex, transaction-and database-intensive applications, with limited demand on scarce IT resources.

We
believe that the Universal Application platform makes building complex, replacement and internet-ready applications three to ten times cheaper, easier, and faster than traditional
application development methodologies. TenFold customers have proven that primarily non-technical business people can use the Universal Application to build better applications faster and
cheaper than traditional approaches due to the business people's detailed understanding of their business requirements. Consequently, our business model focuses on providing the Universal Application,
and our assistance through time-and-materials consulting and training, to customers who use their own business teams and our systems implementation partners to build
applications.

During
2001, we began discussions to establish relationships with value added resellers ("VAR"), systems integrators, software distributors, application service providers and others. We
believe that such relationships will accelerate and broaden market distribution of Universal Application for us at a significantly lower cost and greater speed than we could achieve on our own. In
April 2002, we entered into a strategic alliance, with a global systems integrator, Sapient Corporation. In May 2002, we entered into a second strategic alliance, with Perot Systems
Corporation focused around accelerated penetration of the healthcare industry.

While
there are many companies supplying applications development tools, we believe there is no other applications platform supplier with technology capable of addressing the scale and
robustness required by the complex applications that we and our customers have built using Universal Application.

The
Universal Application platform has been in development more than 9 years, contains more than 2.5 million lines of C and C++ code, and is protected by three issued U.S.
patents. Universal Application makes programming in C, C++, Java, HTML, SQL or other programming languages or doing other programming-like tasks such as designing screens and writing
requirements documents unnecessary.

We
have completed applications products now in production in the communications, energy, financial services, healthcare and insurance industries. We have begun discussions to establish
VAR and other distribution agreements with applications companies that may take ownership of specific vertical market applications product intellectual property, and will provide direct support,
maintenance and marketing of specific vertical market applications products. In February 2002, we entered into our first VAR agreement with 3Genesis through which 3Genesis will resell a
Universal Application-based communications industry application worldwide. In April 2002, we entered into a second VAR agreement with PCX Systems, LLC ("PCX Systems"), a subsidiary of
Cedars-Sinai Medical Center, through which PCX Systems will resell Universal Application in connection with the sale of the Patient Care Expert application in the hospital and healthcare provider
market globally.

We,
however, continue to face significant challenges, including without limitation, the ability to generate or raise sufficient operating capital (see "Liquidity and Capital Resources"
below), outstanding litigation and an SEC investigation (see "Legal Proceedings"), and a difficult sales environment.

Industry Challenge

Organizations worldwide face increasing pressure to install mission critical software applications and replace their legacy enterprise applications as they seek
to increase productivity, cut costs, address changing business and competitive demands, and access new technology. Many organizations continue to invest large amounts of money to maintain legacy
applications that remain inadequate. These companies still need new or replacement applications, but they face daunting odds of failure because the process for building and integrating complex
applications is costly and risky. To obtain new or replacement applications, companies choose between buying a packaged software application or building a custom software application.

Companies
generally turn to independent software vendors, such as Enterprise Resource Planning vendors or vertical software vendors, when looking for packaged applications. In general,
packaged applications promise predictable quality and relatively quick implementation, but often do not address specific industry problems, such as patient management or securities lending, and lack
the functionality and flexibility that many companies need. This lack of functionality and flexibility can force a company
to alter its business processes to the detriment of the company's business mission. In addition, customizing a packaged application can be costly and time-consuming, and makes it difficult
to upgrade the packaged application when subsequent standard releases are available.

Alternatively,
companies can build custom applications, either internally or with third parties. This approach may give them the functionality, flexibility and fit they seek, but the
applications development process carries a high risk of failure, with most projects exceeding financial and time budgets and schedules, and with many projects being cancelled prior to implementation
due to time delays, budget overruns, and functional or technical deficiencies. Companies often hire software integration or services firms to build and implement mission-critical applications. These
firms generally engage a large number of consultants who may remain on-site for years, and may exceed budgets and schedules without producing significantly better results than
internal development organizations. In addition, these firms typically do not offer ongoing product enhancements because they build custom solutions for a single customer.

Applications
projects fail because the process of replacing complex applications is very complicated. When most enterprise applications were built, the complexity of the technology
environment was much simpler than it is today. In today's technology environment, programming and testing complex applications can be difficult, take a long time, be expensive, and tie up scarce IT
resources. Business dynamics change rapidly and in IT projects time introduces risk.

Today's
companies need a radically new approach to applications development. TenFold's patented Universal Application is a new paradigm for applications development that lets small teams
of non-technical business users design, build, deploy, maintain, and upgrade applications with extraordinary speed and limited demand on scarce IT resources.

TenFold Technology and Products

We have demonstrated that our Universal Application platform makes building complex applications three to ten times cheaper, easier, and faster than traditional
application development methodologies because the Universal Application automates most of the things that applications programmers typically do. TenFold customers have proven that primarily
non-technical business people can use the Universal Application to build better applications than IT consultants or traditional programmers due to the business people's detailed
understanding of their business requirements. Consequently, we have focused our business away from building applications for customers and toward providing the Universal Application, and our
assistance through time-and-materials consulting and training, to customers who use their own business teams to build applications. The business value of the Universal
Application is more than a rapid development technology. The Universal Application is an applications platform that simplifies complex applications development and integration so that non-technical business people can use it to build applications. Customers can get new
applications into production with limited demand on scarce IT resources. And, once a new application is in production,
the Universal Application provides business people with the agility to modify that application dramatically cheaper, easier, and faster than with traditional technologies.

The
Universal Application platform has been in development more than 9 years, contains more than 2.5 million lines of C and C++ code, and is protected by three issued U.S.
patents. With the Universal Application, business people or applications developers with little or no traditional programming skills can build and maintain an application by describing the
application's desired data and functionality without needing to program in C, C++, Java, HTML, Structured Query Language ("SQL") or other programming languages and without the need to
do other programming-like tasks such as designing screens and writing requirements documents.

The
Universal Application is a tightly integrated development and maintenance environment and a powerful, efficient, scalable rendering engine. This integrated development and
maintenance environment includes: business rules definitions; automatic SQL generation; automated user interface generation; Windows and Web-enablement; integrated product testing, report
generation, and data analysis. The Universal Application rendering engine provides significant already-built applications functionality, good applications performance and scalability, portability
across relational databases, operating systems and networks, and a code-less means for integrating with legacy and third-party applications.

We
believe that the Universal Application delivers these benefits:



In
addition to the above benefits, the Universal Application has many distinguishing advanced features. The following is a partial listing of these features:



The
Universal Application is composed of components for describing, executing, integrating, and configuring applications.

Describing an Application.ApplicationXpress includes an application, named TenFold Librarian, built
using the Universal Application, that applications developers use to describe their application. TenFold Librarian provides fill-in-the-blank interfaces to
codelessly describe an application. Non-technical business people or other applications developers describe the database that the application manages, transactions that support each
business end-user for each end-user activity, and rules that control transaction behavior. TenFold AutoTest uses patented techniques to simplify and automate functional,
performance, scalability and regression testing. TenFold Reporter and TenFoldAnalyzer are each applications that let business people define their own reports and real-time data analysis.
These applications development tools store the description of applications objects in a relational database called TenFold Dictionary.

Executing an Application.The Universal Application rendering engine runs the application, provides
data and presentation services, and automatically executes rules. There are several components to the Universal Application rendering engine. Universal Application Server hosts the application,
providing security, resource management, load balancing, and failover, for outstanding scalability and availability. Universal Application Client manages client workstations and supports standard
Internet browsers to provide data presentation services and user interface features. LogicXpress converts rules and procedural actions into portable, executable meta-language that it
transports automatically to the correct computer within the applications network for execution. Universal Application Kernel provides standard data access services, common routines, operating system
independence, standard error handling, and other shared services.

Integrating an Application.Universal Application Integrator connects a Universal Application-based
application to other applications, both within a company and at its customers and suppliers. Whether exchanging files, directly accessing another database, or using real-time messaging,
integration developers codelessly describe the path that data follows to interface with typically-inflexible legacy or third party applications. Applications developers can convert and cleanse data along the
way.

Configuring an Application.The Universal Application supports many leading relational databases,
server operating systems, client operating systems, Web servers and browsers, and communications systems. The Universal Application is highly configurable so that it can run on a single computer or
distribute across many computers to provide n-tier processing. Configuration options let customers optimize performance and scalability by configuring to match underlying hardware and
software environment. The Universal Application design simplifies adding support for additional technologies in order to respond to customer or market needs.



TenFold ComponentWare is a family of pre-written applications components that easily plug into the Universal Application to extend its functionality
without programming. For example, PowerBilling provides a robust suite of add-on billing services. PowerAccounting makes it easy for a customer to integrate an application to their general
ledger system.



We offer basic and advanced applications development training; Universal Application maintenance training; assistance in building, implementing, and maintaining
applications; and customer and technical support.



We offer training so that customers can successfully build, implement, operate, maintain, and evolve their applications. TenFold University offers professional
certification programs to applications developers, end-users, information technology professionals, and training professionals who need to understand the Universal Application, TenFold
ComponentWare, the Universal Application Integrator, and TenFold applications products. Training programs include classroom instruction, detailed courseware, and on-site training. Under
certain circumstances, we also provide Universal Application maintenance training, so that strategic customers and partners can learn about the internal workings of the Universal Application by
working with TenFold's Development department.



We offer services to help customers build, implement, operate and maintain their applications. Applications development services include helping customers
identify requirements and describe their application in the Universal Application. Implementation services include converting and cleansing legacy data, integrating with other applications, running a
parallel application, and managing the implementation project. We use the Universal Application Integrator and often begin implementation services concurrent with applications development to shorten
the time from the start of development to full implementation.



We provide customers who are current on support payments with new releases of the Universal Application and on-site support.

Competition

The competitive landscape for new and legacy-replacement enterprise applications provides these options available to organizations today:





TenFold's largest competitor is "status quo." Organizations continually wrestle with the issue of when to retire legacy applications. In recent years, most
organizations chose to invest large amounts of money to fund maintenance of legacy applications, bearing the quirks and inefficiencies of outdated applications that do not meet new business demands.
Eventually, the benefits and capabilities of the new application outweigh the cost and time disadvantage of erecting the new system, and corporations replace their systems.

Remaining
with the status quo results in, continuously increasing costs as maintenance on top of maintenance gets harder, acceptance of barely adequate applications, limitations on
lowering costs, limitations to embracing new technologies, difficulty in adding products or expanding markets, and postpones the inevitable replacement of the application.



Many organizations prefer to obtain an off-the-shelf application from Enterprise Resource Planning ("ERP") vendors or vertical packaged
software vendors. Organizations license software packages to limit the risks associated with new software development projects. However, packaged applications force corporations to conform their
business problems to the packaged solution, often with a poor fit. Organizations can modify a packaged application to solve their business problems, but blended solutions are expensive, slow to
implement, and suffer from poor integration. We believe that the Universal Application generally enhances our customers' ERP solutions, rather than competing directly with them.

Buying
packaged applications is not a viable solution for replacing most legacy applications for most customers in most industries, as reasonable-fit packaged applications
just don't exist.



When organizations contemplate building their own applications, TenFold competes primarily with "old paradigm" applications servers and development platform
vendors. Oracle, IBM, Microsoft, BEA, Computer Associates, and others supply tools to internal IT organizations or to third party consulting firms to build new applications.

Programming
languages such as COBOL, C, and C++ perform well and scale well, but require extraordinarily large project teams to spend multiple years to complete projects. Such
projects are generally the source of statistics that report high failure rates among applications development projects. Visual Basic, SmallTalk, and other personal computer technologies support rapid
applications development and slightly improved productivity for smaller projects, but do not scale to support large numbers of users. Further, they are not more efficient in coding and testing of very
complex applications than existing technologies that do scale.

Today's
emerging technologies include Java, other component-enabling technologies (COM, DCOM, ActiveX,.NET, et cetera), and Java-related technologies intending to make Java
viable for complex applications (J2EE, EJB, et cetera). Emerging technologies, all of which rely on programmers, have not changed the time and cost of large applications development at this time.
Using such technologies for very large, complex applications development projects is likely to result in continued high failure rates for applications build projects since longer projects and large
numbers of programmers on a project increase risk of failure exponentially, according to most industry pundits.

Consulting
and software integration firms, such as Accenture and EDS, who build applications for hire, are not competitors of TenFold, but potential resellers of the Universal
Application. We intend to develop reseller agreements with strategic consulting and integration partners, and believe that the Universal Application gives resellers a technological advantage for
delivering complex, enterprise applications.

Business History

We founded TenFold in 1993, and spent the first several years primarily engaged in developing our patented Universal Application technology. In 1996, we
began using the Universal Application to develop applications for customers. In 1998, we began reselling vertical applications products that we had developed for our initial customers. In 1999, we
completed our initial public offering. In 1999 and early 2000, we signed several large, fixed-price, build-for-hire contracts with customers, hired many new employees, and
launched eight subsidiaries. Beginning in 2000, we experienced several difficult quarters and faced significant financial, legal, and operational issues. During 2001, we took steps to address those
issues.

Very
strong support from our customers for both TenFold and its Universal Application technology helped management recognize the Universal Application as its core asset and focused
TenFold on the unique benefits that customers derived from the Universal Application. Consequently, TenFold shifted its focus to serving customers and becoming a Universal Application software product
company. In 2002, we intend to build the business and market foundation for our emergence as a growth technology company by addressing two principal business priorities: continuing to meet customer
expectations and, building our Universal Application sales and distribution channels.

Meeting Customer Expectations

During the quarter ended March 31, 2002, we provided Universal Application technology and supporting services to 17 customers, 12 of whom are currently in
production with applications powered by the Universal Application. All 12 of these customers continue to enhance their applications, with 1 customer having 2 separate Universal Application-based
applications in production. Of the remaining five customers, one is evaluating the feasibility of replacing the majority of its applications with the Universal Application, two others have completed
building their applications and are working to bring those applications in production and the two remaining customers have active build projects underway.

Our
customers are leaders in financial services, insurance, healthcare and other vertical markets. Since we began operations in 1993, we have provided licenses and services to over 50
customers. Our customers include, among others, Abbey National Bank, Allstate Insurance, Barclays Bank, Deutsche Bank, Dresdner Bank, Franklin Templeton, iplan networks, JP Morgan Chase, MedCath, and
Vertex.



In addition, we have successfully piloted one of our new approaches to the market place by using the Universal Application to support rapid prototypingthe building of a
tested-and-working, high-functionality prototype quickly and the use of that prototype as a foundation for an extensive build project. We completed the rapid
prototyping phase with a new client, Reuter Brooks, and plan to use the prototype as a foundation to build a replacement application to support dispatching and tracking of shipments.

Current Customer Engagements

Allstate.Allstate is a prototypical Universal Application business relationship. Our first contract involved an initial
application build and implementation project for an Allstate subsidiary during which Allstate's business people developed their own skills at using the Universal Application. Then, Allstate's
subsidiary contracted with TenFold to provide Universal Application enhancements and support. With our help, they successfully built a significant and important application, Interlink, in
four months and brought it into production for one state within three more months. They continue to enhance Interlink, largely with their own business people. Interlink allows
independent insurance agents to quote and issue automobile and homeowners insurance policies over the Internet. Interlink is currently in production in 28 states with new states added almost every
month. TenFold continues to provide their team with Universal Application services and support.

Allstate
is now evaluating the Universal Application as a tool for replacing several of its primary-business, legacy applications. In 2001, we entered into a significant new relationship
with Allstate's corporate organization. They substantially expanded the original Universal Application license from one subsidiary to the entire corporation. TenFold provides new software products,
updates, and support, training, and time-and-materials services to enhance their ability to develop applications using the Universal Application.

JP Morgan Chase.We delivered Version 1 of Securities Lending Express during January 2002. We have additional
fixed-price, guaranteed contractual commitments to perform. JP Morgan Chase is in parallel production with Version 1 in its European lending business unit. Additionally, JP Morgan Chase recently
selected TenFold to build securities lending technology that integrates JP Morgan Chase operations with the Equilend consortium, a consortium intended to provide efficient standards-based processes
for automated transactions between borrowers and lenders.

iplan networks.iplan went into production in Argentina with the Universal Application-powered Enterprise Relationship
Manager (ERM) in September 2001. ERM includes sales management, customer support, incident tracking, and provisioning for the communications industry. We built this application and brought it
into production in nine months. Since bringing ERM into production, we have delivered significant performance enhancements and additional functionality including usage allowance functionality,
enhancements to summarize usage, functionality to process erred usage, multi-currency support, and inflation indexing.

Cedars-Sinai Medical Center.In April 2002, we replaced our original fixed-price contract with a set of agreements
under which Cedars-Sinai staff takes over from TenFold and continues to build and implement their application, Patient Care Expert ("PCX"). PCX is a comprehensive suite of healthcare applications
including patient management, physician order entry, contract management, and patient accounting. Additionally, Cedars-Sinai will be a reseller of PCX through its he recently formed subsidiary PCX
Systems, LLC. TenFold continues to provide Universal Application enhancements, support, and other services to Cedars-Sinai, PCX Systems, and their partner, Perot Systems.

Abbey National Bank.Abbey has had their Universal Application-powered WealthManager application in production since
January 2001. Consistent with our strategic model, and similar to the client relationships described above, Abbey continues to enhance WealthManager with TenFold providing Universal Application enhancements and support to the Abbey development team.

Applications Product Lines

We have two applications products with multiple, production customers. These applications are assets that we manage as product lines by investing in new
functionality, servicing our customers, and encouraging these customers to adopt the Universal Application as a development platform.



Sales and Distribution Channels

We identified building sales and distribution channels as critical to our emergence as a growth technology company. Beginning in the second half of 2001, we began
to build momentum for new sales of our Universal Application technology and related products and services.

We
are focusing our direct sales channel on selling small, paid prototype projects with new accounts in the insurance, retail software, and financial services sectors. This resulted in
two, paid prototype projects in 2001, neither of which went forward in the adverse economic environment that prevailed in the latter half of 2001. In March 2002, Reuter Brooks, a
UK-based courier company, entered into a paid prototyping project to consider using TenFold as its technical partner in building a new messaging and dispatch control system using the
Universal Application. In May, 2002, Reuter Brooks expressed its intention to contract with TenFold to build a front-to-back office system that will provide integrated Web
booking, customer queries over the Web, customer relationship management for the sales force and support services, management queries, and links to the main accounting system.

During
2001 we began discussions to establish relationships with VARs, system integrators, software distributors, application service providers and others. We believe that such
relationships will accelerate and broaden market distribution of Universal Application for us at a significantly lower cost and greater speed than we could achieve on our own. In April 2002, we
entered into a strategic alliance, with a global systems integrator, Sapient Corporation to resell the Universal Application globally. In May 2002, we entered into a second strategic alliance
with Perot Systems Corporation focused around accelerated penetration of the healthcare industry.

We
have completed applications products now in production in the communications, energy, financial services, healthcare and insurance industries. We are in discussions to establish VAR
and other distribution agreements with applications companies that may take ownership of specific vertical market applications product intellectual property, and will provide direct support,
maintenance, and marketing of specific vertical market applications products. In February 2002, we entered our first VAR agreement to resell a Universal Application-based communications
industry application worldwide, with 3Genesis. In April 2002, we entered a VAR agreement with PCX Systems, LLC ("PCX Systems"), a subsidiary of Cedars-Sinai Medical Center, to resell the
Universal Application in connection with their selling the Patient Care Expert application in the hospital and healthcare provider market globally.

During
the second half of 2001, we began marketing initiatives around the Universal Application, including the rebuilding of our Web site. We built the Web site
(www.10Fold.com) using our Universal Application technology with the objective of providing real-time demonstration of the power of the Universal Application and as an easy access point for information on TenFold's
technology, customers and business. We continue to update our Web site to provide visitors with a Universal Application experience, including application overviews, real-time product
demonstrations, and briefings by our
Chief Technology Officer. In addition, during the first quarter of 2002, we launched other focused marketing efforts, including print advertisements in theWall Street
Journaland targeted mailings.

Results of Operations

We had first quarter 2002 revenues of $5.6 million, an operating loss of $3.5 million, and a net loss of $3.0 million. This compares to
revenues of $12.1 million, an operating loss of $16.4 million, and a net loss of $5.2 million for the same period of 2001. The results for the first quarter of 2001 included a
gain of $13.4 million on the sale of our subsidiary, The LongView Group, Inc.

The
reduction in operating loss and net loss for the first quarter of 2002 compared to the same period of 2001 results primarily from the significant restructuring actions we took during
2001 to reduce our operating costs.

The
following table sets forth, for the periods indicated, the percentage relationship of selected items from TenFold's statements of operations to total revenues.

Three Months ended March 31,2002

2001Revenues:License

13
%
25
%Subscription

47
%
Services and other

40
%
75
%Total revenues

100
%
100
%Operating expenses:Cost of revenues

67
%
83
%Sales and marketing

9
%
24
%Research and development

34
%
37
%General and administrative

52
%
35
%Amortization of goodwill and acquired intangibles



8
%Amortization of deferred compensation

1
%
1
%Special charges



47
%Total operating expenses

163
%
235
%Loss from operations

(63
%)
(135
%)Total other income, net

(1
%)
112
%Loss before income taxes

(64
%)
(23
%)Provision (benefit) for income taxes

(9
%)
20
%Net loss

(55
%)
(43
%)




Total revenues decreased $6.5 million, or 54 percent, to $5.6 million for the three months ended March 31, 2002, as compared to
$12.1 million for the three months ended March 31, 2001. The decrease in revenues is primarily due to a lower volume of services during the first three months of 2002 as compared
to the same period of 2001.

License
revenues decreased $2.3 million, or 76 percent, to $725,000 for the three months ended March 31, 2002 as compared to $3.0 million for the same
period in 2001, due primarily to the completion,
cancellation or transition of the fixed-price build projects under which the licenses were recognized as costs were incurred on the build projects.

Subscription
revenues were $2.6 million for the three months ended March 31, 2002 as compared to $0 for the same period in 2001. Subscription revenues represent
revenue from contracts that include a subscription to new product releases on a "when and if available" basis. We did not have a subscription contract prior to the fourth quarter of 2001.

Service
and other revenues decreased $6.9 million, or 75 percent, to $2.2 million for the three months ended March 31, 2002 as compared to
$9.1 million for the same period in 2001. Service and other revenues decreased due to time-and-material revenue from our largest customer being recognized as
subscription revenue during the three months ended March 31, 2002, and due to lower overall services during the first three months of 2002 as compared to the same period of 2001.

Revenues
from operations outside of North America were approximately 34 percent of total revenues for the three months ended March 31, 2002 as compared to
24 percent of total revenues for the same period in the prior year.

Three
customers accounted for 55 percent, 17 percent, and 11 percent of our total revenues for the three months ended March 31, 2002, compared to three
customers accounting for 12 percent, 12 percent, and 11 percent of our total revenues for the same period in 2001. No other single customer accounted for more than
10 percent of our total revenues for the three months ended March 31, 2002 or the same period in 2001.

We
believe that period to period comparisons between license, subscription and services revenues are not necessarily indicative of future performance given the nature of our product and
services offerings and the relative emphasis we apply to these offerings in any given period.



Cost of Revenues.Cost of revenues consists primarily of compensation and other related costs of
personnel to provide applications development and implementation, support, and training services. Cost of revenues decreased $6.3 million, or 63 percent, to $3.7 million for the
three months ended March 31, 2002 compared to $10.0 million for the same period in 2001. The decrease was primarily due to a smaller number of employees working on customer projects, and
support and training activities.

Sales and Marketing.Sales and marketing expenses consist primarily of compensation, travel, and
other related expenses for sales and marketing personnel, as well as advertising and other marketing expenses. Sales and marketing expenses decreased $2.3 million, or 82 percent, to
$524,000 for the three months ended March 31, 2002 as compared to $2.8 million during the same period in 2001. The decrease in sales and marketing expenses was primarily due to
having fewer sales and marketing employees in 2002.

Research and Development.Research and development expenses consist primarily of compensation and
other related costs of personnel dedicated to research and development activities. Research and development expenses decreased $2.6 million, or 58 percent, to $1.9 million for the
three months ended March 31, 2002, as compared to $4.5 million during the same period in 2001. Research and development expenses decreased due primarily to having fewer research
and development employees in 2002.

General and Administrative.General and administrative expenses consist primarily of allowances for
doubtful accounts, the costs of executive management, finance and administrative staff, recruiting, business insurance, and professional fees. General and administrative expenses decreased
$1.4 million, or 33 percent, to $2.9 million for the three months ended March 31, 2002 as compared to $4.3 million for the same period in 2001. General and administrative
expenses decreased due primarily to having a smaller scale of operations and fewer general and administrative employees in 2002. General and administrative expenses for the three months ended
March 31, 2001 were reduced $1.5 million from the reversal of a prior litigation accrual that became unnecessary as a result of the settlement of the related litigation.

Amortization of Goodwill and Acquired Intangibles.We recorded amortization expense of goodwill and
acquired intangibles of $962,000 for the three months ended March 31, 2001, associated with our prior purchase of LongView. We completed the sale of LongView on March 15, 2001. We no
longer have any goodwill or acquired intangibles.

Amortization of Deferred Compensation.Deferred compensation, along with the associated amortization,
results primarily from the granting of stock options when there is a difference between the exercise price of certain stock option grants and the deemed fair value of the common stock at the time of
such grants. Certain grants during 1997, 1998, and 1999 were issued at a price that was less than the deemed fair value at the grant date. We are amortizing these amounts over the vesting periods of
the applicable options. During 2001, we made a restricted stock grant that had deferred compensation of $280,000 associated with it that we amortized over the one-year vesting period ended
December 31, 2001. We incurred amortization expense of $64,000 for the three months ended March 31, 2002 as compared to $175,000 for the same period in 2001. When employees who
were granted these options leave TenFold, we reduce the associated deferred compensation. The decrease in amortization expense in 2002 as compared to 2000 is primarily due to the reduction of our
workforce.

Special Charges.We incurred $24,000 of asset impairment charges during the three months ended
March 31, 2002. Special charges for the three months ended March 31, 2001 include a $3.0 million asset impairment charge, and a $2.7 million restructuring charge.

Restructuring
reserves are included in accrued liabilities at March 31, 2002. Detail of the restructuring charges as of and for the three months ended March 31, 2002
are summarized below (in thousands):

|Restructuring Charges: |  | Balance at
December 31, 2001 |       | New
Charges |   | Adjustments |  | Utilized |   | Balance at
March 31, 2002
|---------------------- |  | ---------------------------- | ----- | ----------- | - | ----------- |  | -------- | - | -------------------------
|Employee related       |  | $                            | 106   |             | $ |            |  | $        |  |                          
|Facilities related     |  |                              | 5,521 |             |   |            |  |          |  |                          
|                       |  |                              |       |             |   |             |  |          |   |                          
|                       |  | $                            | 5,627 |             | $ |            |  | $        |  |                          
|                       |  |                              |       |             |   |             |  |          |   |                          

Asset Impairment Charge.During the three months ended March 31, 2002, we identified $24,000 of fixed assets
that had no future value to us and are no longer in active use, and accordingly recorded an asset impairment charge of $24,000 for the three months ended March 31, 2002. During the three
months ended March 31, 2001, we restructured operations to reduce operating expenses, including closing several facilities, and recorded a related asset impairment charge of $3.0 million
for leasehold improvements, computer equipment, furniture and fixtures, and other assets that we determined had no future value to us and were no longer in active use.

First Quarter 2001 Restructuring Charge.During the three months ended March 31, 2001, we incurred a
restructuring charge of $2.7 million as part of our efforts to reduce operating expenses.







Net total other income decreased $13.6 million, to ($64,000) for the three months ended March 31, 2002, compared to $13.5 million for
the same period in 2001. Net total other income for the three months ended March 31, 2001 included a gain of approximately $13.4 million that we recognized on the sale of The
LongView Group, Inc. to Linedata Services on March 15, 2001. Interest income decreased for the three months ended March 31, 2002 compared to the same period in 2001 due to
lower cash and cash equivalent balances. Other income decreased for the three months ended March 31, 2002 compared to the same period in 2001, as we are recognizing less office sublease
income in 2002 due to our having included the sublease income in our prior restructuring accruals.



The benefit for income taxes was $508,000 for the three months ended March 31, 2002 as compared to a provision of $2.4 million for the same
period in 2001. The benefit for the three months ended March 31, 2002 relates primarily to recently enacted tax legislation that enabled reversing accrued Federal alternative minimum
taxes from 2001. The provision for the three months ended March 31, 2001 is primarily for income taxes on the gain from our sale of The LongView Group, Inc. and foreign taxes.

At
March 31, 2002, management has recognized a valuation allowance for the net deferred tax assets related to temporary differences, foreign tax credit carryforwards and net
operating loss carryforwards. The valuation allowance was recorded in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes,
which requires that a valuation allowance be established when there is significant uncertainty as to the realizability of
the deferred tax assets. Based on a number of factors, the currently available, objective evidence indicates that it is more likely than not that the net deferred tax assets will not be realized.

Critical Accounting Policies

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that
understanding, management has identified the "critical accounting policies" below. These policies have the potential to have a more significant impact on our financial statements, either because of
the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events
which are continuous in nature.



We believe risks relating to revenue recognition include the judgment required to determine fixed-price project completion percentages, project profit or loss
projections on fixed-price and time-and-material contracts, and forecasting of fixed-price project end-dates for our one remaining fixed-price project. These
estimates include assumptions as to the remaining effort, the number of personnel assigned to the project, and the complexity of tasks to be completed. Changes in these assumptions may result in
future adjustments to our financial statements.

We
use completion percentage assumptions to determine if a contract is in a loss position. Variances between management's estimates and actual results may result in larger teams and
longer delivery schedules, which impacts the profitability of the project. These variances result in adjustments to our results of operations and financial position due to the change in a project's
profit or loss projections. We also use these estimates to determine if the project end-date schedule is within the timeline of the project guarantee. Variances between management's
judgment and actual results may result in a significant adjustments having to be made to our results of operations and financial position, including potentially having to refund fees previously paid
to us for a project. We are currently in a loss position on our on-going fixed-price contract. At March 31, 2002, we had accrued $994,000 for estimated losses we expect to incur while completing the project.

We
recognize time-and-material revenue at the lowest point in the range of estimated profit margin, which represents our best estimate of the profit to be
achieved. Variances may occur if we are unable to collect time-and-material billings or if we grant concessions to time-and-material customers in order
to sell additional business or collect cash under the contract. These variances between management's estimate of the lowest point in the range of estimated profit margin and actual results may result
in a significant adjustment to our results of operations and financial position.

We
continue to review projects each quarter to reassess the status of each project and to verify the related completion percentage and project profit or loss projections. Although we
believe that we have
made all appropriate adjustments to properly reflect the completion percentage and status of contracts in process at March 31, 2002, we cannot be certain that future adjustments will not be
required.



We review asserted litigation claims each quarter to determine the likelihood that the claim will result in a loss. Significant management judgment is required to
conclude on the likely outcome of outstanding litigation. If a loss is probable on a litigation claim, management estimates the loss and we accrue the estimated loss. If a loss is considered probable
but cannot be reasonably estimated, we disclose the contingency in the notes to our financial statements. Losses may result on litigation claims that are not considered probable or are not estimable
at the current time, potentially having a significant impact on future financial results.



We recognize restructuring charges consistent with EITF 94-3. We reduce charges for abandoned facilities with sublease income. Management analyzes
current market conditions including current lease rates in the respective geographic regions, vacancy rates, and costs associated with subleasing when evaluating the reasonableness of future sublease
income. Significant management judgments and estimates must be made and used in calculating future sublease income. Variances between our expected and actual sublease income may result in significant
restructuring charge adjustments in future periods.

Liquidity and Capital Resources

During the quarter ended March 31, 2002, we continued to seek to improve our cash flow through a variety of means, including carefully managing our
accounts receivable and generating additional cash inflows wherever possible from our existing customer base, and continuing to reduce our operating cash outflows wherever possible. We have reduced
quarterly operating cash outflows by over 60% from the first quarter of 2001 to the first quarter of 2002.

Net
cash used in operating activities was $5.1 million for the three months ended March 31, 2002 as compared to $13.1 million for the three months
ended March 31, 2001. The decrease in cash flows used in operating activities results primarily from the significant restructuring actions we took during 2001 to reduce our operating costs.

Net
cash provided by investing activities was $2.5 million for the three months ended March 31, 2002 as compared to $21.5 million for the three months ended
March 31, 2001. During the three months ended March 31, 2002, we sold two buildings and related land in San Rafael, California for proceeds of $2.4 million (before
repayment of related notes payable). During the three months ended March 31, 2001, we sold The LongView Group, Inc. to Linedata Services for net proceeds of $28.1 million. The
additions to restricted cash for the three months ended March 31, 2001, were for deposits to secure letters of credit in the amount of $3.5 million, and $2.9 million held in escrow as required by our agreement with Linedata Services.

Net
cash used in financing activities was $2.3 million for the three months ended March 31, 2002 as compared to $1.2 million for the three months ended
March 31, 2001. Net cash used by financing activities for the three months ended March 31, 2002 was primarily for repayment of notes payable related to our sale of two buildings
and related land in San Rafael, California. Net cash used by financing activities for the three months ended March 31, 2001 resulted primarily from principal payments on notes and
capital leases of $1.9 million.

While
our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors' report on our December 31, 2001
financial statements, prepared by KPMG LLP, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern.

We
have made significant progress reducing operating cash outflows during 2001 and 2002. We reduced quarterly operating cash outflows by over 60% from the first quarter of 2001 to the
first quarter of 2002. However, we have been operationally cash flow negative for the years ended December 31, 2001 and 2000, and the three months ended March 31, 2002.
This ongoing negative cash flow has continued to place a burden on us to obtain cash infusions beyond those generated from normal operations.

On
March 1, 2002, we renewed our existing errors and omissions insurance policy. However, this policy does not cover all of our current customer and partner disputes and we can
give no assurance that it will cover future customer claims. See "Legal Proceedings" for more information.

We
continue to seek additional sources of financing such as new sales to existing and new customers, asset sales, or equity financing, to sustain our operations. In February 2002,
we entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC ("Fusion Capital"), in connection with a private equity line financing transaction
pursuant to which we will offer and sell to Fusion Capital up to $10,000,000 of our Common Stock, over a period of up to 40 months. As a condition to Fusion Capital's obligation to make
purchases under the Purchase Agreement, the Common Stock to be offered and sold to Fusion Capital must be registered in an effective registration statement with the Securities and Exchange Commission.
Once the registration statement is effective, we may make draws under the equity line, and can elect to draw up to $250,000 per month so long as our stock price exceeds $0.25 (below which we may not
make draws). However, we have not yet filed
the registration statement, which the Purchase Agreement required to be filed by March 29, 2002. Consequently, Fusion Capital may elect to cancel the Purchase Agreement. There can be no
assurance that we will be successful in our efforts to generate sufficient cash flow to continue operations in the near term.

Disclosure about Contractual Obligations and Commercial Commitments

The following table sets forth certain contractual obligations recorded in the condensed consolidated financial statements and summary information is presented in
the following table (in thousands):

|                                   |  | As of March 31, 2002
|---------------------------------- |  | --------------------
|
|Notes Payable                      |  | $                   
|Capital Lease Obligations          |  |                     
|Real Estate Operating Leases       |  |                     
|Other Long Term Obligations        |  |                     
|                                   |  |                     
|Total Contractual Cash Obligations |  | $                   
|                                   |  |                     



The real estate operating leases above include $31.0 million of restructured real estate lease obligations that have not been reduced by
$4.8 million of sublease income due from sublease tenants. In the Condensed Consolidated Balance Sheet at March 31, 2002, these obligations are included in accrued liabilities, net of
the related sublease income.

In
addition to the Contractual Obligations shown in the table above, we have the following other commitments:



During the year ended December 31, 2000, we obtained stand-by letters of credit from our primary lender as security for our Chicago, Illinois
and San Francisco, California office leases in the amount of $3.5 million. We maintain $3.5 million of restricted cash that collateralizes these letters of credit. These letters of
credit will terminate on June 30, 2008. During 1999, we obtained stand-by letters of credit of $165,000, which will terminate by December 31, 2003. These letters of credit
have not been drawn upon at March 31, 2002.



As of March 31, 2002, we had one remaining guaranteed fixed-price contract, and one other contract subject to a guarantee. We have received cash payments
from these contracts totaling $14.0 million through March 31, 2002, that are subject to potential refund under the related guarantees. We believe that the application and required
deliveries under the contracts will comply with the contractual terms of our customer agreements; however, these guarantees represent a risk to us.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141Business Combinationsand SFAS No. 142 Goodwill and Other
Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead
will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value.
We adopted the provisions of SFAS No. 141 immediately, and SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 141 and 142 did not have a material effect on our business, results of operations, financial position, or liquidity.

In
August 2001, the FASB issued SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. We adopted the provisions
of SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material effect on our business, results of operations, financial position, or liquidity.

In
November 2001, the FASB issued an announcement,Income Statement Characterization of Reimbursements Received for Out of Pocket Expense
Incurred. The announcement requires companies to characterize reimbursements received for out of pocket expenses as revenues in the statement of operations. Historically, we
netted reimbursements received for out of pocket expenses against the related expenses in the accompanying condensed consolidated statements of operations. The announcement is to be applied in
financial reporting periods beginning after December 15, 2001 and comparative financial statements for the prior year are to be reclassified to comply with the guidance in the announcement. We
adopted this announcement on January 1, 2002. The adoption of this announcement resulted in increased revenues and expenses by the same amount in each period of $144,000 and $827,000 for the
three months ended March 31, 2002 and 2001, respectively.

In
July 2001, the FASB reached final consensus on EITF No. 00-25,Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products("EITF 00-25"). EITF 00-25 generally requires that consideration, including equity instruments, given to a customer be
classified in a vendor's financial statements not as an expense, but as a reduction to revenue up to the amount of cumulative revenue recognized or to be recognized. In November 2001, the EITF
reached consensus on EITF No. 01-09,Accounting for a Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products("EITF 01-09"). EITF 01-09 clarifies and modifies certain items discussed in EITF 00-25. In accordance with the transition guidance
in EITF 00-25, adoption will require reclassification of financial statements for prior periods presented for comparative purposes. We adopted EITF 00-25 and EITF
01-09 on January 1, 2002. The adoption of EITF 00-25 and EITF 01-09 did not have a material effect on our business, results of operations, financial
position, or liquidity.

In
June 2001, the FASB issued SFAS No. 143Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. We are required to adopt the provisions of SFAS No. 143 on January 1, 2003. We are currently evaluating this statement but do not expect that
it will have a material effect on our business, results of operations, financial position, or liquidity.

Factors that May Affect Future Results and Market Price of Stock

We operate in a rapidly changing environment that involves numerous risks, some of which are beyond our control. The following discussion highlights some of these
risks.



While our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors' report on our
December 31, 2001 financial statements, prepared by KPMG LLP, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern. Our
business model relies upon generating new sales to existing and new customers and receiving payments from existing customers. If we do not generate sufficient new sales and receive payments from existing customers, we will be required to pursue one or a combination of the following remedies: seek additional sources of financing, further reduce
operating expenses, sell part or all of our assets, or terminate operations. We were unable to raise additional capital during the year ended December 31, 2001. We will continue to seek
additional capital to finance our operations through 2002. However, there can be no assurance that these efforts will prove successful.



In light of our operating results for recent periods and the national economic downturn in the technology sector, it is difficult to evaluate our future
prospects. The terrorist attacks on September 11, 2001 have negatively affected our business and caused some of our current and potential customers to delay and change their purchasing
decisions. We have only a limited number of applications completed
and currently in use and there can be no assurance that we will be able to successfully complete any current or new projects. In the past, we received customer complaints concerning some of our
projects. We cannot be certain that we will not receive more customer complaints in the future. Additionally, our failure to successfully complete any current or new projects may have a material
adverse impact on our financial position and results of operations. We cannot be certain that our business strategy will succeed.



We believe that some prospective customers are delaying and canceling purchase decisions as a result of the litigation and customer disputes against us, the
decline in our stock price, our financial condition including our operating losses for the last several quarters, our lack of new capital, and the economic effects resulting from the terrorist attacks
of September 11, 2001. There is no assurance that we will be able to convince prospective customers to purchase products or services from us or that any customer revenue that is achieved can be
sustained. If we are unable to obtain future customer revenue, our operations, financial condition, liquidity, and prospects will be materially and adversely affected, and we will be required to
pursue one or a combination of the following remedies: seek additional sources of financing, further reduce operating expenses, sell part or all of our assets, or terminate operations. There can be no
assurance that additional financing sources will be available to us when needed or that we will be able to execute the other potential remedies sufficiently to continue operations.



While we maintain errors and omissions insurance coverage for claims related to customer contract disputes within the coverage scope and term, given the nature
and complexity of the factors affecting the estimated liabilities, actual liabilities may exceed or be outside the scope of our current errors and omissions coverage. We can give no assurance that our
insurance carrier will extend coverage to any of the current claims. In addition, no assurance can be given that we will not be subject to material additional liabilities and significant additional
litigation relating to errors and omissions for existing claims and future claims.

Our
new errors and omissions insurance policy, which we renewed on March 1, 2002, is in the form of an industry standard software errors and omissions policy. As such, it only
covers software errors and omissions that occur after the delivery of software and excludes contractual disputes such as cost and time related guarantees. We have previously had contractual disputes
related to our guarantees. No assurance can be given that we will not be subject to these types of claims in the future. In the event that liabilities from claims are not covered by or exceed our
errors and omissions coverage, our business, results of operations, financial position, or liquidity could be materially and adversely affected.







Because of our limited operating history and our small number of customers, we have completed a limited number of projects that are now in production. As a
result, there may be undiscovered material defects in our products or technology. Furthermore, complex software products often contain errors or defects, particularly when first introduced or when new
versions or enhancements are released. Despite internal testing and testing by current and potential customers, our current and future products may contain serious defects. Serious defects or errors
could result in lost revenues or a delay in market acceptance, which would damage our reputation and business.

Because
our customers may use our products for mission-critical applications, errors, defects, or other performance problems could result in financial or other damages to customers. Our
customers could seek damages for these losses. Any successful claims for these losses, to the extent not covered by insurance, could result in us being obligated to pay substantial damages, which
would cause operating results to suffer. Although our license agreements typically contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could negate these limitations of liability provisions. A product liability claim brought against us, even if not successful, would likely be time consuming and costly.



We are currently involved in a dispute with a former customer and an SEC investigation. Additionally, two consolidated complaints have been filed alleging that
TenFold and certain officers have violated federal securities laws. We may in the future face other litigation or disputes with customers, employees, business partners, stockholders, or other third
parties. Such litigation or disputes could result in substantial costs and diversion of resources that would harm our business. An unfavorable outcome of these matters may have a material adverse
impact on our business, results of operations, financial position, or liquidity. See "Legal Proceedings" for more information.



Our settlements with Perot Systems and Cedar-Sinai require that we perform and meet certain obligations. If we are unable to or do not perform or meet these
obligations, Perot Systems and the unnamed customer may re-instate or re-assert their respective claims against us. If either Perot Systems or the unnamed customer were to
re-instate or re-assert its claims, an unfavorable outcome of the matter may have a material adverse impact on our business, results of operations, financial position, or
liquidity.



Our Common Stock is currently traded on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "TENF." As we have been informed by Nasdaq in a February 14,
2002 letter and a May 6, 2002 letter, we have failed to meet certain of Nasdaq's continued listing requirements and, as a result of this failure to comply with these listing criteria, our
Common Stock could be de-listed from Nasdaq. Nasdaq's continued listing requirements include a series of financial tests relating to market capitalization, net income, net tangible assets,
public float, number of market makers and shareholders, and a $1.00 minimum share price. If we are not able to obtain an exception to the continued listing requirements or meet the continued listing
requirements and our stock is de-listed from Nasdaq, there would likely be a substantial reduction in the liquidity of any investment in our common stock. This lack of liquidity also may make it more difficult for us to raise capital in the future. There can be no assurance that an active trading market will be sustained in the future.



Historically, our operating results have varied significantly. For example, during some years, we have had quarterly profits followed by losses in
subsequent quarters. Our future operating results may continue to vary significantly. Furthermore, there can be no assurance that we will not continue to suffer losses in the future.



Prior to 2001, an important element of our strategy was to enter into fixed-price, fixed-time contracts, rather than
time-and-materials contracts. These contracts involved risk because in certain instances they required us to absorb possible cost overruns and, if we failed to meet our
performance obligations, may have required us to satisfy our performance guarantee. Historically, we offered the "TenFold Guarantee" by which we guaranteed that we would complete our projects within a
fixed time or the customer had the option to return the software and receive a refund of any fees paid under the contract. For fixed-price contracts, we recognized license fees related to the
application and the application development service fees over time as we performed the services, using the percentage-of-completion method of accounting. Our failure to
accurately estimate the resources required for a project or our failure to complete our contractual obligations in a manner consistent with the project plan has caused us to have lower margins or to
suffer a loss on some projects, which has negatively impacted our operating results. In specific circumstances, we were required to commit unanticipated additional resources to complete projects.
Beginning in the fourth quarter of 2000, we no longer offer the TenFold Guarantee as a standard part of our contracts. As of March 31, 2002, we had one remaining guaranteed fixed-price
contract, and one other contract subject to a guarantee. We have received cash payments from these contracts totaling $14.0 million through March 31, 2002 that are subject to potential
refund under the related guarantees.



We currently have one remaining fixed-price contract. We have experienced delays on this project. In an effort to complete the project, we have added additional
employee and consulting personnel. There is no assurance that we will complete this fixed-price project or that this project will not require additional personnel. Our failure to accurately estimate
the resources required for a fixed-price project or our failure to complete our contractual fixed-price obligations in a manner consistent with the project plan would likely cause us to have lower
margins or to suffer a loss on the project, which would negatively impact our operating results, financial condition and liquidity. Our revenue recognition policy requires us to make periodic
adjustments to our project estimates used in the percentage-of-completion method of accounting (which includes the "zero profit" methodology) as work progresses under the
contracts and as we gain experience. Although we believe that we made all appropriate adjustments to properly reflect the completion percentage and status of this contract in process, we cannot be
certain that future adjustments will not be required. See "Legal Proceedings" for information about litigation and disputes related to some of our projects.



A high percentage of our operating expenses, particularly personnel and rent, are relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number, or progress toward completion, of our projects or in employee utilization rates did and may continue to cause significant variations in operating results in any
particular quarter and could result in quarterly losses. An unanticipated termination of a major project, the delay of a project, or the completion during a quarter of several major projects has in
the past and may continue to result in under-utilized employees and could, therefore, cause us to suffer quarterly losses or adverse results of operations.



We believe that a customer's decision to purchase our software involves a significant commitment of resources and is influenced by customer budget cycles. To
successfully sell our products, we generally must educate our potential customers regarding the use and benefit of our products, which can require significant time and resources. Consequently, the
period between initial contact and the purchase of our products is often long and subject to delays associated with the lengthy budgeting, approval, and competitive evaluation processes that typically
accompany significant capital expenditures. Our sales cycles are lengthy and variable, typically ranging between three to twelve months from initial contact with a potential customer to the
signing of a contract. In addition, the events of September 11, 2001 have caused current and potential customers to delay or change their purchasing decisions. Sales delays could cause our
operating results to vary widely. We have recently experienced sales delays due to longer than expected sales cycles, which we believe contributed to lower than expected revenues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" generally for more information concerning our customers and revenues. There can be no assurance that we will not experience
sales delays in the future. In addition, we face a challenging sales environment and there can be no assurance that we will have sales in the future.



As a result of our limited operating history, we have derived, and over the near term we expect to continue to derive, a significant portion of our revenues and
cash flow from a limited number of large customers. For the three months ended March 31, 2002, Allstate accounted for 55 percent of our total revenues. Our services relationship
with Allstate can be cancelled by Allstate at any time upon 30 days written notice. If Allstate chooses to cancel such relationship, or if it significantly reduced the amount of business it
conducts with us, our business, results of operations, financial position and liquidity would be materially and adversely affected. However, the loss of any of our large customers, without their
replacement by new large customers, has had and may continue to have an adverse effect on our
revenues and cash flow. We lost several customers during the years ended December 31, 2001 and 2000. In the future, revenues from a single customer or a few large customers may
constitute a significant portion of our total revenues and cash inflows in a particular quarter. The volume of work performed for specific customers is likely to vary from year to year, and a major
customer in one year may not purchase licenses or services from us in a subsequent year. In addition, if a customer is involved in a corporate reorganization or business combination, that fact may
delay a decision to hire us or cause the customer to choose not to purchase licenses or services in a given year. Replacing the loss of a large customer is unpredictable, as we have not signed a
significant contract with a new customer in over a year. Fifty-six percent of our 2001 revenues were derived from three customers; the largest of the three customers in 2001 is not
expected to produce significant revenue or cash flow during 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" generally for more information concerning our customers and revenues.



We have developed software applications for companies in a small number of vertical industries. Our reliance on customers from particular industries subjects our
business to the economic conditions impacting those industries, including those industries' demand for information technology resources. If we continue to rely on a small number of vertical industries
as a major source of revenues, and those industries suffer adverse economic conditions, there will likely be a significant reduction in the demand for our products, causing revenues to suffer. For
example, the events of September 11, 2001 have adversely affected some of our customers in the insurance and financial services industries. Although we intend to seek to diversify our customer
base, there can be no assurance that we will be able to do so in the near term or at all.



An element of our business strategy includes divesting vertical applications products or lines of business. If we are unable to successfully implement this
strategy or within the time frames anticipated, our results could suffer. Unfortunately, the events of September 11, 2001 directly impacted companies in the securities and insurance industries,
which are the most likely to have an interest in acquiring rights to our vertical applications. If companies in these industries continue to preserve cash and slow their business expansion plans, our
divestiture strategy could be adversely affected.



As we change our business strategy to licensing the Universal Application, the success of our business is dependent, in part, upon our ability to license the
Universal Application. If our strategy for marketing the Universal Application is unsuccessful, or if we are unable to license the Universal Application successfully or within the time frames
anticipated, our revenues, and operating results will suffer.



Our industry is competitive and we are substantially dependent upon the continued service of our existing executive personnel, especially Nancy M. Harvey,
President and Chief Executive Officer. Furthermore, our products and technologies are complex and we are substantially dependent upon the continued service of our senior technical staff, including
Jeffrey L. Walker, Chairman of the Board of Directors, Executive Vice President, and Chief Technology Officer. If a key employee resigns to join a competitor or to form a competing company, the
loss of the employee and any resulting loss of existing or potential customers to the competing company would harm our business. We do not carry key man life insurance on any of our key employees. We
have entered into an employment agreement with our President and Chief Executive Officer, Nancy M. Harvey. We have entered into employment agreements with certain other key executive officers.
However, such agreements do not ensure their continued service to TenFold. In the event of the loss of key personnel, there can be no assurance that we would be able to prevent their unauthorized
disclosure or use of our technical knowledge, practices, or procedures.



Our business is labor intensive. Our success will depend in large part upon our ability to attract, retain, train, and motivate highly skilled employees,
particularly project managers and other senior technical personnel. Any failure on our part to do so would impair our ability to adequately manage and complete existing projects, bid for and obtain
new projects, and expand business. There exists significant competition for employees with the skills required to perform the services we offer. Qualified project managers and senior technical staff
are in great demand and are likely to remain a limited resource for the foreseeable future. The collapsing of our vertical business group structure along with our restructuring and related headcount
reductions, may make it more difficult for us to retain and compete for such employees. In addition, many of the stock options that we granted to
employees are priced in excess of the current market price of our common stock. There can be no assurance that we will be successful in retaining, training, and motivating our employees or in
attracting new, highly skilled employees. If we are unsuccessful in this effort or if our employees are unable to achieve expected performance levels, our business will be harmed.



Our success is dependent, in part, upon our proprietary Universal Application technology and other intellectual property rights. If we are unable to protect and
enforce these intellectual property rights, our competitors will have the ability to introduce competing products that are similar to ours, and our revenues, market share, and operating results will
suffer. To date, we have relied primarily on a combination of patent, copyright, trade secret, and trademark laws, and nondisclosure and other contractual restrictions on copying and distribution to
protect our proprietary technology. We have been issued three patents in the U.S. and intend to continue to seek patents on our technology when appropriate. There can be no assurance that the steps we
have taken in this regard will be adequate to deter misappropriation of our proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our
intellectual property rights. The laws of some countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Furthermore, litigation may be
necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. This litigation could result in substantial costs and diversion of resources that would harm our business.

To
date, we have not been notified that our products infringe the proprietary rights of third parties, but there can be no assurance that third parties will not claim infringement by us
with respect to current or future products. We expect software developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows
and the functionality of products in different industry segments overlaps. Any of these claims, with or without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays, or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be
available on terms acceptable to us, or at all. A successful claim against us of product infringement and our failure or inability to license the infringed or similar technology on favorable terms
would harm our business.



The market for our products and services is highly competitive, and if we are not successful in competing in this market, our revenues and market share will
suffer. Many of our competitors have significantly greater financial, technical and marketing resources, generate greater revenues, and have greater name recognition than we do. In addition, there are
relatively low barriers to entry into our markets and we have faced, and expect to continue to face, additional competition from new entrants into our markets.



In 2001, 28% of our total revenues came from customers located in the United Kingdom and Argentina. We estimate that approximately 14% of our 2002 revenues will
come from customers in those two countries. The international political and economic uncertainty caused by the events of September 11, 2001 and the ongoing war on terrorism may adversely impact
our ability to continue existing relationships with our foreign customers and to develop new business abroad.

Furthermore,
Argentina's default on its debt and the political and economic upheaval resulting from that country's four-year recession may adversely impact our ability to
continue our relationship with, or even collect amounts due from, our customer in Argentina.



The executive officers, directors, and entities affiliated with them, in the aggregate, beneficially own approximately 62 percent of our outstanding common
stock. Jeffrey L. Walker, Chairman, Executive Vice President and Chief Technology Officer, and the Walker Children's Trust, in the aggregate, currently beneficially own approximately 47 percent
of our outstanding common stock. Mr. Walker, acting with others, would be able to decide or significantly influence all matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination transactions. This concentration of ownership may have the effect of delaying or preventing a merger or other business combination
transaction, even if the transaction would be beneficial to our other stockholders.



Provisions of our certificate of incorporation, bylaws, stock incentive plans and Delaware law may discourage, delay, or prevent a merger or acquisition that a
stockholder may consider favorable.





Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk.As of March 31, 2002, we had cash and cash equivalents of $5.7 million and
$5.9 million in restricted cash. All of the cash equivalents consist of highly-liquid investments with remaining maturities at the date of purchase of less than ninety days. These
investments are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical increase or decrease in market interest rates by 10 percent from the
March 31, 2002 rates would cause the fair value of these investments to change by an insignificant amount. Risk is mitigated through limits regarding investment concentration in particular
securities and institutions, and investments in varying maturities. We do not invest in any financial derivatives or any other complex financial instruments. An increase or decrease in interest rates
would not significantly increase or decrease our interest expense on debt obligations, as the majority of our debt obligations have fixed interest rates. TenFold does not own any equity investments.
Therefore, we do not currently have any direct equity price risk.

Currency Risk.A portion of our operations consists of applications development and sales activities in the United Kingdom.
These transactions are primarily denominated in British pounds. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S.
dollar and the British pound, or by weak economic conditions in the United Kingdom. When the U.S. dollar strengthens against the British pound, the value of revenues in the United Kingdom decreases.
When the U.S. dollar weakens against the British pound, the value of revenues in the United Kingdom increases. The monetary assets and liabilities in our foreign subsidiary which are impacted by
foreign currency fluctuations are cash, accounts receivable, accounts payable, and certain accrued liabilities. A hypothetical 10 percent increase or decrease in the exchange rate between the
U.S. dollar and the British pound from the March 31, 2002 rate would cause the fair value of such monetary assets and liabilities in the United Kingdom to change by approximately $43,000. We
are not currently engaged in any foreign currency hedging activities.





PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, Note 8 of Notes to Condensed Consolidated Financial Statements for a description of legal proceedings.

Item 2. Changes in Securities and Use of Proceeds

On February 26, 2002, we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC ("Fusion Capital"), pursuant to which Fusion
Capital has agreed to purchase in cash, on each trading day during the term of the agreement, $12,500 of our common stock up to an aggregate, under certain conditions, of $10 million. We have
issued 632,911 shares to Fusion Capital as part of its commitment fee, and up to 316,456 additional shares are issuable to Fusion Capital in the future as part of its commitment fee. Under the common
stock purchase agreement, the purchase price per share is equal to the lesser of: the lowest sale price of our common stock on the purchase date; or the average of the three lowest closing sale prices
of our common stock during the ten consecutive trading days prior to the date of a purchase by Fusion Capital.

Based
upon representations and warranties made by Fusion Capital in the common stock purchase agreement, including representations and warranties with respect to its investment intent
and financial sophistication, the shares of common stock issued and to be issued to Fusion Capital have been issued and are expected to be issued, as applicable, in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as amended. Any proceeds from Fusion Capital we receive under the common stock purchase agreement will be used for
working capital and general corporate purposes.

Item 3. Defaults Upon Senior Securities

As of December 31, 2001, we owed our primary lender $6.0 million (which is included in the $6.2 million note payable total at
December 31, 2001) under certain credit facilities and loan agreements (the "Loan Agreements") relating to equipment that we leased through this lender and relating to our prior purchase of
real property in San Rafael, California. Our obligations under the Loan Agreements are secured by a blanket first priority security interest in our assets. As of December 31, 2001, we were in
default of the Loan Agreements for non-timely payment of principal and interest, but the lender has waived the defaults as described below.

In
January 2002, we sold the real property in San Rafael, California, and applied the proceeds from this sale to reduce the amount we owed under the Loan Agreements. In
March 2002, we also sold certain equipment and applied the proceeds from this sale to reduce the amount we owed under the Loan Agreements. The proceeds from these sales reduced the amount we
owed our primary lender to $3.6 million.

As
of January 1, 2002, we restructured our relationship with this lender by consolidating the Loan Agreements into one secured loan agreement (the "Consolidated Loan Agreement").
Under the Consolidated Loan Agreement, the lender waived the defaults under the Loan Agreements described above. The Consolidated Loan Agreement has an initial term of six months. If we remain
current on our monthly payments, the Consolidated Loan Agreement will automatically renew for three additional six-month terms. The rate at which interest accrues under the Consolidated
Loan Agreement decreases over time as we reduce the amount owed. To secure the obligations under the Consolidated Loan Agreement, the lender continues to hold a blanket first priority security
interest in our assets.

Item 6. Exhibits and Reports on Form 8-K

|Number |  | Description                                                                                                                                                                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1    |  | Common Stock Purchase Agreement between TenFold Corporation and Fusion Capital Fund II, LLC, dated as of February 15, 2002.(1)                                                   
|10.20# |  | Amendment to Employment Agreement between TenFold Corporation and Nancy M. Harvey.(2)                                                                                            
|10.25# |  | Amendment to Employment Agreement between TenFold Corporation and Michelle Moratti.(2)                                                                                           
|10.27# |  | Employment Agreement between TenFold Corporation and Jonathan E. Johnson III.(2)                                                                                                 
|10.28# |  | Separation Agreement between TenFold Corporation and Sameer Shalaby.(2)                                                                                                          
|10.33# |  | Purchase Agreement for property located at 171 and 181 San Carlos Drive, San Rafael County, CA, between TenFold Corporation and San Francisco Development.(2)                    
|10.34# |  | Restructuring Agreement and Amended and Restated Master Lease Agreement, effective January 1, 2002, among TenFold Corporation, Bank One, NA, and Banc One Leasing Corporation.(2)
|11*    |  | Computation of Shares used in Computing Basic and Diluted Net Income (Loss) Per Share.                                                                                           

---



On
March 1, 2002, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission disclosing that it had entered into a Common Stock
Purchase Agreement with Fusion Capital Fund II, LLC, under which the Company entered into a private equity line financing transaction.





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
thereunto duly authorized.

| |  | TenFold Corporation
| |  | -------------------
| |  | By:                
| |  | By:                

Date:
May 15, 2002