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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



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



For the quarterly period ended September 30, 2005



OR



| ̈ | 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 ororganization) |  | (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 x  No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Exchange Act).



Yes ̈No x



Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).



Yes ̈No x



As of September 30, 2005, there
were 46,445,749 shares of the registrants Common Stock outstanding.



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INDEX



|          |  |                                                                                                                  |  |     
|--------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                                  |  | Page
|          |  | Forward-Looking Statements                                                                                       |  | 3   
|          |  |                                                                                                                 
|PART I.   |  | FINANCIAL INFORMATION                                                                                            |  |     
|          |  |                                                                                                                 
|Item 1.   |  | Condensed Financial Statements                                                                                   |  |     
|          |  |                                                                                                                 
|          |  | Condensed Balance Sheets at September 30, 2005 and December 31, 2004                                             |  | 4   
|          |  |                                                                                                                 
|          |  | Condensed Statements of Operations for the three and nine months ended September 30, 2005 and September 30, 2004 |  | 5   
|          |  |                                                                                                                 
|          |  | Condensed Statements of Cash Flows for the nine months ended September 30, 2005 and September 30, 2004           |  | 6   
|          |  |                                                                                                                 
|          |  | Notes to Condensed Financial Statements                                                                          |  | 7   
|          |  |                                                                                                                 
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 16  
|          |  |                                                                                                                 
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 34  
|          |  |                                                                                                                 
|Item 4.   |  | Controls and Procedures                                                                                          |  | 34  
|          |  |                                                                                                                 
|PART II.  |  | OTHER INFORMATION                                                                                                |  |     
|          |  |                                                                                                                 
|Item 1.   |  | Legal Proceedings                                                                                                |  | 35  
|          |  |                                                                                                                 
|Item 5.   |  | Other Information                                                                                                |  | 35  
|          |  |                                                                                                                 
|Item 6.   |  | Exhibits                                                                                                         |  | 35  
|          | 
|Signature |  | 36                                                                                                              



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FORWARD-LOOKING STATEMENTS



In
addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking
statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in 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. When used in this report, the words expects, intends, anticipates, should, believes,
will, plans, may, seeks, estimates and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking
statements, which reflect our opinions only as of the date of this Quarterly Report. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document. You should carefully review the risk
factors described in other documents we file from time to time with the Securities and Exchange Commission, including our most recent reports on Forms 10-Q and 10-K.



3



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##### Table of Contents

|PART | I. FINANCIAL INFORMATION
|---- | ------------------------



|Item 1. | Condensed Financial Statements
|------- | ------------------------------

TENFOLD CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                            |  | September 30,2005 |         |   | December 31,2004 |  
|Assets                                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                   |  | $                 | 1,706   |   |                  | $ | 5,225   |  
|Accounts receivable, (net of allowances for doubtful accounts of $21 and $29, respectively) (includes related party receivable of $11 and $0,
respectively) |  |                   | 401     |   |                  |   | 240     |  
|Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $3, respectively)                                                          |  |                   | 41      |   |                  |   | 74      |  
|Prepaid expenses and other assets                                                                                                                           |  |                   | 300     |   |                  |   | 162     |  
|Other assets                                                                                                                                                |  |                   | 14      |   |                  |   | 14      |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                        |  |                   | 2,462   |   |                  |   | 5,715   |  
|Restricted cash                                                                                                                                             |  |                   | 74      |   |                  |   | 74      |  
|Property and equipment, net                                                                                                                                 |  |                   | 416     |   |                  |   | 626     |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                |  | $                 | 2,952   |   |                  | $ | 6,415   |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                        |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                        |  |                   |         |   |                  |   |         |  
|Accounts payable                                                                                                                                            |  | $                 | 249     |   |                  | $ | 265     |  
|Income taxes payable                                                                                                                                        |  |                   | 341     |   |                  |   | 1,340   |  
|Accrued liabilities                                                                                                                                         |  |                   | 1,260   |   |                  |   | 1,406   |  
|Deferred revenue                                                                                                                                            |  |                   | 1,994   |   |                  |   | 1,062   |  
|Current installments of obligations under capital leases                                                                                                    |  |                   | 34      |   |                  |   | 25      |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                   |  |                   | 3,878   |   |                  |   | 4,098   |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Long-term liabilities:                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Obligations under capital leases, excluding current installments                                                                                            |  |                   | 19      |   |                  |   | 36      |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total long-term liabilities                                                                                                                                 |  |                   | 19      |   |                  |   | 36      |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                               |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                       |  |                   |         |   |                  |   |         |  
|Common stock, $0.001 par value:                                                                                                                             |  |                   |         |   |                  |   |         |  
|Authorized: 120,000,000 shares                                                                                                                              |  |                   |         |   |                  |   |         |  
|Issued and outstanding shares: 46,445,749 shares at September 30, 2005 and 46,377,219 shares at December 31, 2004                                           |  |                   | 46      |   |                  |   | 46      |  
|Additional paid-in capital                                                                                                                                  |  |                   | 76,254  |   |                  |   | 76,218  |  
|Deferred compensation                                                                                                                                       |  |                   | (9      | ) |                  |   | (20     | )
|Accumulated deficit                                                                                                                                         |  |                   | (77,236 | ) |                  |   | (73,963 | )
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total stockholders equity (deficit)                                                                                                                        |  |                   | (945    | ) |                  |   | 2,281   |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                  |  | $                 | 2,952   |   |                  | $ | 6,415   |  
|                                                                                                                                                            |  |                   |         |   |                  |   |         |  



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



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TENFOLD CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                  |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                                                  |  | 2005                            |        |   | 2004                           |   |        | 2005 |  |   | 2004   |  
|Revenues:                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|License                                                                                           |  | $                               | 124    |   |                                | $ | 33     |      |  | $ | 440    |   |  | $ | 293    |  
|Services and other                                                                                |  |                                 | 1,368  |   |                                |   | 1,723  |      |  |   | 4,361  |   |  |   | 15,547 |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                                    |  |                                 | 1,492  |   |                                |   | 1,756  |      |  |   | 4,801  |   |  |   | 15,840 |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                                                               |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Cost of revenues                                                                                  |  |                                 | 707    |   |                                |   | 1,038  |      |  |   | 2,458  |   |  |   | 5,019  |  
|Sales and marketing                                                                               |  |                                 | 667    |   |                                |   | 1,045  |      |  |   | 2,227  |   |  |   | 1,941  |  
|Research and development                                                                          |  |                                 | 824    |   |                                |   | 982    |      |  |   | 2,643  |   |  |   | 2,786  |  
|General and administrative                                                                        |  |                                 | 637    |   |                                |   | 676    |      |  |   | 1,860  |   |  |   | 1,898  |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                          |  |                                 | 2,835  |   |                                |   | 3,741  |      |  |   | 9,188  |   |  |   | 11,644 |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations                                                                     |  |                                 | (1,343 | ) |                                |   | (1,985 | )    |  |   | (4,387 | ) |  |   | 4,196  |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Other income (expense):                                                                           |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                                                                   |  |                                 | 13     |   |                                |   | 25     |      |  |   | 50     |   |  |   | 71     |  
|Interest expense                                                                                  |  |                                 | (1     | ) |                                |   | (3     | )    |  |   | (6     | ) |  |   | (7     | )
|                                                                                                  |  |                                 |        |  
|Other income                                                                                      |  |                                 |       |   |                                |   | 1      |      |  |   | 87     |   |  |   | 152    |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total other income, net                                                                           |  |                                 | 12     |   |                                |   | 23     |      |  |   | 131    |   |  |   | 216    |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                                                                 |  |                                 | (1,331 | ) |                                |   | (1,962 | )    |  |   | (4,256 | ) |  |   | 4,412  |  
|Provision (benefit) for income taxes                                                              |  |                                 | (990   | ) |                                |   |       |      |  |   | (983   | ) |  |   | 4      |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                                                                 |  | $                               | (341   | ) |                                | $ | (1,962 | )    |  | $ | (3,273 | ) |  | $ | 4,408  |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings (loss) per common share                                                            |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.10   |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings (loss) per common share                                                          |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.08   |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common and common equivalent shares used to calculate earnings (loss) per share: |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                             |  |                                 | 46,434 |   |                                |   | 46,312 |      |  |   | 46,415 |   |  |   | 46,148 |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                           |  |                                 | 46,434 |   |                                |   | 46,312 |      |  |   | 46,415 |   |  |   | 55,688 |  
|                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



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



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TENFOLD CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                     |  |                                |        |   |      |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                     |  | Nine Months EndedSeptember 30, |       
|                                                                                     |  | 2005                           |        |   | 2004 |  
|Cash flows from operating activities:                                                |  |                                |        |   |      |   |        |  
|Net income (loss)                                                                    |  | $                              | (3,273 | ) |      | $ | 4,408  |  
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                                |        |   |      |   |        |  
|Depreciation and amortization                                                        |  |                                | 241    |   |      |   | 270    |  
|Provision to bad debt reserve                                                        |  |                                | (10    | ) |      |   | 52     |  
|Amortization of deferred compensation                                                |  |                                | 11     |   |      |   | 13     |  
|Gain on sale of property and equipment                                               |  |                                |       |   |      |   | (62    | )
|Changes in operating assets and liabilities:                                         |  |                                |        |   |      |   |        |  
|Accounts receivable                                                                  |  |                                | (161   | ) |      |   | 560    |  
|Unbilled accounts receivable                                                         |  |                                | 43     |   |      |   | (12    | )
|Prepaid expenses and other assets                                                    |  |                                | (138   | ) |      |   | 26     |  
|Accounts payable                                                                     |  |                                | (16    | ) |      |   | (634   | )
|Income taxes payable                                                                 |  |                                | (999   | ) |      |   | 8      |  
|Accrued liabilities                                                                  |  |                                | (146   | ) |      |   | (3,880 | )
|Deferred revenues                                                                    |  |                                | 932    |   |      |   | (6,284 | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Net cash used in operating activities                                                |  |                                | (3,516 | ) |      |   | (5,535 | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Cash flows from investing activities:                                                |  |                                |        |   |      |   |        |  
|Proceeds from sale of property and equipment                                         |  |                                | 2      |   |      |   | 62     |  
|Additions to property and equipment                                                  |  |                                | (17    | ) |      |   | (38    | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Net cash provided by (used in) investing activities                                  |  |                                | (15    | ) |      |   | 24     |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Cash flows from financing activities:                                                |  |                                |        |   |      |   |        |  
|Proceeds from employee stock purchase plan stock issuance                            |  |                                | 36     |   |      |   | 142    |  
|Exercise of common stock options                                                     |  |                                |       |   |      |   | 136    |  
|Principal payments on obligations under capital leases                               |  |                                | (24    | ) |      |   | (10    | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Net cash provided by financing activities                                            |  |                                | 12     |   |      |   | 268    |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                            |  |                                | (3,519 | ) |      |   | (5,243 | )
|Cash and cash equivalents at beginning of period                                     |  |                                | 5,225  |   |      |   | 12,236 |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                           |  | $                              | 1,706  |   |      | $ | 6,993  |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                                    |  |                                |        |   |      |   |        |  
|Cash paid for income taxes                                                           |  | $                              | 16     |   |      | $ | 9      |  
|Cash paid for interest                                                               |  |                                | 3      |   |      |   | 2      |  
|Equipment purchased under capital leases                                             |  |                                | 16     |   |      |   | 76     |  



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



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TENFOLD CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS



|1. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited Condensed Financial Statements included herein have been prepared by TenFold Corporation (TenFold) pursuant to the
rules and regulations of the Securities and Exchange Commission. As used herein, TenFold, the Company, we, our and similar terms refer to TenFold Corporation, unless the context indicates otherwise. 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 information required by accounting principles
generally accepted in the United States has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the three and nine months ended September 30, 2005 are not necessarily
indicative of the results that may be expected for any future period or for the year ending December 31, 2005.



This report should be read in conjunction with our audited Financial Statements for the year ended December 31, 2004 included in our Annual Report on Form
10-K filed with the Securities and Exchange Commission.



The
preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.



Our financial statements have been prepared under the assumption that we will continue as a going concern. The independent auditors opinion on our December 31, 2004 financial statements, however, includes an explanatory paragraph
relating to our ability to continue as a going concern.



As of
September 30, 2005, our principal source of liquidity was our cash and cash equivalents of $1.7 million. Our net cash used in operating activities was $375,000 and $3.5 million for the three and nine months ended September 30, 2005, respectively.
These results include $1.5 million we received from transactions with a related party, DevonWay. See Note 10 for more information.



During 2005, we have continued to carefully manage our cash resources and generate additional cash inflows wherever possible from our existing customer
base and new customers. However, significant challenges and risks remain:



| |  |  | For the last several years, we have derived a significant portion of our cash inflows from time-and-materials consulting services performed for a limited number of large customers
for whom we were completing enterprise applications development projects. These parties initially became customers of TenFold under our prior business model in earlier years. As these customers completed their initial projects and became
self-sufficient, they reduced their purchases of time-and-materials consulting services (although most continue to purchase support from us and other services from time to time). These reductions have materially reduced our cash inflows. The last of
these large time-and-materials consulting engagements was substantially completed during the quarter ended March 31, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We continue to invest in specific marketing initiatives intended to increase awareness and generate leads, as well as to carry the cost of direct sales staff to convert those leads
to sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Although we have closed more sales to new customers in the nine months ended September 30, 2005, than we did in the same period in 2004, we continue to experience difficulty closing
substantial new sales, and it is unclear when or if we can expect to achieve significant sales to new or existing customers, and to achieve and sustain positive cash flow from operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are seeking additional capital to support our operations until our sales to new or existing customers provides sufficient cash flow, and that capital may or may not be available
on acceptable terms.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are cognizant of these
challenges and risks and that we must generate cash from operations, business transactions, or capital raising to ensure sufficient liquidity for our operations and to support future growth. We are focusing on selling new, larger license deals with
current customers who have experienced our value proposition, exploring distribution agreements, and continuing discussions with potential investors about the possibility of raising capital.



Recently, several of our independent Board members expressed interest in
considering and possibly participating in a capital raising transaction that might include potential outside investors. The possible transaction would seek to raise approximately $5-10 million. These conversations are preliminary and investigative
and as of this time, no specific terms have been negotiated or agreed upon and there can be no assurance that any transaction will occur.



There can be no assurance that we will be successful raising capital, and these risks may have a materially adverse affect on our future cash flow and
operations. Without material cash inflows from new sales or capital raising, we will not have sufficient resources to continue as a going concern through 2005, as we will exhaust our existing cash balances in the fourth quarter of 2005.



|2. | Revenue Recognition
|-- | -------------------



We derive revenues from license fees, applications development and implementation consulting services, support, and training services. License revenues
consist of fees for licensing EnterpriseTenFold (formerly known as Universal Application) as an applications development tool. Service revenues consist of fees for applications development and implementation consulting, support and training. Other
revenues include fees for reimbursement of out of pocket expenses incurred for customer projects.



We follow 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 SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, in recognizing revenue under each of our contracts.



We generally enter into contracts that involve multiple elements, such as
software products, enhancements, post-contract customer support (PCS), training, and time-and-material services. For accounting purposes, we allocate a portion of the contract fee to each undelivered element based on the relative fair
values of the elements and allocate the fee for delivered software products using the residual method. The fair values of an element must be based on vendor specific objective evidence (VSOE). We establish VSOE based on the price charged
when the same element is sold separately. VSOE for services is based on standard rates for the individuals providing services. These rates are the same rates charged when the services are sold separately under time-and-materials contracts. We base
VSOE for training on standard rates charged for each particular training course. These rates are the rates charged when the training is sold separately for supplemental training courses. For PCS, VSOE is determined by reference to the renewal rate
we charge the customer in future periods.



As a result, the
amounts allocated to individual contract elements (such as license, consulting, training and support) for accounting purposes may differ from the amounts stated in



8



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##### Table of Contents

the contract for those individual elements, but not in total. For example, at the end of Q1 2005, we completed a transaction with a new customer with a
contract amount for licenses of approximately $340,000. However, for accounting purposes, the license fee was allocated to services as the contract price for the related services was below its VSOE, and we recognized this revenue as services revenue
as we performed the related services in Q2 and Q3.



For
time-and-materials contracts, we generally estimate a profit range and recognize the related revenue using the lowest probable level of profit estimated in the range. Billings in excess of revenue recognized under time-and-material contracts are
deferred and recognized upon completion of the time-and-materials contract or when the results can be estimated more precisely.



We recognize support revenue from contracts for ongoing technical support and product updates ratably over the support period. We recognize training
revenue as we perform the services.



We recognize license
revenues from EnterpriseTenFold licenses that do not include services or where the related services are not considered essential to the functionality of the software, when the following criteria are met: we have signed a noncancellable license
agreement with nonrefundable fees; we have shipped the software product; there are no uncertainties surrounding product acceptance; the fees are fixed and determinable; and collection is considered probable. This policy applies both when the
licenses are sold separately or when an EnterpriseTenFold license is sold with an applications development project. Services relating to the licenses typically include post contract customer support services, general time-and-materials consulting,
and training; and do not add significant functionality, features, or significantly alter the software. In addition, similar services are available from other vendors; there are no milestones or customer specific acceptance criteria which affect the
realizability of the software license fee; and the software license fee is non-cancelable and non-refundable.



For software arrangements that include a service element that is considered essential to the functionality of the software, we recognize license fees
related to the application, and the applications development service fees, over time as we perform the services, using the percentage-of-completion method of accounting and following the guidance in Statement of Position (SOP) 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We make adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses under the contract and as
we gain experience. Fixed-price project revenues are split between license and service based upon the relative fair value of the components.



For certain projects, we limit revenue recognition in the period to the amount of project costs incurred in the same period, resulting in zero profit
during the period, and postpone recognition of profits until results can be estimated more precisely.



For certain contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates doubtful, we recognize revenue
under the completed-contract method of contract accounting.



For a $1 million license agreement that we executed in August 2005, that contains a discount that cannot be determined at the inception of the agreement, we expect to recognize the related license revenue 16 months later, at the end of the
estimated economic life of the release of EnterpriseTenFold provided to the customer. We are using the end of the estimated economic life to recognize the revenue because we do not have vendor specific objective evidence of fair value
(VSOE) for the related post-contract customer support, due to the discount, and therefore we cannot allocate the revenue until the discount is known at the end of the estimated economic life. See Note 10 for more information.



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We record billings and cash received in excess of revenue earned as deferred revenue. Our deferred
revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. Our unbilled accounts receivable represents revenue that we have earned but which we have not yet billed. We bill
customers as payments become due under the terms of the customers contract. We consider current information and events regarding our customers and their contracts and establish allowances for doubtful accounts when it is probable that we will
be unable to collect amounts due under the terms of existing contracts.



|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 EndedSeptember 30, |        |   | Nine Months EndedSeptember 30,
|                                                                                                   |  | 2005                            |        |   | 2004                           |   |        | 2005 |  |   | 2004  
|Numerator:                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Numerator for basic earnings (loss) per share  net income (loss) available to common stockholders |  | $                               | (341   | ) |                                | $ | (1,962 | )    |  | $ | (3,273 | ) |  | $ | 4,408 
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Numerator for diluted earnings (loss) per share                                                    |  | $                               | (341   | ) |                                | $ | (1,962 | )    |  | $ | (3,273 | ) |  | $ | 4,408 
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Denominator:                                                                                       |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Denominator for basic earnings (loss) per share  weighted average shares                          |  |                                 | 46,434 |   |                                |   | 46,312 |      |  |   | 46,415 |   |  |   | 46,148
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Employee stock options                                                                             |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   | 9,540 
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Denominator for diluted earnings (loss) per share                                                  |  |                                 | 46,434 |   |                                |   | 46,312 |      |  |   | 46,415 |   |  |   | 55,688
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Earnings (loss) per common share:                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Basic earnings (loss) per common share                                                             |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.10  
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       
|Diluted earnings (loss) per common share                                                           |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.08  
|                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |       



Employee stock options
that could potentially dilute basic earnings (loss) per share in the future, of which there were 22,844,929 outstanding during the three and nine months ended September 30, 2005, that have a weighted average exercise price of $1.86 per share, and
that could potentially dilute basic earnings (loss) per share in the future, were not included in the computation of diluted earnings (loss) per share because to do so would have been anti-dilutive for the periods. Similarly, employee stock options
that could potentially dilute basic earnings (loss) per share in the future, of which there were 21,338,933 and 4,958,204 outstanding during the three and nine months ended September 30, 2004, respectively, that had a weighted average exercise price
of $2.11 and $6.22 per share, were not included in the computation of diluted earnings (loss) per share.



|4. | Restricted Cash
|-- | ---------------



Restricted cash of $74,000 at September 30, 2005 and at December 31, 2004 is maintained to support various accounts payable activities.



|5. | Stock-Based Compensation
|-- | ------------------------



We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,Accounting for
Stock Issued to Employeesand related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensationan Interpretation of APB Opinion No. 25 issued in March 2000, to account for
our stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123,



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Accounting for Stock-Based Compensationestablished accounting and disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123. We have also
adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123, into these financial statements and related notes.



Had compensation expense for our stock option plan and the employee stock
purchase plan been determined based on the fair value at the grant date for awards or purchase rights under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock Based Compensation, our net income
(loss) for the three and nine months ended September 30, 2005 and 2004 would have been as follows (in thousands except per share information):



|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                            |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                            |  | 2005                            |        |   | 2004                           |   |        | 2005 |  |   | 2004   |  
|Net income (loss) applicable to common stock  as reported                                                                                  |  | $                               | (341   | ) |                                | $ | (1,962 | )    |  | $ | (3,273 | ) |  | $ | 4,408  |  
|Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects                           |  |                                 | 3      |   |                                |   | 4      |      |  |   | 11     |   |  |   | 13     |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (966   | ) |                                |   | (2,058 | )    |  |   | (4,701 | ) |  |   | (9,825 | )
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Loss applicable to common stock  pro forma                                                                                                 |  | $                               | (1,304 | ) |                                | $ | (4,016 | )    |  | $ | (7,963 | ) |  | $ | (5,404 | )
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) per common share  as reported                                                                                                |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                                                       |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.10   |  
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                                                                     |  | $                               | (0.01  | ) |                                | $ | (0.04  | )    |  | $ | (0.07  | ) |  | $ | 0.08   |  
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Loss per common share  pro forma                                                                                                           |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                                                       |  | $                               | (0.03  | ) |                                | $ | (0.09  | )    |  | $ | (0.17  | ) |  | $ | (0.12  | )
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                                                                     |  | $                               | (0.03  | ) |                                | $ | (0.09  | )    |  | $ | (0.17  | ) |  | $ | (0.12  | )
|                                                                                                                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



The effect of SFAS 123
on pro forma net income (loss) and net income (loss) per share for the three and nine months ended September 30, 2005 and 2004 may not be representative of the effects on pro forma results in future years.



|6. | Income Taxes
|-- | ------------



The benefit for income taxes for the three and nine months ended September 30, 2005 relates primarily to reversing accruals for state taxes that were no
longer deemed necessary. There was no provision for income taxes for the three months ended September 30, 2004 since no provision was necessary based upon results for the period. The provision for income taxes for the nine months ended September 30,
2004 relates primarily to foreign taxes and reversing a portion of our valuation allowance attributable to operating income.



The valuation allowance as of September 30, 2005 was recorded in accordance with the provisions of 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.



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|7. | Commitments
|-- | -----------



We lease office space and equipment under non-cancelable lease agreements, which expire at various dates through 2007. Future minimum lease payments under
non-cancelable operating and capital lease obligations, in excess of one year and excluding obligations accrued as part of restructurings, at September 30, 2005 are as follows (in thousands):



|                                                                 |  |       |     |           |   |         |  |   |     |  
|---------------------------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | - | --- | -
|                                                                 |  | Total |     | Operating |   | Capital | 
|2005                                                             |  | $     | 116 |           | $ | 107     |  | $ | 9   |  
|2006                                                             |  |       | 468 |           |   | 431     |  |   | 37  |  
|2007                                                             |  |       | 303 |           |   | 293     |  |   | 10  |  
|Thereafter                                                       |  |       |    |           |   |        |  |   |    |  
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Total minimum lease payments                                     |  | $     | 887 |           | $ | 831     |  |   | 56  |  
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Less: Amount representing interest                               |  |       |     |           |   |         |  |   | (3  | )
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Present value of net minimum capital lease payments              |  |       |     |           |   |         |  |   | 53  |  
|Less: Current installments of obligations under capital leases   |  |       |     |           |   |         |  |   | (34 | )
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Obligations under capital leases, excluding current installments |  |       |     |           |   |         |  | $ | 19  |  
|                                                                 |  |       |     |           |   |         |  |   |     |  



|8. | Legal Proceedings and Contingencies
|-- | -----------------------------------



Recently Resolved Matters



Earlier in 2005, we settled two litigation matters. Our insurance carriers paid the entire amount of the confidential settlement sums above the
self-insurance retention we previously paid to cover legal defense costs. In neither of these settlement agreements did any party admit liability. See our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 for more information.



Unresolved Stockholder Matter



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 TenFold, certain of our officers and directors, and certain underwriters of our initial public offering. An amended
complaint was filed on April 24, 2002. TenFold and certain of our officers and directors are named in the suit pursuant to Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act 1934 on the basis of an alleged
failure to disclose the underwriters alleged compensation and manipulative practices. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998. The individual officer and director
defendants entered into tolling agreements and, pursuant to a Court Order dated October 9, 2002, were dismissed from the litigation without prejudice. On February 19, 2003, the Court granted a Motion to Dismiss the Rule 10b-5 claims against 116
defendants, including TenFold. On June 27, 2003, our Board of Directors approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of TenFold and of the individual
defendants for the alleged wrongful conduct in the Amended Complaint. We agreed to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims we may have against
our underwriters. In June 2004, a motion for preliminary approval of the settlement was filed with the Court. The underwriters filed a memorandum with the Court opposing preliminary approval of the settlement. The court granted preliminary approval
of the settlement on February 15, 2005, subject to certain modifications. On August 31, 2005, the court issued a preliminary order further approving the modifications to the settlement and certifying the settlement classes. The court also appointed
the Notice Administrator for the settlement and ordered that notice of the settlement be distributed to all settlement class members beginning on



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November 15, 2005 and completed by January 15, 2006. The settlement fairness hearing has been set for April 26, 2006. Following the hearing, if the court
determines that the settlement is fair to the class members, the settlement will be approved. There can be no assurance that this proposed settlement would be approved and implemented in its current form, or at all. Any direct financial impact of
the proposed settlement is expected to be borne by our insurers. At this point, we do not believe that this lawsuit will have a material adverse impact on our business, results of operations, financial position, or liquidity. Accordingly, no related
losses have been provided for in our accompanying financial statements.



Assessing litigation



We review litigation
claims each quarter to determine the likelihood that the claim will result in a loss. Due to the inherent uncertainties of litigation, predicting the ultimate outcome of litigation is very difficult. Significant management judgment is required to
conclude on the likely outcome of outstanding litigation. As part of that review, we consider our available insurance coverage. Such coverage is subject to the particular policys total limit, and typically subject to the insurers
standard reservation of rights regarding conditions or findings that might exclude coverage for a particular matter.



If a loss is considered 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 these notes to our financial statements. Losses may however result on litigation claims that are not considered probable or are not estimable at the current time, potentially having
a material adverse impact on our future business, results of operations, financial position, or liquidity.



Indemnifications, Warranties and Insurance



As permitted under Delaware law, and as provided in agreements with our officers and Directors, we have indemnified officers and Directors for certain claims asserted against them in connection with their service as
an officer or Director of TenFold. The maximum potential amount of future payments that we could be required to make under these indemnification provisions is unlimited. However, we have purchased Directors and Officers insurance
policies that reduce our monetary exposure and enable us to recover a portion of any future amounts paid. As a result of this insurance coverage, we believe the estimated fair value of these indemnification agreements is not material.



Our agreements with customers generally require us to indemnify the customer
against claims that our software infringes third party patent, copyright, or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including a right to replace an infringing
product or cancel the software license and return the fees paid by the customer. To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements, and no such claims were outstanding at September
30, 2005. As a result, we have not recorded a liability for infringement costs as of September 30, 2005.



Our agreements with customers also generally provide a warranty that for so long as the customer is paying for support services, our software will
materially conform to the related documentation, and that our software has been developed in a workmanlike manner. To date, we have not incurred significant warranty costs. As a result, we have not recorded a liability for warranty costs as of
September 30, 2005.



We have an industry-standard, errors and
omissions insurance policy. This 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. We believe this policy provides adequate coverage
for potential damages related to errors and omissions in our delivered software.



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|9. | Operating Segments
|-- | ------------------



Our CEO reviews financial information on a consolidated basis, similar in format to the accompanying Condensed Statements of Operations. We consolidate
revenue and expense information for all business groups for internal and external reporting and for decision-making purposes. We operate in a single operating segment, which is applications products and services.



Revenues from customers outside of North America were approximately 8 percent
of total revenues for the three months ended September 30, 2005 as compared to 22 percent of total revenues for the same period in 2004. For the nine months ended September 30, 2005, revenues from customers outside of North America were
approximately 10 percent of total revenues as compared to 20 percent of total revenues for the same period in 2004. For the three and nine months ended September 30, 2005, the decrease in revenues from customers outside of North America is primarily
due to a decrease in revenues from a UK customer that completed its use of our time-and-materials consulting services for an application development project during the quarter ended September 30, 2004. Our long-lived assets are deployed in the
United States.



Two customers accounted for a total of 37
percent of our revenues for the three months ended September 30, 2005 (individually 23 percent and 14 percent of our total revenues, respectively) compared to two customers accounting for a total of 49 percent of our revenues for the same period in
2004 (individually 39 percent and 10 percent of our total revenues, respectively). Three customers accounted for a total of 51 percent of our revenues for the nine months ended September 30, 2005 (individually 22 percent, 19 percent, and 10 percent
of our total revenues, respectively) compared to three customers accounting for a total of 88 percent of our revenues for the same period in 2004 (individually 53 percent, 19 percent, and 16 percent). No other single customer accounted for more than
10 percent of our total revenues for the three and nine months ended September 30, 2005 or the same periods in 2004.



Our customer accounting for 14 percent and 10 percent of our total revenues for the three and nine months ended September 30, 2005, respectively,
DevonWay, is a related party. See Note 10 for more information related to these transactions.



Our project for the customer accounting for 19 percent of our total revenues for the nine months ended September 30, 2005, was substantially completed during the quarter ended March 31, 2005. We expect to provide
additional services to the two customers that accounted for 22 percent and 10 percent of our revenues for the nine months ended September 30, 2005. However, in future periods, the amount of revenue from these customers will likely not be nearly as
significant as in past periods as the volume of work performed for these customers decreases as they complete projects. A significant customer in one period may not continue to purchase significant licenses or services from us in a subsequent
period.



|10. | Related Party Transactions
|--- | --------------------------



In June 2005, we entered into an agreement with a new customer, DevonWay, to provide licenses, consulting services, technical support services, and
training, for a total of approximately $314,000. In August 2005, we completed a further licensing transaction with DevonWay, resulting in a cash payment to TenFold of $1 million. A long-time member of our Board of Directors and our recently elected
Chairman, Robert W. Felton, is the founder and majority shareholder of DevonWay. All disinterested members of our Board of Directors approved of these related party transactions and our general ongoing business relationship with DevonWay.



During September 2005, we entered into additional consulting
and training agreements with DevonWay totaling approximately $120,000.



Although we received a $1 million license payment from DevonWay in August 2005, for accounting purposes we have deferred recognition of this revenue until the end of the estimated economic life of the release of EnterpriseTenFold provided
to DevonWay, because the license



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agreement contains a discount that cannot be determined at inception of the agreement. We are using the end of the estimated economic life to recognize the
revenue because we do not have vendor specific objective evidence of fair value (VSOE) for the related post-contract customer support, due to the discount, and therefore we cannot allocate the revenue until the discount is known at the
end of the estimated economic life. For accounting purposes, management estimates that the economic life is 16 months, and as a result no revenue will be recognized from this license until it is all recognized in a lump sum in the latter part of
2006.



Our revenues from DevonWay are license revenues of
$160,000 for the nine months ended September 30, 2005, and services and other revenues of $216,000 and $332,000 for the three and nine months ended September 30, 2005, respectively. As of September 30, 2005, we had accounts receivable from DevonWay
of $11,000. For the three and nine months ended September 30, 2005, we received cash inflows from DevonWay of $1.3 million and $1.5 million, respectively.



|11. | Recent Accounting Pronouncements
|--- | --------------------------------



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which amends APB Opinion No. 29, Accounting for Nonmonetary
Transactions. The guidance in APB Opinion 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion 29, however, included certain exceptions
to that principle. SFAS No. 153 amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The
adoption of SFAS No. 153 has not had a material impact on our financial position or results of operations.



In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. SFAS No. 123R requires a public entity to measure the cost of employee services
received in exchange for the award of equity investments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. On
April 14, 2005, the Securities and Exchange Commission issued a release announcing the adoption of a new rule delaying the required implementation of SFAS No. 123R. Under this new rule, SFAS No. 123R is effective as of the beginning of the first
annual reporting period that begins after June 15, 2005 and, thus, will be effective for us beginning with the first quarter of 2006. We are currently evaluating the impact of SFAS 123R and expect the adoption to have a material impact on our
financial position and results of operations. See Stock-Based Compensation in Note 5 of our Notes to Condensed Financial Statements for more information related to the pro forma effects on our reported net loss and loss per share of applying the
fair value recognition provisions of the previous SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 is a replacement of APB No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective
application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and how to report a change in
such circumstances. SFAS No. 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate effected by a change in accounting principle, and also provides that
correction of errors in previously issued financial statements should be termed a restatement. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



Business Overview



TenFold is the provider of EnterpriseTenFold (formerly Universal Application), a software applications platform. We believe that with EnterpriseTenFold, customers get feature-rich,
high-quality, complex enterprise applications into production faster and at significantly lower cost than with other applications development technologies. In addition to facilitating critical IT responsibilities, TenFold provides a tool and
methodology that business people can use to build applications, thereby enabling organizations to directly leverage their business experience and insight to build and adapt applications easily to meet changing business requirements.



We regularly update our flagship product, EnterpriseTenFold, with substantial
new features and functionality. Our most recent release, EnterpriseTenFold MarketForce, is a portable, multi-user applications development and deployment platform that includes: the ability to automatically produce complete applications
documentation; multiple forms of XML support including XML-based web browser client; Web Services; graphic fields and web fields; new all-open source Linux/MySQL/Apache web server platform support; and numerous productivity, usability, performance,
and customization features.



Our business model focuses on
providing EnterpriseTenFold and our assistance through time-and-materials consulting, training, and support, to customers who use their own business teams and our services partners to build and maintain applications.



Business History



We founded TenFold in 1993. We spent the first several years primarily developing our patented EnterpriseTenFold technology.
In 1996, we began using EnterpriseTenFold to build applications for customers.



In 1999, we completed our initial public offering. In 1999 and early 2000, we tested a new business model that caused us to face significant financial, legal, and operational issues. Starting in late 2000 we took
steps to resolve the financial and legal liabilities that arose as a result of the interim business model and to restore the company to sound business health.



We raised capital twice during 2003. In February 2003, Robert W. Felton, a long-time TenFold director, and our recently elected Chairman, made an
investment of $700,000 in TenFold, by acquiring restricted TenFold common stock. In December 2003, we closed a $ 10 million private placement of restricted TenFold common stock.



During 2003 and 2004, we continued sales and marketing related initiatives including establishing alliance relationships
with distributors such as VARs; prototyped a new sales model focusing on selling small, paid proof-of-concept projects; initiated internet access to TenFold technology; introduced TenFold Support SpeedPro, making expert consultants available for
short-duration projects; and, increased marketing and public relations efforts to broaden awareness of and interest in TenFold technology.



During 2004, we earned revenues from 34 customers including three prestigious market-leading customers who implemented mission critical TenFold-powered
applications and rolled them into robust production: JPMorgan Chase (global securities lending for both international and domestic traders); Vertex, a UK-based utility sector customer management and billing company (customer management and billing
application); and Cedars-Sinai Medical Center (additional applications including Patient Management and Orders Communication).



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Year-to-Date 2005 Highlights



For the first nine months of 2005, we had revenues of $4.8 million, an operating loss of $4.4 million, and a net loss of
$3.3 million. This compares to revenues of $15.8 million, operating income of $4.2 million, and net income of $4.4 million for the same period of 2004. It is unclear when or if we can expect to predictably close significant sales to new or existing
customers, and until we do so we are likely to continue to experience losses and negative cash flow. Without material cash inflows from new sales or capital raising, we will not have sufficient resources to continue as a going concern through 2005,
as we will exhaust our existing cash balances in the fourth quarter of 2005.



Our principal initiatives during 2005 are:



Driving greater awareness of TenFold, TenFold technology, and generating leads



We continue to focus substantial effort on our marketing and public relations efforts to increase awareness of TenFold, TenFold technology, and to
generate leads. Coverage during 2005 includes a substantial product review of EnterpriseTenFold MarketForce by PCMagazine, interviews in UtiliPoint and ZDNet, and coverage in Software Development Times and CNET. In March 2005, TenFold received the
2005 Software Development Jolt Product Excellence Award in the Business Integration and Data Tools category. In May, we announced that a client of our customer, Vertex, won a prestigious Information Technology Initiative Achievement Award for its
TenFold-powered utility billing and customer service application.



We use a multi-faceted, integrated approach to marketing that includes e-mail, direct mail, and telemarketing to support our TenFold Seminars as our principal approach to introducing people to TenFold and TenFold technology. We use a
sophisticated TenFold-powered application, ContactManager, to measure and manage Telemarketing staff productivity, produce lead-generation metrics, and track the progress of our TenFold Seminar and other marketing initiatives. We aggressively pursue
leads generated by our web site, white papers, free software, registrants, attendees, and individuals who responded to our outreach but were not able to attend a seminar. During the first half of 2005, our lead generation increased substantially. In
the second quarter, we generated nearly as many leads as in all of 2004. During the first half of 2005, we hosted seminars in Atlanta, Boston, Chicago, Dallas, Irvine, Los Angeles, Minneapolis, New York City, Salt Lake City, San Diego, San Francisco
Bay Area, Seattle, Toronto, and Washington DC. We began an eighteen-seminar Fall promotional campaign at the end of the third quarter.



During Q3, we used TenFold technology to build and launch a new, higher-sizzle, public web site at www.tenfold.com. We have received considerable positive
feedback on the web site, its wealth of information, and usability. Lead generation directly attributed to white papers and downloads of free TenFold software available from our web site are up considerably since we introduced this new web site.



During Q3, we assisted a TenFold Board member preparing to
deploy two TenFold-powered applications into production. One application, ouROOTS, is a powerful next generation replacement to the widely distributed genealogy application PAF (Personal Ancestral File) and includes features like ancestral tree
comparison, management of complex genealogy data, ability to share family trees with others, and many other features not available in PAF. Our Board member intends to distribute ouROOTS free-of-charge over the internet to all interested
genealogists. He is completing performance tuning for a targeted release in Q4.



Penetrating new accounts and building to significant business relationships



We continue to focus new-customer sales on selling small, proof-of-concept projects as part of our Penetrate and Radiate sales program. Once we complete
an initial project, we attempt to



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radiate into the account by selling additional services and licenses. The financial impact of the initial, Penetrate, new-account transactions is immaterial
to our overall financial performance. However, as discussed further below, some of these accounts radiate from proof-of-concept projects to purchase production licenses and additional services.



During Q1, XanGo, a high growth Utah-based Multi-Level-Marketing company
became a new customer. XanGo needed to replace an existing, mission-critical marketing application and to make it available globally in varied languages including Japanese. During a paid three-week consulting project, TenFold and XanGo personnel
built a first version of a multi-level-marketing application which XanGo has continued to enhance and prepare for taking into full production during Q4. During Q1, XanGo purchased deployment licenses in a contract amount of approximately $340,000.
(See Note 2 to Notes to Condensed Financial Statements for a description of how we treat these license amounts for accounting purposes). We continue to provide training and consulting services to XanGo as needed.



During Q2, we began to provide consulting, training, and support services to
DevonWay, a company that is seeking to transform the way utilities access and manage their internal and customer information through a subscription-based, on-demand, offering of sophisticated utility-industry applications. Robert W. Felton, a
long-time TenFold Board member and a substantial TenFold shareholder (as well as the recently elected Chairman of our Board of Directors), and the former founder and CEO of Indus International, is the founder and majority shareholder of DevonWay.
During Q2, DevonWay purchased licenses for the contract amount of $160,000 and in Q3, DevonWay purchased for $1 million a perpetual enterprise license allowing it to host in its own or its customers data centers applications for the process
industry sector. Any DevonWay customers wishing to enhance, maintain, or host those applications will need to buy an EnterpriseTenFold license. DevonWay continues to purchase additional consulting and other services and recently partnered with
TenFold to make enhancements to the EnterpriseTenFold browser capabilities. (See Note 2 to Notes to Condensed Financial Statements for a description of how we treat these license amounts for accounting purposes.)



During Q1 and Q2, we provided consulting, training, and license services to
CIBT, a U.S. company specializing in the travel-industry process of arranging and obtaining visas to travelers from all over the United States. During Q3, CIBT took their new application, TravelPass, into full production and stopped using their
legacy application. CIBT reports that this was both a straightforward production implementation and enabled staff productivity improvements.



Customers that have completed and deployed TenFold-powered applications recently include: SunPower Geothermal, which took their SunSales application into
production in Q3 for salespeople, engineers, and business executives to track products and sales; and RemedyMD, which took their content management system into production in Q4.



Customers with TenFold-powered applications in production today include, among others, Abbey National Bank, Allstate
Insurance, Barclays Global Investors, Cedars-Sinai Medical Center, Deutsche Bank, Dresdner Bank, Franklin Templeton, iplan networks, JPMorgan Chase, MedCath, Rand Technology, Trinity Health, and Vertex (a subsidiary of United Utilities).



New accounts during Q3 include, among others, Prosper Media, which built
the ProsperPlus application, a web-based campaign management application that tracks and manages leads and handles all ordering, billing and payment and which it is preparing to take ProsperPlus into production in Q4; and ADBA, which built an
application to replace and enhance a legacy system to track dog pedigrees and ownership and which it is preparing to take it into production in Q4.



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Our prospect pipeline continues to grow. We have proof-of-concept project proposals outstanding at
accounts including The Church of Jesus Christ of Latter-day Saints, Sears, On Point Technology, AutoGas Systems, OC Tanner, Zions Bank, and Best Western San Juan Capistrano. We have Radiate proposals under consideration at accounts including Disney,
Guidant, and Ingenix.



Starting in Q2, we began to address the
interest of first-tier, global Systems Integrators including the Computer Sciences Corporation (CSC), SAIC, BAE and IBM. During July 2005, we completed two projects for CSC. The initial two week ApplicationSurvey provided a database
design and project plan for building a life insurance claims processing application and a subsequent three-week project demonstrated a first version of the application built by a team comprised of two TenFold staff and two CSC staff, only one of
whom had completed TenFolds one week introductory training class. The application that they built in three weeks included a connection to a legacy life insurance policy system, complex business rules for settling life insurance claims, and
processed the test cases included in the definition of the project. The project team conducted two different, well-attended demonstrations of the application and numerous one-on-one demonstrations to interested executives. After the proof of concept
project, we had preliminary discussion regarding production licenses and next steps, but we have not heard further from CSC at this point.



During Q3, we participated in a proof-of-concept project for a U.S. intelligence related agency with staff from SAIC and BAE. A four-person project team
comprised of two TenFold staff and two others, both of whom had completed TenFolds one week introductory training class, completed their proof-of-concept project. Additional service and licensing discussions are underway.



During Q3, we met with an IBM executive to introduce TenFold and to discuss
the possible value of TenFolds rapid applications development technology to an applications on demand business. During Q4, we have had follow-up meetings with IBM technologists and hosted an IBM executive in a week-long TenFold training class.
Separately, we have agreed to participate in a team sales effort to pursue a Salt Lake City based global enterprise at which we believe previous TenFold discussions stalled due to concerns of TenFolds viability.



During Q3, we continued to provide services to our three largest long-tenure
customers, JPMorgan Chase, Cedars-Sinai Medical Center, and Vertex.



We continue to pursue other distribution channels to broaden our distribution. We continue to work with our largest partner, Perot Systems, as it continues the implementation of the TenFold-powered application at Cedars-Sinai. Our larger
VARs, Redi2 Technologies and Vertex, continue to actively pursue new accounts for their TenFold-powered financial and utility billing applications in North America and the United Kingdom. In August 2005, Redi2 announced its biggest customer win to
date, adding Newton Investment Management to accounts including Mellon Financial.



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Results of Operations



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



|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|--------------------------------- |  | ------------------------------- | -- |  | ------------------------------ | -- |  | ---- | -- |  | ---- | -
|                                  |  | Three MonthsEnded September 30, |    |  | Nine MonthsEnded September 30, |   
|                                  |  | 2005                            |    |  | 2004                           |    |  | 2005 |    |  | 2004 |  
|Revenues:                         |  |                                 |    |  |                                |    |  |      |    |  |      |  
|License                           |  | 8                               | %  |  | 2                              | %  |  | 9    | %  |  | 2    | %
|Services and other                |  | 92                              | %  |  | 98                             | %  |  | 91   | %  |  | 98   | %
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Total revenues                    |  | 100                             | %  |  | 100                            | %  |  | 100  | %  |  | 100  | %
|Operating expenses:               |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Cost of revenues                  |  | 47                              | %  |  | 59                             | %  |  | 51   | %  |  | 32   | %
|Sales and marketing               |  | 45                              | %  |  | 60                             | %  |  | 46   | %  |  | 12   | %
|Research and development          |  | 55                              | %  |  | 56                             | %  |  | 55   | %  |  | 17   | %
|General and administrative        |  | 43                              | %  |  | 38                             | %  |  | 39   | %  |  | 12   | %
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Total operating expenses          |  | 190                             | %  |  | 213                            | %  |  | 191  | %  |  | 73   | %
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Income (loss) from operations     |  | (90                             | %) |  | (113                           | %) |  | (91  | %) |  | 27   | %
|Total other income, net           |  | 1                               | %  |  | 1                              | %  |  | 3    | %  |  | 1    | %
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Income (loss) before income taxes |  | (89                             | %) |  | (112                           | %) |  | (88  | %) |  | 28   | %
|Provision for income taxes        |  | (66                             | %) |  |                               |    |  | (20  | %) |  |     |  
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  
|Net income (loss)                 |  | (23                             | %) |  | (112                           | %) |  | (68  | %) |  | 28   | %
|                                  |  |                                 |    |  |                                |    |  |      |    |  |      |  



Revenues



Total revenues decreased $264,000, or 15 percent, to $1.5
million for the three months ended September 30, 2005, as compared to $1.8 million for the same period in 2004. For the nine months ended September 30, 2005, total revenues decreased $11.0 million, or 70 percent, to $4.8 million as compared to $15.8
million for the same period in 2004.



Services and other
revenues decreased $355,000, or 21 percent, to $1.4 million for the three months ended September 30, 2005 as compared to $1.7 million for the same period in 2004. For the nine months ended September 30, 2005, services and other revenues decreased
$11.1 million, or 72 percent, to $4.4 million as compared to $15.5 million for the same period in 2004.



Our results for the nine months ended September 30, 2004 include $8.1 million in revenues, and $150,000 in operating costs, related to the completion of
an earlier fixed-price applications development project with Cedars-Sinai Medical Center (Cedars). This completed the recognition of these revenues and related costs that were deferred in earlier years pending confirmation of the
completion of the applications development project and resolution of potential disputes between the parties.



Excluding the effect of this Cedars transaction, we would have had revenues of $7.7 million, and a net loss of $3.5 million for the nine months ended
September 30, 2004. In addition to the decrease related to the Cedars transaction, services and other revenues decreased during the three and nine months ended September 30, 2005, due to decreases in revenues from certain customers who purchased
less time-and-materials consulting from us over time as they completed their applications development projects and became more self-sufficient. One customer completed its use of our time-and-materials consulting services for its applications
development project during the quarter ended September 30, 2004. Another large customers time-and-materials consulting engagement was substantially completed during the quarter ended March 31, 2005. These decreases were partially offset by
consulting revenues from new customers.



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In June 2005, we entered into an agreement with a new customer, DevonWay, to provide licenses, consulting
services, technical support services, and training, for a total of approximately $314,000. In August 2005, we completed a further licensing transaction with DevonWay, resulting in a cash payment to TenFold of $1 million. A long-time member of our
Board of Directors and recently elected Chairman, Robert W. Felton, is the founder and majority shareholder of DevonWay. Our revenues from DevonWay are license revenues of $160,000 for the nine months ended September 30, 2005, and services and other
revenues of $216,000 and $332,000 for the three and nine months ended September 30, 2005, respectively. See Note 10 of the Notes to Condensed Financial Statements for more information.



Although customers purchased licenses with contract values totaling $1.2 million (including the $1 million license to
DevonWay described above) for the three months ended September 30, 2005, we recorded license revenues for accounting purposes of $124,000, up from $33,000 for the three months ended September 30, 2004. For the nine months ended September 30, 2005,
customers purchased licenses with contract values totaling $1.8 million and for accounting purposes we recorded license revenues of $440,000, up $147,000, or 50 percent, as compared to $293,000 for the same period in 2004. For accounting purposes,
the amounts allocated to individual contract elements (such as licenses) may differ from the amounts stated in the contract for those individual elements, and the timing of their recognition as revenue may be later than the period in which they are
sold. See Note 2 of the Notes to Condensed Financial Statements for more information.



Revenues from customers outside of North America were approximately 8 percent of total revenues for the three months ended September 30, 2005 as compared to 22 percent of total revenues for the same period in 2004.
For the nine months ended September 30, 2005, revenues from customers outside of North America were approximately 10 percent of total revenues as compared to 20 percent of total revenues for the same period in 2004. For the three and nine months
ended September 30, 2005, the decrease in revenues from customers outside of North America is primarily due to a decrease in revenues from a UK customer that completed its use of our time-and-material consulting services for an applications
development project during the quarter ended September 30, 2004. Our long-lived assets are deployed in the United States.



Two customers accounted for a total of 37 percent of our revenues for the three months ended September 30, 2005 (individually 23 percent and 14 percent of
our total revenues, respectively) compared to two customers accounting for a total of 49 percent of our revenues for the same period in 2004 (individually 39 percent and 10 percent of our total revenues, respectively). Three customers accounted for
a total of 51 percent of our revenues for the nine months ended September 30, 2005 (individually 22 percent, 19 percent, and 10 percent of our total revenues, respectively) compared to three customers accounting for a total of 88 percent of our
revenues for the same period in 2004 (individually 53 percent, 19 percent, and 16 percent). No other single customer accounted for more than 10 percent of our total revenues for the three and nine months ended September 30, 2005 or the same periods
in 2004.



Our customer accounting for 14 percent and 10 percent
of our total revenues for the three and nine months ended September 30, 2005, respectively, DevonWay, is a related party. See Note 10 of the Notes to Condensed Financial Statements for more information related to these transactions.



Our project for the customer accounting for 19 percent of our total revenues
for the nine months ended September 30, 2005, was substantially completed during the quarter ended March 31, 2005. We expect to provide additional services to the two customers who accounted for 22 percent and 10 percent of our revenues for the nine
months ended September 30, 2005. However, in future periods, the amount of revenue from these customers will likely not be nearly as significant as in past periods as the volume of work performed for these customers decreases as they complete
projects. A significant customer in one period may not continue to purchase significant licenses or services from us in a subsequent period.



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Operating Expenses



Cost of Revenues.Cost of revenues consists primarily of compensation and other related costs of personnel and
contractors to provide applications development and implementation consulting, support, and training services. Cost of revenues decreased $331,000, or 32 percent, to $707,000 for the three months ended September 30, 2005, as compared to $1.0 million
for the same period in 2004. For the nine months ended September 30, 2005, cost of revenues decreased $2.6 million, or 51 percent, to $2.5 million as compared to $5.0 million for the same period in 2004. The decrease in cost of revenues is primarily
due to having fewer staff (particularly subcontractors) working on certain customer projects as these customers completed their applications development projects and became more self-sufficient. In particular, the UK project that ended during the
quarter ended September 30, 2004 was staffed with subcontractors who we released upon completion of the services.



Sales and Marketing.Sales and marketing expenses consist primarily of compensation, travel, and other related expenses for sales and
marketing personnel; and marketing seminars, public relations, advertising and other marketing expenses. Sales and marketing expenses decreased $378,000, or 36 percent, to $667,000 for the three months ended September 30, 2005, as compared to $1.0
million for the same period in 2004. For the nine months ended September 30, 2005, sales and marketing expenses increased $286,000, or 15 percent, to $2.2 million as compared to $1.9 million for the same period in 2004. For the three months ended
September 30, 2005, the decrease in sales and marketing expenses is primarily due to timing differences for seminar costs as we held fewer seminars during the three months ended September 30, 2005 than during the comparable period in 2004, as we
started our fall seminar schedule later in 2005 than in 2004, and due to a decrease in average sales and marketing headcount compared to the same period in 2004.



For the nine months ended September 30, 2005, the increase in sales and marketing expenses is primarily due to an increase
in marketing activities and an expansion of sales staffing compared to the same period in 2004.



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 $158,000, or 16 percent, to $824,000 for the three months ended September 30, 2005, as compared to $982,000 for the same period in 2004. For the nine months ended
September 30, 2005, research and development expenses decreased $143,000, or 5 percent, to $2.6 million as compared to $2.8 million for the same period in 2004.



General and Administrative.General and administrative expenses consist primarily of the costs of executive management, finance and
administrative staff, business insurance, and professional fees. General and administrative expenses decreased $39,000, or 6 percent, to $637,000 for the three months ended September 30, 2005 as compared to $676,000 for the same period in 2004. For
the nine months ended September 30, 2005 and September 30, 2004, general and administrative expenses remained unchanged at $1.9 million.



During the quarter ended March 31, 2004, we reduced some variable compensation accrued during 2003, to lower levels that we believe better reflected our
estimates. This reduced operating expenses for the first quarter of 2004 by $219,000.



Total Other Income, net



Net total other income was $12,000 for the three months ended September 30, 2005, as compared to $23,000 for the same period in 2004. Net total other income was $131,000 for the nine months ended September 30, 2005, as compared to $216,000
for the same period in 2004.



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Provision for Income Taxes



The benefit for income taxes for the three and nine months ended September 30, 2005 of $990,000 and $983,000, respectively,
relates primarily to reversing accruals for state taxes that were no longer deemed necessary. There was no provision for income taxes for the three months ended September 30, 2004 since no provision was necessary based upon results for the period.
The provision for income taxes for the nine months ended September 30, 2004 of $4,000 relates primarily to foreign taxes and reversing a portion of our valuation allowance attributable to operating income.



At September 30, 2005, 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.



Revenue Recognition and Project Profitability



We believe risks relating to revenue recognition include the judgment
required to determine project profit or loss projections on time-and-material contracts. We recognize time-and-materials 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-materials billings or if we grant concessions to time-and-materials customers in order to sell additional business or collect cash under the contract. As we occasionally provide
services on a fixed price basis, risks relating to revenue recognition also include the judgment and estimation required to determine fixed-price project completion percentages, and fixed-price project profit or loss projections. Variances between
managements estimates and actual results may result in significant adjustments to our results of operations and financial position.



For a license agreement that we executed in August 2005 that contains a discount that cannot be determined at the inception of the agreement, we expect to
recognize the related license revenue at the end of the estimated economic life of the release of EnterpriseTenFold provided to the customer. We are using the end of the estimated economic life to recognize the revenue because we do not have vendor
specific objective evidence of fair value (VSOE) for the related post-contract customer support, due to the discount, and therefore we cannot allocate the revenue until the discount is known at the end of the estimated economic life. For
accounting purposes, management estimates that the economic life is 16 months after considering factors such as the rapid pace of technological change in the software industry generally and particularly in TenFolds market, the pace at which
TenFold produces new releases of TenFold technology with substantial technological improvements, and the pace at which TenFolds customers adopt new releases of TenFold technology.



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Litigation Reserves



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.



Liquidity and Capital
Resources



As of September 30, 2005, our principal source
of liquidity was our cash and cash equivalents of $1.7 million. During the nine months ended September 30, 2005, we funded purchases of computer equipment of $16,000 with capital leases.



Net cash used in operating activities was $3.5 million for the nine months ended September 30, 2005 as compared to $5.5
million for the same period in 2004. The decrease in net cash used in operating activities results primarily from a decrease in cash outflows from reduced expenses. This decrease in cash outflows was partially offset by a decrease in cash inflows as
the customers of some of our prior time-and-materials consulting engagements completed their initial projects and became self-sufficient.



Net cash used in investing activities was $15,000 for the nine months ended September 30, 2005 as compared to net cash provided by investing activities of
$24,000 for the same period in 2004.



Net cash provided by
financing activities was $12,000 for the nine months ended September 30, 2005 as compared to $268,000 for the same period in 2004. Net cash provided by financing activities for the nine months ended September 30, 2005 included $36,000 of proceeds
from employee stock purchase plan stock issuances. Net cash provided by financing activities for the nine months ended September 30, 2004 included $142,000 of proceeds from employee stock purchase plan stock issuances, and $136,000 from employee
stock option exercises.



Our deferred revenue balance generally
results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. We had deferred revenue balances of $2.0 million at September 30, 2005 and $1.1 million at December 31, 2004. When over time we recognize
these deferred revenue balances as revenues in the statement of operations, we will not have corresponding increases in cash, as the related cash amounts have previously been received by us. Our unbilled accounts receivable represents revenue that
we have earned but which we have not yet billed.



During 2005,
we have continued to carefully manage our cash resources and generate additional cash inflows wherever possible from our existing customer base and new customers. However, significant challenges and risks remain:



| |  |  | For the last several years, we have derived a significant portion of our cash inflows from time-and-materials consulting services performed for a limited number of large customers
for whom we were completing enterprise applications development projects. These parties initially became customers of TenFold under our prior business model in earlier years. As these customers completed their initial projects and became
self-sufficient, they reduced their purchases of time-and-materials consulting services (although most continue to purchase support from us and other services from time to time). These reductions have materially reduced our cash inflows. The last of
these large time-and-materials consulting engagements was substantially completed during the quarter ended March 31, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We continue to invest in specific marketing initiatives intended to increase awareness and generate leads, as well as to carry the cost of direct sales staff to convert those leads
to sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although we have closed more sales to new customers in the first nine months of 2005 than we did in the same period in 2004, we continue to experience difficulty closing substantial
new sales, and it is unclear when or if we can expect to predictably close significant sales to new or existing customers, and to achieve and sustain positive cash flow from operations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are seeking additional capital to support our operations until sales to new or existing customers provides sufficient cash flow, and that capital may or may not be available on
acceptable terms.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are cognizant of these
challenges and risks and that we must generate cash from operations, business transactions, or capital raising to ensure sufficient liquidity for our operations and to support future growth. We are focusing on selling new, larger license deals with
current customers who have experienced our value proposition, exploring distribution agreements, and in continuing discussions with potential investors about the possibility of raising capital.



Recently, several of our independent Board members expressed interest in
considering and possibly participating in a capital raising transaction that might include potential outside investors. The possible transaction would seek to raise approximately $5-10 million. These conversations are preliminary and investigative
and as of this time, no specific terms have been negotiated or agreed upon and there can be no assurance that any transaction will occur.



There can be no assurance that we will be successful raising capital, and these risks may have a materially adverse affect on our future cash flow and
operations. Without material cash inflows from new sales or capital raising, we will not have sufficient resources to continue as a going concern through 2005, as we will exhaust our existing cash balances in the fourth quarter of 2005.



See Factors that May Affect Future Results and Market Price of
Stock for more information about risks facing TenFold.



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Disclosure about Contractual Obligations



The following table sets forth certain contractual obligations recorded in the condensed consolidated financial statements
as of September 30, 2005 and summary information is presented in the following table (in thousands):



|                                                                                   |  |       |       |                |   |          |  |          |     |                 |   |   |  |   |  
|---------------------------------------------------------------------------------- |  | ----- | ----- | -------------- | - | -------- |  | -------- | --- | --------------- | - | - |  | - | -
|Contractual Obligations                                                            |  | Total |       | Lessthan 1year |   | 1-3years |  | 4-5years |     | Morethan 5years
|Long-term debt                                                                     |  | $     |      |                | $ |         |  | $        |    |                 | $ |  |  | $ | 
|Capital lease obligations                                                          |  |       | 56    |                |   | 37       |  |          | 19  |                 |   |  |  |   | 
|Operating lease obligations                                                        |  |       | 831   |                |   | 429      |  |          | 402 |                 |   |  |  |   | 
|Purchase obligations                                                               |  |       | 204   |                |   | 204      |  |          |    |                 |   |  |  |   | 
|Other long term liabilities reflected on the registrants Balance Sheet under GAAP |  |       |      |                |   |         |  |          |    |                 |   |  |  |   | 
|                                                                                   |  |       |       |                |   |          |  |          |     |                 |   |   |  |   |  
|Total                                                                              |  | $     | 1,091 |                | $ | 670      |  | $        | 421 |                 | $ |  |  | $ | 
|                                                                                   |  |       |       |                |   |          |  |          |     |                 |   |   |  |   |  



Recent Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, which amends Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Transactions. The guidance in APB Opinion 29 is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 has not had a material impact on our financial position or results of operations.



In December 2004, the FASB issued SFAS No. 123R, Share-Based
Payment, which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions.
SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity investments based on the fair value of the award at the date of grant. The cost will be recognized over the period during
which an employee is required to provide services in exchange for the award. On April 14, 2005, the Securities and Exchange Commission issued a release announcing the adoption of a new rule delaying the required implementation of SFAS No. 123R.
Under this new rule, SFAS No. 123R is effective as of the beginning of the first annual reporting period that begins after June 15, 2005 and, thus, will be effective for us beginning with the first quarter of 2006. We are currently evaluating the
impact of SFAS 123R and expect the adoption to have a material impact on our financial position and results of operations. See Stock-Based Compensation in Note 5 of our Notes to Condensed Financial Statements for more information related to the pro
forma effects on our reported net loss and loss per share of applying the fair value recognition provisions of the previous SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 is a replacement of APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of
accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in
accounting principle is impracticable and how to report a change in such circumstances. SFAS No. 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial



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asset be accounted for as a change in estimate effected by a change in accounting principle, and also provides that correction of errors in previously issued
financial statements should be termed a restatement. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.



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. In addition, without material cash inflows from new sales or capital raising, we will exhaust our existing cash balances in the fourth quarter of 2005. The following discussion elaborates on some of these risks.



If we are unable to generate sufficient cash flow from operations, or
secure additional sources of financing, we will be unable to continue operations as a going concern



While our financial statements have been prepared under the assumption that we will continue as a going concern, the independent accounting firms
report on our December 31, 2004 financial statements, prepared by Tanner LC (formerly Tanner+Co), 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. During 2005, we have continued to carefully manage our cash resources and generate additional cash inflows wherever possible from our existing customer base and new customers. However, we continue
to experience negative cash flow, and for the nine months ended September 30, 2005 net cash used in operations was $3.5 million. If we do not generate significant new sales to existing and new customers, or raise additional capital, in the near
term, we will be required to sell part or all of our assets, and/or terminate operations. In such circumstances, it is unlikely that the proceeds from sales of our assets would be sufficient to fully satisfy our obligations to our creditors, and
therefore it is unlikely that our existing stockholders would receive any value for their stock. If we raise additional capital, it may require pricing and other terms that result in substantial dilution to existing stockholders ownership
interests in TenFold. There can be no assurance that we will be successful achieving sufficient cash flow.



We continue to experience difficulty in securing customer revenue



Although we have closed more sales to new customers in the nine months ended September 30, 2005, than we did in the same period in 2004, we continue to
face a challenging sales environment and we continue to experience difficulty closing substantial new sales, and it is unclear when or if we can expect to achieve significant sales to new or existing customers, and to achieve and sustain positive
cash flow from operations. Furthermore, our uncertain future may make it less likely for customers to want to do business with us. As a result, there is no assurance that we will be able to convince future 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 or outside financing, our operations, financial condition, liquidity, and prospects will be materially and
adversely affected, and we will be required to sell part or all of our assets, and/or terminate operations.



Our sales cycle can be lengthy and subject to delays and these delays could cause our operating results to suffer



We believe that a customers decision to purchase significant products or services from us can involve a significant commitment of resources and be
influenced by customer budget cycles. To successfully sell our products and services, we generally must educate our potential customers regarding the use and benefit of our products and services. Recently, we have been able to demonstrate new
account penetration through small, introductory proof-of-concept projects including small development and deployment licenses and limited consulting services, and some of these projects have led to larger sales. However, historically, getting new
customers to purchase significant licenses or services has required significant time and resources.



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Consequently, the period between initial contact and the purchase of our products or services can be long and subject to delays associated with the lengthy
budgeting, approval, and competitive evaluation processes that typically accompany significant capital expenditures. Historically, our sales cycles have been lengthy and variable, typically ranging between three to twelve months from initial contact
with a potential customer to the signing of a contract. Sales delays could cause our operating results to vary widely. 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.



Our future prospects are difficult to evaluate



In light of our operating results for recent periods and the continued difficult sales environment we face and in the technology sector in general, it is difficult to evaluate our future prospects. There can be no assurance that we will be
able to successfully complete current or new projects. In the past we received customer complaints concerning some of our projects. Although we have substantially changed the business model under which we sold and delivered business that generated
customer complaints, we cannot be certain that we will not receive more customer complaints in the future. Such complaints would likely adversely affect our ability to sell to other customers. 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 are substantially dependent on a small number of customers and the loss of one or more of these customers may cause revenues and cash
flow to decline



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 customers. For example, three customers accounted for a total of 87 percent of our total revenues for the year ended December 31, 2004
(individually 50 percent, 22 percent and 15 percent, respectively) and three customers accounted for a total of 51 percent of our revenues for the nine months ended September 30, 2005 (individually 22 percent, 19 percent, and 10 percent of our total
revenues, respectively). Significant reductions in the amount of business large customers conduct with us has previously and may in the future, materially and adversely affect our business, results of operations, financial position and liquidity.
Replacing the loss of an important customer is unpredictable. Revenues and cash flows from a single customer or a few important customers may constitute a significant portion of our total revenues and cash inflows in a particular period, then
decline as the volume of work performed for specific customers decreases as they complete projects. A major customer in one period may not continue to purchase significant licenses or services from us in a subsequent period.



The customer accounting for 10 percent of our total revenues for the nine
months ended September 30, 2005, DevonWay, is a related party. See Note 10 of our Notes to Condensed Financial Statements for more information related to these transactions.



The revenue from the customer who accounted for 50 percent of our total revenues for the year ended December 31, 2004 was
primarily from a non-recurring transaction during the second quarter of 2004. We do not expect this customer to account for a significant percentage of our revenues in the future.



Our revenues from the two customers accounting for 22 percent and 15 percent of our total revenues for the year ended
December 31, 2004, which was primarily time-and-materials consulting revenue, has decreased over time as these customers completed their current applications development projects and became more self-sufficient. The customer accounting for 15
percent of our total revenues for the year ended December 31, 2004 completed its use of our time-and-materials consulting services for its current application development project during the quarter ended September 30, 2004. We staffed this project
with subcontractors who we released upon completion of these services. Our project for the customer accounting for 22 percent of our



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total revenues for the year ended December 31, 2004, and 19 percent of our total revenues for the nine months ended September 30, 2005, was substantially
completed during the quarter ended March 31, 2005.



We have previously
recognized significant deferred revenues which will not be available in future periods



Our deferred revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. We had deferred revenues of $1.1 million at December 31, 2004 compared
to $7.6 million at December 31, 2003. The decrease resulted primarily from the recognition of previously deferred revenues during the quarter ended June 30, 2004, upon our successful conclusion of an earlier fixed-price applications development
project. We had a deferred revenue balance of $2.0 million at September 30, 2005 that we expect to recognize as revenues in future periods, but the timing of recognition is uncertain. We do not expect to recognize revenues or profits from deferred
revenues during 2005 at the same levels that we experienced during 2004.



Our growth and success depends on our ability to license EnterpriseTenFold; however, we have limited experience licensing EnterpriseTenFold to date



The success of our business is dependent in large part upon our ability to license EnterpriseTenFold. If our strategy for
marketing EnterpriseTenFold and our other products is unsuccessful, or if we are unable to license EnterpriseTenFold and/or other products successfully, or within the time frames anticipated, our revenues and operating results will continue to
suffer.



Our historical quarterly operating results have varied
significantly and our future operating results could vary



Historically, our quarterly 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. Until we achieve and sustain significant sales to new or existing customers, we expect to continue to experience losses.



If our software contains defects or other limitations, we could face product liability exposure



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 our being obligated to pay substantial damages, which would cause operating results to suffer. Although our license agreements typically contain provisions designed to limit our
liability, 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.



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Our errors and omissions coverage may not cover contractual disputes



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 future 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 arising from future claims.



Our errors and
omissions insurance policy 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. While we have substantially changed our business model and no longer offer a money-back guarantee, 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.



We are involved in a litigation matter and may in the
future be involved in further litigation or disputes that may be costly and time-consuming, and if we suffer adverse judgments, our operating results could suffer



We are involved in a class action suit against more than 300 issuers involving the underwriters of those issuers
initial public offerings. Although we currently expect to resolve this matter without significant cost to TenFold, 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 this matter may have a material adverse impact on our business, results of operations,
financial position, or liquidity. See Legal Proceedings and Contingencies generally for more information concerning our litigation and disputes.



Our settlements with Perot Systems and Cedars-Sinai Medical Center require that if we do not meet certain obligations their claims may be re-instated or re-asserted,
and if this were to happen and we suffer adverse judgments, our operating results could suffer



Although we have settled prior disputes with Perot Systems and Cedars-Sinai Medical Center, and during 2004 entered into revised agreements with
Cedars-Sinai that confirm our completion of the earlier project and provide for mutual releases from prior related claims, our agreements still require that we perform and meet certain obligations. If we are unable to or do not perform or meet these
obligations, Perot Systems and Cedars-Sinai may re-instate or re-assert their respective prior claims against us. If either Perot Systems or Cedars-Sinai were to re-instate or re-assert their respective claims, an unfavorable outcome of the matter
may have a material adverse impact on our business, results of operations, financial position, or liquidity.



If we fail to adequately anticipate employee and resource utilization rates, our operating results could suffer



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. Time-and-materials consulting arrangements can typically be terminated by a customer on short notice. An unanticipated termination of a major project, the delay of a project, or the completion during a quarter of several 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.



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A loss of Nancy M. Harvey, Jeffrey L. Walker, or any other key employee could impair our business



Our industry is competitive and we are substantially dependent upon the
continued service of our existing executive personnel, especially Nancy M. Harvey, President, Chief Executive Officer and Chief Financial 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, Chief Executive Officer, and Chief Financial Officer, Nancy M. Harvey. However, the agreement does not ensure 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 failure to attract and retain highly skilled employees, particularly project managers and other senior technical personnel, could impair our ability to complete projects and expand our business



Our services 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. Our current financial condition, and our prior restructurings and related headcount reductions, may make it more difficult for us to retain and compete for such
employees. 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.



If we cannot
protect or enforce our intellectual property rights, our competitive position would be impaired and we may become involved in costly and time-consuming litigation



Our success is dependent, in large part, upon our proprietary EnterpriseTenFold 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.



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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.



If we fail to successfully compete, our revenues and market share will be adversely affected



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.



International political and economic uncertainty could have an adverse impact on our business and on our operating results



Revenues from customers outside of North America were approximately 10
percent of total revenues for the nine months ended September 30, 2005, and approximately 20 percent of total revenues for 2004. The international political and economic uncertainty caused by the ongoing war on terrorism and other international
political developments may adversely impact our ability to continue existing relationships with our foreign customers and to develop new business abroad.



Our stock price may continue to be volatile



Our stock price has fluctuated widely in the past and could continue to do so in the future. Your investment in our stock could lose value. Some of the
factors that could significantly affect the market price of our stock, in addition to those mentioned in this section Factors that May Affect Future Results and Market Price of Stock, include: variations in our quarterly financial
results; further decreases in our cash resources, changes in our revenue; changes in our customer base including the loss of a major customer; changes in management; reports or earnings estimates published by financial analysts; changes in
political, economic and market conditions either generally or specifically to particular industries; and fluctuations in stock prices generally, particularly with respect to the stock prices for other technology companies. A significant drop in our
stock price could expose us to the risk of securities class action lawsuits. Defending against such lawsuits could result in substantial costs and divert managements attention and resources. An unfavorable outcome of such a matter may have a
material adverse impact on our business, results of operations, financial position, or liquidity.



No corporate actions requiring stockholder approval can take place without the approval of our controlling stockholders



The executive officers, directors, and entities affiliated with them, in the aggregate, beneficially own approximately 52 percent of our outstanding
common stock. Jeffrey L. Walker, Executive Vice President and Chief Technology Officer, and the Walker Childrens Trust, in the aggregate, currently beneficially own approximately 41 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.



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The anti-takeover provisions in our charter documents and/or under Delaware law could discourage a takeover that
stockholders may consider favorable



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.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------



Reference is made to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, appearing on page 42 of TenFolds 2004 Annual
Report on Form 10-K for information relating to TenFolds interest rate and currency rate risks. There have been no material changes in such risks through September 30, 2005.



|Item 4. | Controls and Procedures
|------- | -----------------------



An evaluation was performed under the supervision and with the participation of the Companys management, including Nancy Harvey (Chief Executive
Officer and Chief Financial Officer), of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of September 30, 2005. Based on that evaluation, Ms. Harvey concluded that the Companys
disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and
reported as specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to management, including Nancy Harvey, as appropriate to allow timely decisions regarding required disclosure. There have
been no material changes in the Companys internal controls over financial reporting or in other factors reasonably likely to affect the internal controls over financial reporting during the quarter ended September 30, 2005.



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PART II.    OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



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



|Item 5. | Other Information
|------- | -----------------



On November 9, 2005, the Board of Directors of TenFold Corporation accepted the resignation of Jeffrey L. Walker, as Chairman of the Board of Directors,
and elected Robert W. Felton as the new Chairman of the Board of Directors of TenFold Corporation. Mr. Walker continues to serve as a member of the Board of Directors, and as Executive Vice President and Chief Technology Officer of TenFold
Corporation.



|Item 6. | Exhibits
|------- | --------



|(a) | Exhibits
|--- | --------



|       |  |                                                                                                                                    
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                        
|11*    |  | Computation of Shares used in Computing Basic and Diluted Net Loss Per Share.                                                      
|       | 
|31     |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|       | 
|32     |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|* | Incorporated by reference to Notes to Condensed Financial Statements herein
|- | -----------------------------------------------------------------------------



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SIGNATURE



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                                            
|                                                               
|/s/ Nancy M. Harvey                                            
|Nancy M. Harvey                                                
|President, Chief Executive Officer, and Chief Financial Officer
|November 14, 2005                                              



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