##### Table of Contents

---

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 March 31, 2006

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 or organization) |  | (I.R.S. Employer Identification No.)

698 West 10000 South

South Jordan, Utah 84095

(Address of principal executive offices, including
zip code)

(801) 495-1010

(Registrants telephone number, including area code)

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

Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated
Filer ̈Accelerated
Filer ̈Non-Accelerated
Filer  x

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

Yes ̈No  x

As of March 31, 2006, there were 46,502,013
shares of the registrants Common Stock outstanding.



---



---

##### Table of Contents

INDEX



|           |  |                                                                                                 |  |     
|---------- |  | ----------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                 |  | Page
|           |  | Forward-Looking Statements                                                                      |  | 3   
|           |  |                                                                                                
|PART I.    |  | FINANCIAL INFORMATION                                                                           |  |     
|           |  |                                                                                                
|Item 1.    |  | Condensed Financial Statements                                                                  |  |     
|           |  |                                                                                                
|           |  | Condensed Balance Sheets at March 31, 2006 and December 31, 2005                                |  | 4   
|           |  |                                                                                                
|           |  | Condensed Statements of Operations for the three months ended March 31, 2006 and March 31, 2005 |  | 5   
|           |  |                                                                                                
|           |  | Condensed Statements of Cash Flows for the three months ended March 31, 2006 and March 31, 2005 |  | 6   
|           |  |                                                                                                
|           |  | Notes to Condensed Financial Statements                                                         |  | 7   
|           |  |                                                                                                
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 19  
|           |  |                                                                                                
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  | 26  
|           |  |                                                                                                
|Item 4.    |  | Controls and Procedures                                                                         |  | 26  
|           |  |                                                                                                
|PART II.   |  | OTHER INFORMATION                                                                               |  |     
|           |  |                                                                                                
|Item 1.    |  | Legal Proceedings                                                                               |  | 27  
|           |  |                                                                                                
|Item 1A.   |  | Risk Factors                                                                                    |  | 27  
|           |  |                                                                                                
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                     |  | 28  
|           |  |                                                                                                
|Item 6.    |  | Exhibits                                                                                        |  | 29  
|           | 
|Signatures |  | 30                                                                                             



2



---

##### Table of Contents

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 When used in this report, the words expects,
intends, anticipates, should, believes, will, plans, estimates, 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 this Quarterly Report, including those in Part II, Item 1A Risk Factors. You should also
carefully review the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2005, and those described from time to time in our future reports filed with the Securities and Exchange Commission.



3



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



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

TENFOLD
CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                          |  | March 31,2006 |         |   | December 31,2005 |  
|Assets                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                           |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                 |  | $             | 5,182   |   |                  | $ | 1,344   |  
|Accounts receivable, (net of allowances for doubtful accounts of $9 and $32, respectively, includes related party receivable of $0 and $25
respectively), |  |               | 149     |   |                  |   | 209     |  
|Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)                                                        |  |               |        |   |                  |   | 2       |  
|Prepaid expenses and other assets                                                                                                                         |  |               | 80      |   |                  |   | 161     |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                      |  |               | 5,411   |   |                  |   | 1,716   |  
|Restricted cash                                                                                                                                           |  |               | 74      |   |                  |   | 74      |  
|Property and equipment, net                                                                                                                               |  |               | 296     |   |                  |   | 352     |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                              |  | $             | 5,781   |   |                  | $ | 2,142   |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                      |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                      |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                          |  | $             | 310     |   |                  | $ | 483     |  
|Income taxes payable                                                                                                                                      |  |               | 243     |   |                  |   | 250     |  
|Accrued liabilities                                                                                                                                       |  |               | 1,501   |   |                  |   | 1,492   |  
|Deferred revenue                                                                                                                                          |  |               | 1,976   |   |                  |   | 2,218   |  
|Current installments of obligations under capital leases                                                                                                  |  |               | 33      |   |                  |   | 35      |  
|Notes payable  related parties                                                                                                                           |  |               |        |   |                  |   | 600     |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                 |  |               | 4,063   |   |                  |   | 5,078   |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Long-term liabilities:                                                                                                                                    |  |               |         |   |                  |   |         |  
|Obligations under capital leases, excluding current installments                                                                                          |  |               | 4       |   |                  |   | 10      |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total long-term liabilities                                                                                                                               |  |               | 4       |   |                  |   | 10      |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                             |  |               |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                     |  |               |         |   |                  |   |         |  
|Convertible preferred stock, $0.001 par value:                                                                                                            |  |               |         |   |                  |   |         |  
|Authorized: 2,000,000 shares Issued and outstanding shares: 1,500,000 shares at March 31, 2006 and 0 shares at December 31,
2005                          |  |               | 2       |   |                  |   |        |  
|Common stock, $0.001 par value:                                                                                                                           |  |               |         |   |                  |   |         |  
|Authorized: 120,000,000 shares                                                                                                                            |  |               |         |   |                  |   |         |  
|Issued and outstanding shares: 46,502,013 shares at March 31, 2006 and 46,445,749 shares at December 31, 2005                                             |  |               | 46      |   |                  |   | 46      |  
|Additional paid-in capital                                                                                                                                |  |               | 82,987  |   |                  |   | 76,411  |  
|Deferred compensation                                                                                                                                     |  |               |        |   |                  |   | (6      | )
|Accumulated deficit                                                                                                                                       |  |               | (81,321 | ) |                  |   | (79,397 | )
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                |  |               | 1,714   |   |                  |   | (2,946  | )
|                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                |  | $             | 5,781   |   |                  | $ | 2,142   |  
|                                                                                                                                                          |  |               |         |   |                  |   |         |  

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



4



---

##### Table of Contents

TENFOLD CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                                                                     |  |                             |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                     |  | Three Months EndedMarch 31, |       
|                                                                                                                     |  | 2006                        |        |   | 2005 |  
|Revenues:                                                                                                            |  |                             |        |   |      |   |        |  
|License                                                                                                              |  | $                           | 87     |   |      | $ | 93     |  
|Services and other                                                                                                   |  |                             | 512    |   |      |   | 1,515  |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Total revenues                                                                                                       |  |                             | 599    |   |      |   | 1,608  |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Operating expenses:                                                                                                  |  |                             |        |   |      |   |        |  
|Cost of revenues                                                                                                     |  |                             | 586    |   |      |   | 994    |  
|Sales and marketing                                                                                                  |  |                             | 191    |   |      |   | 714    |  
|Research and development                                                                                             |  |                             | 1,123  |   |      |   | 943    |  
|General and administrative                                                                                           |  |                             | 612    |   |      |   | 631    |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Total operating expenses                                                                                             |  |                             | 2,512  |   |      |   | 3,282  |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Loss from operations                                                                                                 |  |                             | (1,913 | ) |      |   | (1,674 | )
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Other income (expense):                                                                                              |  |                             |        |   |      |   |        |  
|Interest income                                                                                                      |  |                             | 8      |   |      |   | 20     |  
|Interest expense                                                                                                     |  |                             | (19    | ) |      |   | (3     | )
|Other income                                                                                                         |  |                             |       |   |      |   | 82     |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Total other income, net                                                                                              |  |                             | (11    | ) |      |   | 99     |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Loss before income taxes                                                                                             |  |                             | (1,924 | ) |      |   | (1,575 | )
|Provision for income taxes                                                                                           |  |                             |       |   |      |   | 1      |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Net loss                                                                                                             |  |                             | (1,924 | ) |      |   | (1,576 | )
|Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock |  |                             | (1,761 | ) |      |   |       |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Net loss applicable to common shareholders                                                                           |  | $                           | (3,685 | ) |      | $ | (1,576 | )
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Basic loss per common share                                                                                          |  | $                           | (0.08  | ) |      | $ | (0.03  | )
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Diluted loss per common share                                                                                        |  | $                           | (0.08  | ) |      | $ | (0.03  | )
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Weighted average common and common equivalent shares used to calculate loss per share:                               |  |                             |        |   |      |   |        |  
|Basic                                                                                                                |  |                             | 46,482 |   |      |   | 46,400 |  
|                                                                                                                     |  |                             |        |   |      |   |        |  
|Diluted                                                                                                              |  |                             | 46,482 |   |      |   | 46,400 |  
|                                                                                                                     |  |                             |        |   |      |   |        |  

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



5



---

##### Table of Contents

TENFOLD CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                            |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                            |  | Three Months EndedMarch 31, |       
|                                                                            |  | 2006                        |        |   | 2005 |  
|Cash flows from operating activities:                                       |  |                             |        |   |      |   |        |  
|Net loss                                                                    |  | $                           | (1,924 | ) |      | $ | (1,576 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                               |  |                             | 61     |   |      |   | 90     |  
|Provision to bad debt reserve                                               |  |                             |       |   |      |   | 1      |  
|Amortization of deferred compensation                                       |  |                             |       |   |      |   | 4      |  
|Stock-based compensation expense                                            |  |                             | 502    |   |      |   |       |  
|Changes in operating assets and liabilities:                                |  |                             |        |   |      |   |        |  
|Accounts receivable                                                         |  |                             | 60     |   |      |   | (472   | )
|Unbilled accounts receivable                                                |  |                             | 2      |   |      |   | 48     |  
|Prepaid expenses and other assets                                           |  |                             | 81     |   |      |   | 38     |  
|Accounts payable                                                            |  |                             | (173   | ) |      |   | 12     |  
|Income taxes payable                                                        |  |                             | (7     | ) |      |   | (5     | )
|Accrued liabilities                                                         |  |                             | 9      |   |      |   | (131   | )
|Deferred revenues                                                           |  |                             | (242   | ) |      |   | 338    |  
|                                                                            |  |                             |        |   |      |   |        |  
|Net cash used in operating activities                                       |  |                             | (1,631 | ) |      |   | (1,653 | )
|                                                                            |  |                             |        |   |      |   |        |  
|Cash flows from investing activities:                                       |  |                             |        |   |      |   |        |  
|Additions to property and equipment                                         |  |                             | (5     | ) |      |   | (5     | )
|                                                                            |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                       |  |                             | (5     | ) |      |   | (5     | )
|                                                                            |  |                             |        |   |      |   |        |  
|Cash flows from financing activities:                                       |  |                             |        |   |      |   |        |  
|Proceeds from employee stock purchase plan stock issuance                   |  |                             | 10     |   |      |   | 27     |  
|Proceeds from issuance of convertible preferred stock and warrants          |  |                             | 6,072  |   |      |   |       |  
|Proceeds from issuance of notes payable                                     |  |                             | 500    |   |      |   |       |  
|Principal payments on notes payable                                         |  |                             | (1,100 | ) |      |   |       |  
|Principal payments on obligations under capital leases                      |  |                             | (8     | ) |      |   | (8     | )
|                                                                            |  |                             |        |   |      |   |        |  
|Net cash provided by financing activities                                   |  |                             | 5,474  |   |      |   | 19     |  
|                                                                            |  |                             |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                        |  |                             | 3,838  |   |      |   | (1,639 | )
|Cash and cash equivalents at beginning of period                            |  |                             | 1,344  |   |      |   | 5,225  |  
|                                                                            |  |                             |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                  |  | $                           | 5,182  |   |      | $ | 3,586  |  
|                                                                            |  |                             |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                           |  |                             |        |   |      |   |        |  
|Cash paid for income taxes                                                  |  | $                           | 7      |   |      | $ | 6      |  
|Cash paid for interest                                                      |  |                             | 19     |   |      |   | 1      |  
|Equipment purchased under capital leases                                    |  |                             |       |   |      |   | 16     |  

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



6



---

##### Table of Contents

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. 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 months ended March 31, 2006 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2006.

This report should be read in conjunction with our audited Financial Statements for the year ended December 31, 2005 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, 2005 financial statements, however, includes an explanatory paragraph relating to our ability to continue as a going concern.

As of March 31, 2006, our principal source of liquidity was our cash and cash equivalents of $5.2 million. On March 30, 2006 we completed a
capital raising transaction for gross proceeds of approximately $6.3 million (before expenses and repayment of $1.1 million of interim financing obligations). We believe that with the proceeds of this capital transaction, and new sales that we
believe that we can close during 2006, we will have sufficient liquidity for our operations during 2006. However, significant challenges and risks remain:



| |  |  | We have not been able to generate positive cash flow from operations for the three years ended December 31, 2005, or the quarter ended March 31, 2006. Our net cash used in
operating activities was $4.5 million for the year ended December 31, 2005, and $1.6 million for the quarter ended March 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 have experienced 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. Under the leadership of our new Chief Executive Officer, Robert W. Felton, we have recently changed our business model to focus
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7



---

##### Table of Contents

| | on selling larger consulting projects, instead of the smaller prototype application projects that we primarily sold in 2005. Although we expect to be more
successful with this new model, we have limited experience with the new model as we have introduced it only recently, and have not yet closed any sales under this model. If we do not close significant sales in 2006, the funds from our recent capital
raising will not be sufficient to fund our operations through all of 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There can be no assurance that we will be
successful closing sufficient new sales and these risks may have a materially adverse affect on our future cash flow and operations.



|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 the contract for those individual elements, but not in total.

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



8



---

##### Table of Contents

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 license agreements that contain a discount that cannot be
determined at the inception of the agreement, we recognize the related license revenue at the end of the estimated economic life of the release of the software version provided to the customer. We use the end of the estimated economic life to
recognize the revenue when we do not have 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.

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.



9



---

##### Table of Contents

|3. | Loss Per Share
|-- | --------------

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



|                                                                                  |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                  |  | 2006                        |        |   | 2005 |  
|Numerator:                                                                        |  |                             |        |   |      |   |        |  
|Numerator for basic loss per share  net loss applicable to common stockholders   |  | $                           | (3,685 | ) |      | $ | (1,576 | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Numerator for diluted loss per share  net loss applicable to common stockholders |  | $                           | (3,685 | ) |      | $ | (1,576 | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Denominator:                                                                      |  |                             |        |   |      |   |        |  
|Denominator for basic loss per share  weighted average shares                    |  |                             | 46,482 |   |      |   | 46,400 |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Employee stock options                                                            |  |                             |       |   |      |   |       |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Denominator for diluted loss per share                                            |  |                             | 46,482 |   |      |   | 46,400 |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Loss per common share:                                                            |  |                             |        |   |      |   |        |  
|Basic loss per common share                                                       |  | $                           | (0.08  | ) |      | $ | (0.03  | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Diluted loss per common share                                                     |  | $                           | (0.08  | ) |      | $ | (0.03  | )
|                                                                                  |  |                             |        |   |      |   |        |  

Employee stock options that could potentially dilute basic earnings (loss) per share in the
future, of which there were 23,369,871 and 23,280,321 outstanding during the three months ended March 31, 2006 and 2005, respectively, that have a weighted average exercise price of $1.78 and $1.92 per share, respectively, were not included in
the computation of diluted loss per share because to do so would have been anti-dilutive for the periods.

The computation of diluted loss
per common share for the three months ended March 31, 2006 excludes the assumed conversion of 1,500,000 shares of convertible preferred stock outstanding at March 31, 2006, from our recent capital raising transaction, which are convertible
into 20,315,805 shares of common stock, because the impact of the conversion would be anti-dilutive. No convertible preferred stock was outstanding in 2005.

Warrants to purchase 10,157,899 shares of common stock outstanding at March 31, 2006, from our recent capital raising transaction, were also excluded from the computation of diluted loss per common share because
to do so would have been anti-dilutive for the period. The warrants have an exercise price of $0.62 per share. No warrants were outstanding in 2005.



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

Restricted cash of $74,000 at
March 31, 2006 and at December 31, 2005 is maintained to support various accounts payable activities.



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

Effective January 1,
2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123(R)) which requires the measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (ESPP) based on estimated fair values. In accordance to this standard, we recognize the
compensation cost of all share based awards on a straight-line basis



10



---

##### Table of Contents

over the vesting period of the award. Prior to January 1, 2006, we accounted for those plans under the recognition and measurement provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement 123).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1,
2006. Our Condensed Financial Statements as of and for the three months ended March 31, 2006, reflect the impact of SFAS 123(R). Under that transition method, compensation cost recognized in the first three months of 2006 includes:
(a) quarterly amortization related to the compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of
Statement 123, and (b) quarterly amortization related to compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
Results for prior periods have not been restated.

TenFold has three stock-based employee option plans and an ESPP which are described more
fully in Note 12 and Note 13, respectively, in our 2005 Annual Report on Form 10-K. No stock-based employee compensation cost was recognized in the Statement of Operations for the three-month period ended March 31, 2005, as all options granted
under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The ESPP was deemed noncompensatory under Opinion 25, and, therefore, resulted in no compensation cost. As of March 31, 2006,
TenFold has approximately 11.5 million shares of common stock reserved for future issuance under the stock option plans and the ESPP.

The adoption of SFAS 123(R) had a significant impact on our results of operations. Our statement of operations for the three months ended March 31, 2006 includes the following stock-based compensation expense from stock options and
ESPP:



|                                                                |  |                                   |    
|--------------------------------------------------------------- |  | --------------------------------- | ---
|(in thousands)                                                  |  | Three Months Ended March 31, 2006
|Cost of revenues                                                |  | $                                 | 59 
|Sales and marketing                                             |  |                                   | 5  
|Research and development                                        |  |                                   | 262
|General and administrative                                      |  |                                   | 176
|                                                                |  |                                   |    
|Stock-based compensation expense included in operating expenses |  |                                   | 502
|Tax benefit                                                     |  |                                   |   
|                                                                |  |                                   |    
|Stock-based compensation expense included in net loss           |  | $                                 | 502
|                                                                |  |                                   |    

Basic and diluted loss per share for the quarter ended March 31, 2006 would have been $0.07
had we continued to account for share-based compensation under Opinion 25.

Unrecognized stock-based compensation expense expected to be
recognized over an estimated weighted-average amortization period of 1.1 years was $3.5 million at March 31, 2006.

Our deferred
compensation cost at December 31, 2005 of $6,000, which was accounted for under APB 25, was reclassified into additional paid-in capital.



11



---

##### Table of Contents

The following table illustrates the effect on net loss and loss per share if we had applied the fair
value recognition provisions of Statement 123 to options granted under our stock option plans and the employee stock purchase plan in all periods presented. For purposes of this pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option-pricing formula and amortized to expense over the options vesting periods.



|                                                                                                                                            |  |                                  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | -
|(in thousands, except per share data)                                                                                                       |  | Three Months EndedMarch 31, 2005 |       
|Net loss applicable to common stock  as reported                                                                                           |  | $                                | (1,576 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                                    |  |                                  | 4      |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                  | (2,454 | )
|                                                                                                                                            |  |                                  |        |  
|Net loss applicable to common stock  pro forma                                                                                             |  | $                                | (4,026 | )
|                                                                                                                                            |  |                                  |        |  
|Loss per common share  as reported:                                                                                                        |  |                                  |        |  
|Basic                                                                                                                                       |  | $                                | (0.03  | )
|Diluted                                                                                                                                     |  | $                                | (0.03  | )
|Loss per common share  pro forma:                                                                                                          |  |                                  |        |  
|Basic                                                                                                                                       |  | $                                | (0.09  | )
|Diluted                                                                                                                                     |  | $                                | (0.09  | )

Share Option Plans

We currently have three stock option plans that allow us to grant nonqualified stock options, stock purchase rights, stock bonus awards, stock
appreciation rights, and other equity based awards to employees, including officers and directors, consultants, and non-employee directors. We have historically generally granted only nonqualified stock options. The options generally vest over a
four or five-year period and expire ten years from the date of grant.

Our weighted-average assumptions used in the Black-Scholes valuation
model for equity awards with time-based vesting provisions granted during the three months ended March 31, 2006 are shown below:



|                        |  |                                  
|----------------------- |  | ---------------------------------
|                        |  | Three months ended March 31, 2006
|Expected volatility     |  | 163%                             
|Expected dividends      |  | 0%                               
|Expected term           |  | 6.11 Years                       
|Risk-free interest rate |  | 4.41%                            

The expected volatility rate was estimated based on the historical volatility of TenFold common
stock. The expected term was calculated using the SEC simplified method as provided for in Staff Accounting Bulletin No. 107. The risk-free interest rates are the rates provided by the U.S Treasury for Daily Treasury Yield Curve
Rates commonly referred to as Constant Maturity Treasury rates in effect at the time of grant with a remaining term equal to the expected option term.

The pre-vesting forfeiture rate used for the three months ended March 31, 2006 was based on historical rates and forward-looking factors. As required under SFAS 123(R), we will adjust the estimated forfeiture
rates to our actual experience. Prior to adoption of SFAS 123(R) we accounted for forfeitures as they occurred.



12



---

##### Table of Contents

A summary of the time-based stock option awards as of March 31, 2006, and changes during the three
months then ended, is as follows:



|                               |  |            |  |                               |      |                                                  |      |                                |   |    
|------------------------------ |  | ---------- |  | ----------------------------- | ---- | ------------------------------------------------ | ---- | ------------------------------ | - | ---
|Stock Option Awards            |  | Shares     |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm (years) |      | AggregateIntrinsicValue (000s)
|Outstanding at January 1, 2006 |  | 23,450,459 |  | $                             | 1.80 |                                                  |      |                                |   |    
|Granted                        |  | 332,000    |  |                               | 0.29 |                                                  |      |                                |   |    
|Exercised                      |  |           |  |                               |     |                                                  |      |                                |   |    
|Forfeited or expired           |  | 412,588    |  |                               | 1.87 |                                                  |      |                                |   |    
|                               |  |            |  |                               |      |                                                  |      |                                |   |    
|Outstanding at March 31, 2006  |  | 23,369,871 |  | $                             | 1.78 |                                                  | 7.05 |                                | $ | 347
|                               |  |            |  |                               |      |                                                  |      |                                |   |    
|Exercisable at March 31, 2006  |  | 20,547,105 |  | $                             | 1.84 |                                                  | 6.90 |                                | $ | 283
|                               |  |            |  |                               |      |                                                  |      |                                |   |    

The weighted-average grant-date fair value of stock options granted during the first three months
ended March 31, 2006 was $0.28. Stock-based compensation expense related to stock options recognized under SFAS 123(R) for the three months ended March 31, 2006 was $498,000. At March 31, 2006, there was $3.5 million of unrecognized
stock-based compensation expense related to non-vested options, which is expected to be recognized over a weighted-average period of 1.1 years.

Employee Stock Purchase Plan

Our 1999 Employee Stock Purchase Plan (ESPP) was adopted by our Board of Directors
and approved by our stockholders in March 1999. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, has two six-month offering periods each year, with new offering periods commencing on February 1 and
August 1 of each year. Eligible full-time employees, through payroll deductions, are allowed to purchase a limited number of shares of our common stock during each offering period at 85% of the fair market value at the lower of either the date
of enrollment or the date of purchase. We account for the ESPP as a compensatory plan and recorded compensation expense of $3,600 for the quarter ended March 31, 2006 in accordance with SFAS 123(R).

The fair value of issuances under the purchase plan is estimated on the issuance date by applying the principles of FASB Technical Bulletin 97-1,
Accounting under Statement 123 for Certain Employee Stock Purchase plan with a Look Back Option, and using the Black-Scholes valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for our ESPP grants
during the three months ended March 31, 2006 are shown below:



|                        |  |                                 
|----------------------- |  | --------------------------------
|                        |  | Three months endedMarch 31, 2006
|Expected volatility     |  | 106%                            
|Expected dividends      |  | 0%                              
|Expected term           |  | 0.5 Years                       
|Risk-free interest rate |  | 4.6%                            

The expected volatility rate was estimated based on the historical volatility of TenFold common
stock over a six-month period. The expected term is the same as the requisite service period. The risk-free interest rates are the rates provided by the U.S Treasury for Daily Treasury Yield Curve Rates commonly referred to as Constant
Maturity Treasury rates in effect at the time of grant with a remaining term equal to the expected term.

During the quarters ended
March 31, 2006, and 2005, 56,264 and 34,364 shares of common stock were purchased under the ESPP at an average price of $0.19 and $0.81 per share, respectively. As of March 31, 2006, there was $4,300 of total unrecognized compensation
costs related to employee stock plan purchases. These costs are expected to be recognized over a weighted average period of 2.5 months.



13



---

##### Table of Contents

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

No provision for income taxes was
required for the three months ended March 31, 2006. The $1,000 provision for the three months ended March 31, 2005 relates primarily to foreign taxes.

At March 31, 2006, 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 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.



|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, at March 31, 2006 are as follows (in
thousands):



|                                                                 |  |       |     |           |   |         |  |   |     |  
|---------------------------------------------------------------- |  | ----- | --- | --------- | - | ------- |  | - | --- | -
|                                                                 |  | Total |     | Operating |   | Capital | 
|2006                                                             |  | $     | 360 |           | $ | 332     |  | $ | 29  |  
|2007                                                             |  |       | 310 |           |   | 300     |  |   | 10  |  
|Thereafter                                                       |  |       |    |           |   |        |  |   |    |  
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Total minimum lease payments                                     |  | $     | 670 |           | $ | 632     |  |   | 39  |  
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Less: Amount representing interest                               |  |       |     |           |   |         |  |   | (2  | )
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Present value of net minimum capital lease payments              |  |       |     |           |   |         |  |   | 37  |  
|Less: Current installments of obligations under capital leases   |  |       |     |           |   |         |  |   | (33 | )
|                                                                 |  |       |     |           |   |         |  |   |     |  
|Obligations under capital leases, excluding current installments |  |       |     |           |   |         |  | $ | 4   |  
|                                                                 |  |       |     |           |   |         |  |   |     |  



|8. | Notes Payable  Related Parties
|-- | -------------------------------

On
December 23, 2005, we executed a Promissory Note due to Robert W. Felton, our Chairman, President, and Chief Executive Officer, in the amount of $200,000.

On December 23, 2005, we executed a Promissory Note due to Wasatch Investments LLC, an investment entity associated with TenFold Director Robert E. Parsons, Jr., in the amount of $200,000.

On December 28, 2005, we executed a Promissory Note due to First Media TF Holdings LLC, an investment entity associated with TenFold Director Ralph
W. Hardy Jr., in the amount of $200,000.

On February 23, 2006, TenFold executed a Promissory Note due to Mr. Felton, in the
amount of $250,000.

On March 15, 2006, TenFold executed a Promissory Note due to Mr. Felton, in the amount of $250,000.



14



---

##### Table of Contents

These identical Promissory Notes were intended to provide interim financing to TenFold while we sought to
secure equity financing. The Promissory Notes were senior to other TenFold indebtedness and equity, bore interest at 10% and were due upon the earlier to occur of March 31, 2006, the closing of equity financing of $2 million or more, or a
liquidation event. We repaid these Promissory Notes in full in March 2006, upon completing the equity financing transaction described in Part II, Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.

All disinterested members of our Board of Directors approved these transactions.



|9. | Legal Proceedings and Contingencies
|-- | -----------------------------------

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 November 15, 2005. A settlement fairness hearing was held on April 24, 2006,
however no ruling has been issued yet by the Court. 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



15



---

##### Table of Contents

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 March 31, 2006. As
a result, we have not recorded a liability for infringement costs as of March 31, 2006.

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 March 31, 2006.

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.



|10. | Operating Segments
|--- | ------------------

Our CEO reviews financial
information on a consolidated basis, similar in format to the accompanying 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 17 percent of total revenues for the three months ended March 31, 2006 as compared to 12 percent of total revenues for the same period in 2005. Our long-lived assets are deployed in the United States.

Two customers accounted for a total of 39 percent of our revenues for the three months ended March 31, 2006 (individually 20 percent, and 19 percent
of our total revenues, respectively) compared to three customers accounting for a total of 67 percent of our total revenues for the same period in 2005 (individually 41 percent, 13 percent, and 13 percent of our total revenues, respectively). No
other single customer accounted for more than 10 percent of our total revenues for the three months ended March 31, 2006 or the same period in 2005.



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

On
January 1, 2006, we adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and employee stock
purchases related to the



16



---

##### Table of Contents

Employee Stock Purchase Plan, based on estimated fair values. See Note 5 above for more information.

On January 1, 2006, we adopted 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

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments,
which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also
clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in financial years beginning after September 15, 2006. We do not expect our
adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

In March 2006, the
FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets to simplify accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entitys fiscal year
that begins after September 15, 2006, although early adoption is permitted. The adoption of SFAS No. 156 is not expected to have a material impact on our financial position, results of operations or cash flows.



|12. | Related Party Transactions
|--- | --------------------------

During 2005, we entered
into agreements with a new customer, DevonWay, to provide licenses, consulting services, technical support services, and training. Our Chairman, CEO and President, 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.

Our revenues from DevonWay for the three months ended March 31, 2006, are consulting revenues of $10,000, and services and other revenue of $13,000. We had no revenues from DevonWay for the three months ended
March 31, 2005. As of March 31, 2006, we did not have any accounts receivable due from DevonWay. As of December 31, 2005, we had accounts receivable from DevonWay of $24,500. For the three months ended March 31, 2006, we received
cash inflows from DevonWay of $32,000.

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 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



17



---

##### Table of Contents

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.

See Note 8 for information about Promissory Notes we entered into with members of our Board of Directors (or entities associated with them).

See Note 13 for information about our capital raising transaction completed in March 2006, that included the sale of stock to members of our Board of
Directors and Executive Officers (or entities associated with them).



|13. | Capital Stock
|--- | -------------

On March 29, 2006, we entered
into a Securities Purchase Agreement for the sale of 1,500,000 shares of unregistered convertible preferred stock and warrants. The preferred shares are convertible into 20,315,805 shares of common stock. The warrants are to purchase 10,157,899
shares of common stock at an exercise price of $0.62 per share, with a 5 year term. The transaction generated gross proceeds of approximately $6.3 million (before expenses and repayment of $1.1 million of interim financing obligations). Several
members of our Board of Directors (or investment entities associated with them) and an Executive Officer participated in the transaction, providing a total of approximately $4.7 million of the gross proceeds raised:



| |  |  | Robert W. Felton Trust invested $2 million. We repaid $709,000 of interim financing to Mr. Felton, our Chairman, President, and Chief Executive Officer, from the proceeds of
the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | First Media TF Holdings LLC, an investment entity associated with TenFold Director Ralph W. Hardy Jr., invested $2 million. We repaid $205,000 of interim financing to First Media TF
Holdings LLC from the proceeds of the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TenFold Director Steven H. Coltrin invested $500,000. We used approximately $206,000 of the proceeds of the capital raising to pay accounts payable due to his firm,
Coltrin & Associates, for marketing and public relations work provided to TenFold in earlier periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Samer Diab, Vice President, Customer Services, invested $230,000.
| | - |  | -----------------------------------------------------------------

We also repaid $205,000 of interim financing to Wasatch Investments LLC, an investment entity associated with TenFold Director Robert E. Parsons, Jr., from the proceeds of the capital raising.

As a result of the warrants sold with the convertible preferred stock and the beneficial conversion feature inherent in the conversion rights and
preferences of the convertible preferred stock, we recognized a non-cash deemed dividend of $1,761,000 during the three months ended March 31, 2006. This deemed dividend was calculated based on the conversion price compared to the market price
on the dates of issuance of the convertible preferred shares. Because we have an accumulated deficit, the deemed dividend was recorded as additional paid-in-capital and had no affect on that account.



18



---

##### Table of Contents

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

Business Overview

TenFold provides
services and technology for building complex, Service Oriented Architecture (SOA)-compliant, mission-critical applications in significantly less time and cost that it would otherwise take using traditional development technologies. We
believe that with TenFolds technology, EnterpriseTenFold, customers will also experience significantly reduced ongoing applications maintenance and enhancement costs compared to what they generally experience with legacy applications.

Our business model focuses on providing applications development services and our EnterpriseTenFold technology, support and training, to
customers who can use a TenFold team or their own business teams to build and maintain applications.

At the end of 2005, we replaced our
former Chief Executive Officer with long-time TenFold director and shareholder, Robert W. Felton. Under his leadership, we have recently changed our business model to focus on selling larger consulting projects, instead of the smaller prototype
application projects that we primarily sold in 2005. We believe that providing larger consulting projects (that include the full breadth of applications consulting from applications design through production implementation) will be a more successful
model for both us and our customers. We believe that some of our customers would have been more successful with their projects with more consulting assistance than they chose to purchase under our prior business model. Although we hope to be more
successful with this new business model, we have limited experience with it as we have introduced it only recently, and have not yet closed any sales under this model. As a result, it is unclear if or when we can expect to close significant sales to
new or existing customers, and until we do so we are likely to continue to experience declining revenues and increasing losses.

On
March 30, 2006, we completed a capital raising transaction for the sale of 1,500,000 shares of unregistered convertible preferred stock and warrants. The preferred shares are convertible into 20,315,805 shares of common stock. The warrants are
to purchase 10,157,899 shares of common stock at an exercise price of $0.62 per share, with a 5 year term. The transaction generated gross proceeds of approximately $6.3 million (before expenses and repayment of $1.1 million of interim financing
obligations). Several members of our Board of Directors (or investment entities associated with them) and an Executive Officer participated in the transaction, providing a total of approximately $4.7 million of the gross proceeds raised:



| |  |  | Robert W. Felton Trust invested $2 million. We repaid $709,000 of interim financing to Mr. Felton, our Chairman, President, and Chief Executive Officer, from the proceeds of
the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | First Media TF Holdings LLC, an investment entity associated with TenFold Director Ralph W. Hardy Jr., invested $2 million. We repaid $205,000 of interim financing to First Media TF
Holdings LLC from the proceeds of the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TenFold Director Steven H. Coltrin invested $500,000. We used approximately $206,000 of the proceeds of the capital raising to pay accounts payable due to his firm,
Coltrin & Associates, for marketing and public relations work provided to TenFold in earlier periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Samer Diab, Vice President, Customer Services, invested $230,000.
| | - |  | -----------------------------------------------------------------

We also repaid $205,000 of interim financing to Wasatch Investments LLC, an investment entity associated with TenFold Director Robert E. Parsons, Jr., from the proceeds of the capital raising.

We had first quarter 2006 revenues of $599,000, an operating loss of $1.9 million, a net loss of $1.9 million, and a net loss applicable to common
shareholders of $3.7 million. This compares to revenues of $1.6 million, an operating loss of $1.7 million, and a net loss of $1.6 million for the same period of 2005.



19



---

##### Table of Contents

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 Months ended March 31, |  
|                                                                                                                     |  | 2006                         |   |  | 2005  |  
|Revenues:                                                                                                            |  |                              |   |  |       |  
|License                                                                                                              |  | 15%                          |   |  | 6%    |  
|Services and other                                                                                                   |  | 85%                          |   |  | 94%   |  
|                                                                                                                     |  |                              |   |  |       |  
|Total revenues                                                                                                       |  | 100%                         |   |  | 100%  |  
|Operating expenses:                                                                                                  |  |                              |   |  |       |  
|Cost of revenues                                                                                                     |  | 98%                          |   |  | 62%   |  
|Sales and marketing                                                                                                  |  | 32%                          |   |  | 44%   |  
|Research and development                                                                                             |  | 187%                         |   |  | 59%   |  
|General and administrative                                                                                           |  | 102%                         |   |  | 39%   |  
|                                                                                                                     |  |                              |   |  |       |  
|Total operating expenses                                                                                             |  | 419%                         |   |  | 204%  |  
|                                                                                                                     |  |                              |   |  |       |  
|Loss from operations                                                                                                 |  | (319%                        | ) |  | (104% | )
|Total other income, net                                                                                              |  | (2%                          | ) |  | 6%    |  
|                                                                                                                     |  |                              |   |  |       |  
|Loss before income taxes                                                                                             |  | (321%                        | ) |  | (98%  | )
|Provision for income taxes                                                                                           |  |                             |   |  |      |  
|                                                                                                                     |  |                              |   |  |       |  
|Net loss                                                                                                             |  | (321%                        | ) |  | (98%  | )
|                                                                                                                     |  |                              |   |  |       |  
|Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock |  | (294%                        | ) |  |      |  
|                                                                                                                     |  |                              |   |  |       |  
|Net loss applicable to common shareholders                                                                           |  | (615%                        | ) |  | (98%  | )
|                                                                                                                     |  |                              |   |  |       |  

Revenues

Total revenues decreased $1.0 million, or 63 percent, to $599,000 for the three months ended March 31, 2006, as compared to $1.6 million for the same period in 2005.

Services and other revenues decreased $1.0 million, or 66 percent, to $512,000 for the three months ended March 31, 2006 as compared to $1.5 million
for the same period in 2005. The decrease in services and other revenues is primarily due to decreases in revenues from certain customers who purchased less time-and-materials consulting from us over time as they completed their application
development projects and became more self-sufficient, which were not replaced by similar sized projects with other customers.

License
revenues decreased $6,000 to $87,000 for the three months ended March 31, 2006, as compared to $93,000 for the same period in 2005.

Revenues from customers outside of North America were approximately 17 percent of total revenues for the three months ended March 31, 2006 as compared to 12 percent of total revenues for the same period in 2005. Our long-lived assets
are deployed in the United States.

Two customers accounted for a total of 39 percent of our revenues for the three months ended
March 31, 2006 (individually 20 percent, and 19 percent of our total revenues, respectively) compared to three customers accounting for a total of 67 percent of our total revenues for the same period in 2005 (individually 41 percent, 13
percent, and 13 percent of our total revenues, respectively). No other single customer accounted for more than 10 percent of our total revenues for the three months ended March 31, 2006 or the same period in 2005.

We continue to actively market to new and existing customers. However, we continue to face a challenging sales environment. As a result, it is unclear if
or when we can expect to close



20



---

##### Table of Contents

material sales to new or existing customers, and until we do so we are likely to continue to experience declining revenues and increasing losses.

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, support, and training services. Cost of revenues decreased $408,000,
or 41 percent, to $586,000 for the three months ended March 31, 2006 compared to $994,000 for the same period in 2005. The decrease in cost of revenues is primarily due to having fewer staff working on customer projects.

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 $523,000, or 73 percent, to $191,000 for the three months ended March 31, 2006 as compared to
$714,000 for the same period in 2005. The decreases in sales and marketing expenses are due to our discontinuing most discretionary marketing programs in late 2005 in connection with the change in sales focus under our new Chief Executive Officer,
Robert W. Felton, and to conserve our financial resources; as well as from a decrease in sales and marketing headcount.

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 increased $180,000, or 19 percent, to
$1.1 million for the three months ended March 31, 2006, as compared to $943,000 for the same period in 2005. The increase in research and development is primarily due to recognition of stock-based compensation expense in 2006 as a result of
SFAS 123(R) (see Note 5 of Notes to Condensed Financial Statements for more information).

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 $19,000, or 3 percent, to
$612,000 for the three months ended March 31, 2006 as compared to $631,000 for the same period in 2005, due to a decrease in general and administrative headcount, and lower executive compensation in 2006 compared to 2005. These decreases were
partially offset by recognition of stock-based compensation expense in 2006 as a result of SFAS 123(R) (see Note 5 of Notes to Condensed Financial Statements for more information).

Total Other Income, net

Net total
other income was a loss of $11,000 for the three months ended March 31, 2006, as compared to $99,000 of income for the same period in 2005.

Provision for Income Taxes

No provision for income taxes was required for the three months ended March 31, 2006. The
$1,000 provision for the three months ended March 31, 2005 relates primarily to foreign taxes.

At March 31, 2006, 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 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.



21



---

##### Table of Contents

Deemed dividend related to convertible preferred stock

As a result of the warrants sold with the convertible preferred stock and the beneficial conversion feature inherent in the conversion rights and
preferences of the convertible preferred stock, we recognized a non-cash deemed dividend of $1,761,000 during the three months ended March 31, 2006. This deemed dividend was calculated based on the conversion price compared to the market price
on the date of issuance of the convertible preferred shares.

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.

Stock-Based Compensation

In
accordance with SFAS 123(R), we measure compensation cost for stock awards at fair value and recognize compensation over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and
to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures,
including types of awards, employee roles, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates. See Note 5 of Notes to Condensed Financial Statements for more information.



22



---

##### Table of Contents

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

Net
cash used in operating activities was $1.6 million for the three months ended March 31, 2006 as compared to $1.7 million for the same period in 2005.

Net cash used in investing activities was $5,000 for the three months ended March 31, 2006 and for the same period in 2005.

Net cash provided by financing activities was $5.5 million for the three months ended March 31, 2006 as compared to $19,000 for the same period in 2005. Net cash provided by financing activities for the three
months ended March 31, 2006 included $6.1 million of net proceeds from the sale of convertible preferred stock and warrants, $500,000 from issuance of notes payable, less $1.1 million in principal payments on notes payable which were repaid in
full upon closing our capital raising transaction in March 2006.

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 March 31, 2006 and $2.2 million at December 31, 2005. 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.

As of March 31, 2006, our principal source of liquidity was our cash and cash equivalents of $5.2 million. On
March 30, 2006 we completed a capital raising transaction for gross proceeds of approximately $6.3 million (before expenses and repayment of $1.1 million of interim financing obligations). We believe that with the proceeds of this capital
transaction, and new sales that we believe that we can close during 2006, we will have sufficient liquidity for our operations during 2006. However, significant challenges and risks remain:



| |  |  | We have not been able to generate positive cash flow from operations for the three years ended December 31, 2005, or the quarter ended March 31, 2006. Our net cash used in
operating activities was $4.5 million for the year ended December 31, 2005, and $1.6 million for the quarter ended March 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 have experienced 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. Under the leadership of our new Chief Executive Officer, Robert W. Felton, we have recently changed our business model to focus
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

| | on selling larger consulting projects, instead of the smaller prototype application projects that we primarily sold in 2005. Although we expect to be more
successful with this new model, we have limited experience with the new model as we have introduced it only recently, and have not yet closed any sales under this model. If we do not close significant sales in 2006, the funds from our recent capital
raising will not be sufficient to fund our operations through all of 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There can be no assurance that we will be
successful closing sufficient new sales and these risks may have a materially adverse affect on our future cash flow and operations.

Disclosure about Contractual Obligations

The following table sets forth certain contractual obligations recorded in the
condensed financial statements as of March 31, 2006 and summary information is presented in the following table (in thousands):



|                                                                                   |  |       |     |                 |   |          |  |          |     |                  |   |   |  |   |  
|---------------------------------------------------------------------------------- |  | ----- | --- | --------------- | - | -------- |  | -------- | --- | ---------------- | - | - |  | - | -
|Contractual Obligations                                                            |  | Total |     | Lessthan 1 year |   | 1-3years |  | 4-5years |     | Morethan 5 years
|Long-term debt                                                                     |  | $     |    |                 | $ |         |  | $        |    |                  | $ |  |  | $ | 
|Capital lease obligations                                                          |  |       | 39  |                 |   | 34       |  |          | 5   |                  |   |  |  |   | 
|Operating lease obligations                                                        |  |       | 632 |                 |   | 445      |  |          | 187 |                  |   |  |  |   | 
|Purchase obligations                                                               |  |       | 108 |                 |   | 108      |  |          |    |                  |   |  |  |   | 
|Other long term liabilities reflected on the registrants Balance Sheet under GAAP |  |       |    |                 |   |         |  |          |    |                  |   |  |  |   | 
|                                                                                   |  |       |     |                 |   |          |  |          |     |                  |   |   |  |   |  
|Total                                                                              |  | $     | 779 |                 | $ | 587      |  | $        | 191 |                  | $ |  |  | $ | 
|                                                                                   |  |       |     |                 |   |          |  |          |     |                  |   |   |  |   |  

Related Party Transactions

During 2005, we entered into agreements with a new customer, DevonWay, to provide licenses, consulting services, technical support services, and training.
Our Chairman, CEO and President, 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.

Our revenues from DevonWay for the three months ended March 31, 2006, are consulting revenues of $10,000, and services
and other revenue of $13,000. We had no revenues from DevonWay for the three months ended March 31, 2005. As of March 31, 2006, we did not have any accounts receivable due from DevonWay. As of December 31, 2005, we had accounts
receivable from DevonWay of $24,500. For the three months ended March 31, 2006, we received cash inflows from DevonWay of $32,000.

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 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.

See Note 8 of Notes to Condensed Financial Statements for more information about Promissory Notes we entered into with members of our Board of Directors
(or entities associated with them).



24



---

##### Table of Contents

See Note 13 of Notes to Condensed Financial Statements for information about our capital raising
transaction completed in March 2006, that included the sale of stock to members of our Board of Directors and Executive Officers (or entities associated with them).

Recent Accounting Pronouncements

On January 1, 2006, we adopted SFAS 123(R), which requires the
measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated
fair values. See Note 5 of Notes to Condensed Financial Statements for more information.

On January 1, 2006, we adopted 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

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the
derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective
for all financial instruments acquired or issued in financial years beginning after September 15, 2006. We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets to simplify accounting for
separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, SFAS No. 156
applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entitys fiscal year that begins after September 15, 2006, although early adoption is permitted. We do not expect our
adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.



25



---

##### Table of Contents

|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 40 of TenFolds 2005 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 March 31, 2006.



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

Evaluation of
Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
(Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by
paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Changes in Internal Control over Financial
Reporting. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



26



---

##### Table of Contents

PART II. OTHER INFORMATION

Except as listed below, other items in Part II are omitted because the items are inapplicable or require no response.



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

See Part I, Item 1, Note 9
of Notes to Condensed Financial Statements for a description of legal proceedings.



|Item 1A. | Risk Factors
|-------- | ------------

Reference is made to Part I,
Item 1A Risk Factors, appearing on page 18 of TenFolds 2005 Annual Report on Form 10-K for information relating to TenFolds risk factors. There have been no material changes in such risks through March 31, 2006. The
risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
position, results of operations or cash flows.



27



---

##### Table of Contents

|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

On March 29, 2006, we entered into a Securities Purchase Agreement for the sale of 1,500,000 shares of unregistered convertible preferred stock and warrants. The preferred shares are convertible into 20,315,805 shares of common stock.
The warrants are to purchase 10,157,899 shares of common stock at an exercise price of $0.62 per share, with a 5 year term. The transaction generated gross proceeds of approximately $6.3 million (before expenses and repayment of $1.1 million of
interim financing obligations). Several members of our Board of Directors (or investment entities associated with them) and an Executive Officer participated in the transaction, providing a total of approximately $4.7 million of the gross proceeds
raised:



| |  |  | Robert W. Felton Trust invested $2 million. We repaid $709,000 of interim financing to Mr. Felton, our Chairman, President, and Chief Executive Officer, from the proceeds of
the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | First Media TF Holdings LLC, an investment entity associated with TenFold Director Ralph W. Hardy Jr., invested $2 million. We repaid $205,000 of interim financing to First Media TF
Holdings LLC from the proceeds of the capital raising.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TenFold Director Steven H. Coltrin invested $500,000. We used approximately $206,000 of the proceeds of the capital raising to pay accounts payable due to his firm,
Coltrin & Associates, for marketing and public relations work provided to TenFold in earlier periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Samer Diab, Vice President, Customer Services, invested $230,000.
| | - |  | -----------------------------------------------------------------

The other purchasers under the Securities Purchase Agreement were GMS Family Investors LLC, Jon M. Huntsman, Ronald Mika and Rationalwave Onshore Equity Fund L.P.

We also repaid $205,000 of interim financing to Wasatch Investments LLC, an investment entity associated with TenFold Director Robert E. Parsons, Jr.,
from the proceeds of the capital raising.

The sale of unregistered securities listed above were made to accredited investors
pursuant to the exemption from registration provided in Rule 506, which is part of Regulation D under the Securities Act of 1933.



28



---

##### Table of Contents

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



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



|       |  |                                                                                                                                                 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                     
|       | 
|3.3**  |  | Certificate of Designations of Convertible Preferred Class A Stock. (1)                                                                         
|       | 
|4.6**  |  | Form of Securities Purchase Agreement dated March 29, 2006, between Registrant and purchasers of securities. (1)                                
|       | 
|4.7**  |  | Form of Warrant issued pursuant to the Securities Purchase Agreement, dated March 29, 2006, between Registrant and purchasers of securities. (1)
|       | 
|11*    |  | Computation of Shares used in Computing Basic and Diluted Net Loss Per Share.                                                                   
|       | 
|31.1   |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                         
|       | 
|31.2   |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                         
|       | 
|32.1   |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                         
|       | 
|32.2   |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                         



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



|** | Previously filed
|-- | ----------------



|1) | Filed on March 31, 2006 as an exhibit to the Companys Annual Report on Form 10-K and incorporated by reference.
|-- | ----------------------------------------------------------------------------------------------------------------



29



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                                                                          
|--------------------------------------------------------------------------
|TenFold Corporation                                                       
|                                                                          
|/s/ Robert W. Felton                                                      
|Robert W. Felton                                                          
|Chairman of the Board of Directors, President, and Chief Executive Officer
|                                                                          
|May 15, 2006                                                              
|                                                                          
|/s/ Robert P. Hughes                                                      
|Robert P. Hughes                                                          
|Chief Financial Officer and Chief of Staff                                
|                                                                          
|May 15, 2006                                                              



30