##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)



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



For the quarterly period ended September 30, 2003



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



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TenFold Corporation

(Exact name of registrant as specified in its charter)



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|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)          



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    Yes ̈No  x



As of September 30, 2003, there
were 40,936,857 shares of the registrants Common Stock outstanding.



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##### Table of Contents

INDEX



| |  |           |  |         |  |                                                                                                                               |  | Page
| |  | --------- |  | ------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ----
| |  |           |  |        
| |  |           |  |         |  | Forward-Looking Statements                                                                                                    |  | 3   
| |  |           |  |        
| |  | PART I.   |  |         |  | FINANCIAL INFORMATION                                                                                                         |  |     
| |  |           |  |        
| |  |           |  | Item 1. |  | Condensed Consolidated Financial Statements                                                                                   |  |     
| |  |           |  |        
| |  |           |  |         |  | Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002                                             |  | 4   
| |  |           |  |        
| |  |           |  |         |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and September 30, 2002 |  | 5   
| |  |           |  |        
| |  |           |  |         |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002           |  | 6   
| |  |           |  |        
| |  |           |  |         |  | Notes to Condensed Consolidated Financial Statements                                                                          |  | 7   
| |  |           |  |        
| |  |           |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 18  
| |  |           |  |        
| |  |           |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 46  
| |  |           |  |        
| |  |           |  | Item 4. |  | Controls and Procedures                                                                                                       |  | 46  
| |  |           |  |        
| |  | PART II.  |  |         |  | OTHER INFORMATION                                                                                                             |  |     
| |  |           |  |        
| |  |           |  | Item 1. |  | Legal Proceedings                                                                                                             |  | 47  
| |  |           |  |        
| |  |           |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                              |  | 48  
| |  | Signature |  |         |  |                                                                                                                               |  | 49  



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FORWARD-LOOKING STATEMENTS



This
Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as
expects, intends, anticipates, should, believes, will, plans, estimates, may, variations of such words, and similar expressions are intended
to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. Our future prospects are difficult to evaluate.
There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These factors include: ability to generate sufficient cash flow or secure additional sources of financing; the
ability to generate future customer revenue; if we file for bankruptcy protection or sell all or substantially all of our assets it is unlikely that existing shareholders would receive any value for their shares; our errors and omissions insurance
coverage may not cover contractual disputes; defects or other limitations in our software; complaints filed by customers, shareholders, or other third parties and other litigation or disputes; inability or failure to meet certain contractual
obligations; variability of quarterly operating results; ability to adequately anticipate employee and resource utilization rates; lengthy and variable sales cycles; dependence on a small number of customers; revenues have historically come from a
small number of industries; ability to license EnterpriseTenFold and other software products; attraction, training, and retention of employees and key management; protection of intellectual property; international political and economic uncertainty;
a majority of our stock is owned by a few persons; and other competitive factors. Such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions including interest
rate and currency exchange rate fluctuations and other factors. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in documents
filed by TenFold Corporation with the Securities and Exchange Commission, including but not limited to, the most recent reports on Forms 10-Q and 10-K. Some of these factors are described in this Form 10-Q under the section entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations  Factors That May Affect Future Results and Market Price of Stock.



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements



TENFOLD CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                 |  | September 30, |         |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ------------ | -
|                                                                                                                                                 |  | 2003          |         |   | 2002         |  
|Assets                                                                                                                                           |  |               |         |   |              |  
|Current assets:                                                                                                                                  |  |               |         |   |              |  
|Cash and cash equivalents                                                                                                                        |  | $             | 4,266   |   |              | $
|Accounts receivable, (net of allowances for doubtful accounts of $296 and $296, respectively)                                                    |  |               | 288     |   |              |  
|Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)                                               |  |               | 231     |   |              |  
|Prepaid expenses and other assets                                                                                                                |  |               | 340     |   |              |  
|Income taxes receivable                                                                                                                          |  |               |        |   |              |  
|Other assets, (net of allowances of $158 and $158, respectively)                                                                                 |  |               | 2,010   |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total current assets                                                                                                                             |  |               | 7,135   |   |              |  
|                                                                                                                                                 |  |              
|Restricted cash                                                                                                                                  |  |               | 73      |   |              |  
|Property and equipment, net                                                                                                                      |  |               | 891     |   |              |  
|Other assets                                                                                                                                     |  |               |        |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total assets                                                                                                                                     |  | $             | 8,099   |   |              | $
|                                                                                                                                                 |  |               |         |   |              |  
|Liabilities and Stockholders Deficit                                                                                                            |  |               |         |   |              |  
|Current liabilities:                                                                                                                             |  |               |         |   |              |  
|Accounts payable                                                                                                                                 |  | $             | 1,935   |   |              | $
|Income taxes payable                                                                                                                             |  |               | 1,728   |   |              |  
|Accrued liabilities                                                                                                                              |  |               | 6,359   |   |              |  
|Deferred revenue                                                                                                                                 |  |               | 7,550   |   |              |  
|Current installments of obligations under capital leases                                                                                         |  |               | 37      |   |              |  
|Other current liabilities                                                                                                                        |  |               | 2,000   |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total current liabilities                                                                                                                        |  |               | 19,609  |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Long-term liabilities:                                                                                                                           |  |               |         |   |              |  
|Other long-term liabilities                                                                                                                      |  |               |        |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total long-term liabilities                                                                                                                      |  |               |        |   |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Contingencies (Note 9)                                                                                                                           |  |               |         |   |              |  
|                                                                                                                                                 |  |              
|Stockholders deficit:                                                                                                                           |  |               |         |   |              |  
|Common stock, $0.001 par value:                                                                                                                  |  |               |         |   |              |  
|Authorized: 120,000,000 shares Issued and outstanding shares: 40,936,857 shares at September 30, 2003 and 37,382,080 shares at
December 31, 2002 |  |               | 41      |   |              |  
|Additional paid-in capital                                                                                                                       |  |               | 66,791  |   |              |  
|Deferred compensation                                                                                                                            |  |               | (41     | ) |              |  
|Accumulated deficit                                                                                                                              |  |               | (78,301 | ) |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total stockholders deficit                                                                                                                      |  |               | (11,510 | ) |              |  
|                                                                                                                                                 |  |               |         |   |              |  
|Total liabilities and stockholders deficit                                                                                                      |  | $             | 8,099   |   |              | $
|                                                                                                                                                 |  |               |         |   |              |  



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



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TENFOLD CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                                                  |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                                  |  | 2003                            |        |   | 2002                           |  
|Revenues:                                                                                         |  |                                 |        |   |                                |  
|License                                                                                           |  | $                               | 11     |   |                                | $
|Subscription                                                                                      |  |                                 |       |   |                                |  
|Services and other                                                                                |  |                                 | 4,547  |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Total revenues                                                                                    |  |                                 | 4,558  |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Operating expenses:                                                                               |  |                                 |        |   |                                |  
|Cost of revenues                                                                                  |  |                                 | 2,905  |   |                                |  
|Sales and marketing                                                                               |  |                                 | 298    |   |                                |  
|Research and development                                                                          |  |                                 | 862    |   |                                |  
|General and administrative                                                                        |  |                                 | 697    |   |                                |  
|Special charges                                                                                   |  |                                 | (673   | ) |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Total operating expenses                                                                          |  |                                 | 4,089  |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Income (loss) from operations                                                                     |  |                                 | 469    |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Other income (expense):                                                                           |  |                                 |        |   |                                |  
|Interest income                                                                                   |  |                                 | 11     |   |                                |  
|Interest expense                                                                                  |  |                                 | (16    | ) |                                |  
|Other income                                                                                      |  |                                 | 8      |   |                                |  
|Gain on retirement of debt                                                                        |  |                                 |       |   |                                |  
|Gain (loss) on sale of subsidiaries                                                               |  |                                 |       |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Total other income (loss), net                                                                    |  |                                 | 3      |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Income (loss) before income taxes                                                                 |  |                                 | 472    |   |                                |  
|Provision (benefit) for income taxes                                                              |  |                                 |       |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Net income (loss)                                                                                 |  | $                               | 472    |   |                                | $
|                                                                                                  |  |                                 |        |   |                                |  
|Basic earnings (loss) per common share                                                            |  | $                               | 0.01   |   |                                | $
|                                                                                                  |  |                                 |        |   |                                |  
|Diluted earnings (loss) per common share                                                          |  | $                               | 0.01   |   |                                | $
|                                                                                                  |  |                                 |        |   |                                |  
|Weighted average common and common equivalent shares used to calculate earnings (loss) per share: |  |                                 |        |   |                                |  
|Basic                                                                                             |  |                                 | 40,913 |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  
|Diluted                                                                                           |  |                                 | 49,337 |   |                                |  
|                                                                                                  |  |                                 |        |   |                                |  



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



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TENFOLD CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                                   |  | Nine Months EndedSeptember 30, |        
|-------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                                                   |  | 2003                           |        
|Cash flows from operating activities:                                                              |  |                                |        
|Net income (loss)                                                                                  |  | $                              | 12,825 
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                                |        
|Depreciation and amortization                                                                      |  |                                | 650    
|Impaired assets charge                                                                             |  |                                |       
|Provision for bad debts                                                                            |  |                                |       
|Amortization of deferred compensation                                                              |  |                                | 69     
|Gain on retirement of debt                                                                         |  |                                | (2,206 
|Gain on sale of assets                                                                             |  |                                | (111   
|Loss on sale of subsidiaries                                                                       |  |                                |       
|                                                                                                   |  |                               
|Changes in operating assets and liabilities:                                                       |  |                                |        
|Accounts receivable                                                                                |  |                                | 1,082  
|Unbilled accounts receivable                                                                       |  |                                | (200   
|Prepaid expenses and other assets                                                                  |  |                                | (46    
|Income taxes receivable                                                                            |  |                                | 17     
|Accounts payable                                                                                   |  |                                | 998    
|Income taxes payable                                                                               |  |                                | (15    
|Accrued liabilities                                                                                |  |                                | (77    
|Deferred revenues                                                                                  |  |                                | (12,778
|Other liabilities                                                                                  |  |                                | (53    
|                                                                                                   |  |                                |        
|Net cash provided by (used in) operating activities                                                |  |                                | 155    
|                                                                                                   |  |                                |        
|Cash flows from investing activities:                                                              |  |                                |        
|Proceeds from sale of property and equipment                                                       |  |                                | 135    
|Additions to property and equipment                                                                |  |                                | (98    
|Decreases to restricted cash                                                                       |  |                                | 65     
|                                                                                                   |  |                                |        
|Net cash provided by investing activities                                                          |  |                                | 102    
|                                                                                                   |  |                                |        
|Cash flows from financing activities:                                                              |  |                                |        
|Proceeds from employee stock purchase plan stock issuance                                          |  |                                | 6      
|Proceeds from common stock issuance                                                                |  |                                | 666    
|Exercise of common stock options                                                                   |  |                                | 149    
|Repurchase of common stock                                                                         |  |                                |       
|Principal payments on notes payable                                                                |  |                                |       
|Payments of notes receivable from stockholders                                                     |  |                                |       
|Principal payments on obligations under capital leases                                             |  |                                | (650   
|                                                                                                   |  |                                |        
|Net cash provided by (used in) financing activities                                                |  |                                | 171    
|                                                                                                   |  |                                |        
|Effect of exchange rate changes                                                                    |  |                                |       
|                                                                                                   |  |                                |        
|Net (decrease) increase in cash and cash equivalents                                               |  |                                | 428    
|Cash and cash equivalents at beginning of period                                                   |  |                                | 3,838  
|                                                                                                   |  |                                |        
|Cash and cash equivalents at end of period                                                         |  | $                              | 4,266  
|                                                                                                   |  |                                |        
|Supplemental disclosure of cash flow information:                                                  |  |                                |        
|Cash paid for income taxes                                                                         |  | $                              | 26     
|Cash paid for interest                                                                             |  | $                              | 6      



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



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TENFOLD CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. Basis of Presentation



The accompanying unaudited Condensed Consolidated Financial Statements
included herein have been prepared by TenFold Corporation (TenFold) pursuant to the rules and regulations of the Securities and Exchange Commission. In managements opinion, the interim financial data presented includes all
adjustments necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made in the prior periods financial statements to conform to the current periods
presentation. Certain information required by generally accepted accounting principles has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the three months and nine months
ended September 30, 2003 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2003.



This report should be read in conjunction with TenFolds audited Consolidated Financial Statements for the year ended December 31, 2002 included in
its Annual Report on Form 10-K filed with the Securities and Exchange Commission.



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, including for example, estimated project costs and
profitability and accounts receivable allowances. These assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.



TenFolds financial statements have been prepared under the assumption that TenFold will continue as a going concern. During 2001 and 2002, TenFold
experienced significant challenges as it transitioned from a vertical applications business to an applications platform company and continues to experience a difficult sales environment. The general downturn in the economy has caused a continuing
deterioration of demand for IT services and for application software across many industries. It is uncertain when market demand will fully recover.



In order to strengthen its financial foundation, TenFold restructured its operations through work force reductions, terminating leases or subleasing
facilities, negotiating significantly discounted debt retirements, and other operational cost-saving measures. TenFold made significant progress reducing operating cash outflows during 2001, 2002 and continuing into 2003. For the nine months ended
September 30, 2003, TenFolds change in cash was $428,000 compared to $(8.5) million for the same period of the prior year.



Although TenFold believes it has made good progress towards strengthening its financial foundation, substantial challenges and risks remain:



| |  | The independent auditors report on TenFolds December 31, 2002 financial statements, included an explanatory paragraph relating to their substantial doubt as to
TenFolds ability to continue as a going concern.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | TenFold is substantially dependent on a small number of large customers for most of its cash inflows. One of those customers, Allstate Corporation, completed its current use of
TenFolds time-and-materials consulting services on June 30, 2003 around their application, Interlink, which has been in production since April 2001. TenFold continues to provide training and support services to Allstate, but does not expect
further significant cash inflows from additional time-and-materials consulting during the remainder of 2003.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | TenFold continues to face a challenging sales environment, and it is unclear when TenFold can expect to achieve significant sales to new customers.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | TenFold may need to raise additional capital in the near term, and it is unclear if additional sources of financing will be available upon acceptable terms.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | TenFold is overdue in paying some creditors who could take actions against TenFold.
| | - | -----------------------------------------------------------------------------------



| |  | TenFold may still have one outstanding former customer litigation matter with SkyTel Communications, Inc. In July 2003, the U.S. District Court dismissed the case without prejudice,
based on incorrect information, which TenFold immediately clarified for the Court. TenFold has not received any further notice. See Note 9 for more information.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



TenFold believes that it is continuing to appropriately manage and reduce or eliminate these risks. However, there can be no
assurance that TenFold will be successful, and if these risks have a materially adverse affect on its cash flow, it could have insufficient cash flow to continue operations beyond the near term.



2. Revenue Recognition



TenFold derives revenues from license fees, subscription fees, applications development and implementation services,
support, and training services. License revenues consist of fees for licensing EnterpriseTenFold (formerly known as Universal Application) as an applications development tool, and license fees for applications that TenFold previously developed and
resold. Subscription revenue consists of fees for licensing EnterpriseTenFold, licensing new product releases of TenFolds ComponentWare, and in certain cases providing related time-and-material consulting, training, and support services during
a subscription period. Service revenues consist of fees for applications development and implementation, support and training. Other revenues include fees for reimbursement of out of pocket expenses incurred for customer projects.



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



TenFold generally enters into contracts that involve multiple elements, such as software products, enhancements, post-contract customer support (PCS), training, and time-and-material services. TenFold
allocates a portion of the contract fee to each undelivered element based on the relative fair values of the elements and allocates the fee for delivered software products using the residual method. The fair values of an element must be based on
vendor specific objective evidence (VSOE). TenFold establishes 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. TenFold bases 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 TenFold charges the customer in future periods.



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



For time-and-material contracts, TenFold generally estimates a profit range and recognizes 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-material contract or when the results can be estimated
more precisely.



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TenFold recognizes support revenue from contracts for ongoing technical support and product updates
ratably over the support period. TenFold recognizes training revenue as it performs the services.



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



TenFold recognizes license revenues from applications product sales and EnterpriseTenFold development and deployment 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: TenFold has signed a noncancellable license agreement with nonrefundable fees; TenFold has 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 applications license or EnterpriseTenFold development or deployment licenses are sold separately or when a an EnterpriseTenFold
license is sold with an applications development project. Services relating to the licenses typically only include post contract customer support services, or 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, TenFold recognizes license fees related to the application, and the applications development service fees, over time as TenFold performs 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. TenFold makes adjustments, if
necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses under the contract and as TenFold gains experience. Fixed-price project revenues are split between license and service based upon the relative
fair value of the components.



For certain projects, TenFold
limits revenue recognition in the period to the amount of project costs incurred in the same period, resulting in zero profit during the period, and postpones 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, TenFold recognizes revenue under the completed-contract method of contract accounting.



TenFold records billings and cash received in excess of revenue earned as deferred revenue. TenFolds deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to TenFold in advance of revenues earned, and from application of the zero profit margin methodology described above. TenFolds unbilled accounts receivable represents revenue
that TenFold has earned but which TenFold has not yet billed. TenFold bills customers as payments become due under the terms of the customers contract. TenFold considers current information and events regarding its customers and their
contracts and establishes allowances for doubtful accounts when it is probable that TenFold will be unable to collect amounts due under the terms of existing contracts.



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3. Earnings (Loss) Per Share



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



|                                                                                                   |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------
|                                                                                                   |  | 2003                            |        | 2002 |                                |       
|Numerator:                                                                                         |  |                                 |        |      |                                |       
|Numerator for basic earnings (loss) per share  net income (loss) available to common stockholders |  | $                               | 472    |      | $                              | (77   
|                                                                                                   |  |                                 |        |      |                                |       
|Numerator for diluted earnings (loss) per share                                                    |  | $                               | 472    |      | $                              | (77   
|                                                                                                   |  |                                 |        |      |                                |       
|Denominator:                                                                                       |  |                                 |        |      |                                |       
|Denominator for basic earnings (loss) per share  weighted average shares                          |  |                                 | 40,913 |      |                                | 37,337
|                                                                                                   |  |                                 |        |      |                                |       
|Employee stock options                                                                             |  |                                 | 8,424  |      |                                |      
|                                                                                                   |  |                                 |        |      |                                |       
|Denominator for diluted earnings (loss) per share                                                  |  |                                 | 49,337 |      |                                | 37,337
|                                                                                                   |  |                                 |        |      |                                |       
|Earnings (loss) per common share:                                                                  |  |                                 |        |      |                                |       
|Basic earnings (loss) per common share                                                             |  | $                               | 0.01   |      | $                              | (0.00 
|                                                                                                   |  |                                 |        |      |                                |       
|Diluted earnings (loss) per common share                                                           |  | $                               | 0.01   |      | $                              | (0.00 
|                                                                                                   |  |                                 |        |      |                                |       



Employee stock options
of 1,609,485 and 7,234,535 outstanding during the three and nine months ended September 30, 2003, respectively, that have a weighted average exercise price of $11.65 and $3.70 per share, respectively, and that could potentially dilute basic earnings
per share in the future, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods. Employee stock options of 12,543,186 outstanding during the three and nine months ended
September 30, 2002, that have a weighted average exercise price of $2.80, and that could potentially dilute basic earnings per share in the future, were not included in the computation of diluted earnings per share because to do so would have been
anti-dilutive for the periods.



4. Restricted Cash



Restricted cash at September 30, 2003 relates to $73,000 held to support
various accounts payable activities.



5. Comprehensive Income (Loss)



Comprehensive income (loss) for the three and nine months
ended September 30, 2003 and 2002, ignoring the insignificant impact of taxes on foreign currency translation, were as follows (in thousands):



|                             |  | Three Months Ended September 30, |     |      | Nine Months Ended September 30, |    
|---------------------------- |  | -------------------------------- | --- | ---- | ------------------------------- | ---
|                             |  | 2003                             |     | 2002 |                                 |    
|Net income (loss)            |  | $                                | 472 |      | $                               | (77
|Foreign currency translation |  |                                  |    |      |                                 | (5 
|                             |  |                                  |     |      |                                 |    
|Comprehensive income (loss)  |  | $                                | 472 |      | $                               | (82
|                             |  |                                  |     |      |                                 |    



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6. Stock-Based Compensation



TenFold applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25,Accounting for Stock Issued to Employeesand related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensationan Interpretation of APB Opinion No. 25
issued in March 2000, to account for its stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123,Accounting for
Stock-Based Compensationestablished accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, TenFold has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. TenFold has also adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure  an amendment of FASB Statement No. 123, into these financial statements and related notes.



Had compensation expense for TenFolds stock option plan and the employee stock purchase plan been determined based on the fair value at the grant
date for awards or purchase rights under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock Based Compensation, TenFolds net income (loss) for the three and nine months ended September 30,
2003 and 2002 would have been as follows (in thousands except per share information):



|                                                                                                                                            |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                                                                            |  | 2003                            |        |   | 2002                           |  
|Net income (loss) applicable to common stock  as reported                                                                                  |  | $                               | 472    |   |                                | $
|Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects                           |  |                                 | 21     |   |                                |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related
tax effects |  |                                 | (1,584 | ) |                                |  
|                                                                                                                                            |  |                                 |        |   |                                |  
|Net income (loss) applicable to common stock  pro forma                                                                                    |  | $                               | (1,091 | ) |                                | $
|                                                                                                                                            |  |                                 |        |   |                                |  
|Earnings (loss) per common share  as reported                                                                                              |  |                                 |        |   |                                |  
|Basic                                                                                                                                       |  | $                               | 0.01   |   |                                | $
|                                                                                                                                            |  |                                 |        |   |                                |  
|Diluted                                                                                                                                     |  | $                               | 0.01   |   |                                | $
|                                                                                                                                            |  |                                 |        |   |                                |  
|Earnings (loss) per common share  pro forma                                                                                                |  |                                 |        |   |                                |  
|Basic                                                                                                                                       |  | $                               | (0.03  | ) |                                | $
|                                                                                                                                            |  |                                 |        |   |                                |  
|Diluted                                                                                                                                     |  | $                               | (0.03  | ) |                                | $
|                                                                                                                                            |  |                                 |        |   |                                |  



The effect of SFAS No.
123 on pro forma net income (loss) and net income (loss) per share for the three and nine months ended September 30, 2003 and 2002 may not be representative of the effects on pro forma results in future years.



7. Income Taxes



There was no provision for income taxes for the three months ended September 30, 2003, as no provision was necessary based
upon results for the period. The provision for income taxes for nine months ended September 30, 2003 relates primarily to foreign taxes and reversing a portion of our valuation allowance attributable to the current operating income. The benefit for
income taxes for the nine months ended September 30, 2002 relates primarily to reversing accrued Federal alternative minimum taxes from 2001 due to tax legislation enacted in 2002.



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The valuation allowance as of September 30, 2003 was recorded in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires that a valuation allowance be established when there is significant uncertainty as to the realizability of deferred tax
assets.



8. Commitments



TenFold has commitments under long-term operating leases for office space.
Future minimum lease payments under non-cancelable operating lease obligations, in excess of one year and excluding obligations accrued as part of restructurings, at September 30, 2003 are as follows (in thousands):



|Year                            |  | Amount
|------------------------------- |  | ------
|Q4 2003                         |  | $     
|2004                            |  |       
|2005                            |  |       
|2006                            |  |       
|2007                            |  |       
|Thereafter                      |  |       
|                                |  |       
|Total minimum lease commitments |  | $     
|                                |  |       



Operating lease
commitments for properties that have been restructured are included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet at September 30, 2003. See Note 10 for more information.



TenFold previously had significant capital lease obligations from equipment
leases it had entered into in prior years. During the three months ended March 31, 2003, TenFold executed agreements with its two major equipment lessors to buy out and fully retire their equipment lease debt at a substantial discount, and return
substantially all the related equipment. TenFold has recognized the difference between the amount paid to retire these lease obligations and the carrying amount of the lease obligations as a gain on retirement of debt of approximately $2.2 million
in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2003.



9. Legal Proceedings and Contingencies



Customer Dispute



SkyTel



In March 2001, SkyTel Communications, Inc. (SkyTel) orally informed TenFold of its intent to terminate the Master Software License and
Services Agreement between SkyTel and TenFold (the SkyTel Agreement). On May 15, 2001, SkyTel sent TenFold a letter purporting to terminate the SkyTel Agreement based on TenFolds alleged material breach of the SkyTel Agreement.
SkyTels letter also demands a refund of approximately $11 million paid by SkyTel. On September 24, 2001, SkyTel filed a complaint against TenFold in the First Circuit Court of the First Judicial District of Hinds County, Mississippi. The case
was subsequently removed to U.S. District Court for the Southern District of Mississippi. SkyTel seeks monetary damages of at least $17.5 million, plus other damages it may prove at trial, together with pre- and post-judgment interest,
attorneys fees and expenses and costs. On November 13, 2001, TenFold filed an answer denying the material allegations of the complaint. TenFold also filed a counterclaim for unpaid fees and SkyTels disclosure of confidential information.
TenFolds counterclaim seeks damages of at least $7 million and punitive damages of at least $10 million. The total contract value involved in this customer dispute is approximately $17.6 million, of which $11.4 million has been received by
TenFold to date. During the three and nine months ended September 30, 2003 and 2002, TenFold recognized no revenue from the SkyTel Agreement.



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The parties stayed discovery and attempted negotiations to settle the dispute. However, resolution has
been impeded by the bankruptcy filing of SkyTel and its parent company, WorldCom, Inc. TenFold believes that its supplemental extended reporting period insurance policy covers some of the damages that may arise in the dispute. TenFolds
insurance carrier has authorized a settlement offer that has been communicated to SkyTel. TenFold has recorded an other current liability to SkyTel for the offer, and an other current asset in the same amount for the receivable from the insurance
carrier, in the accompanying balance sheet. Although, if the offer is accepted, the payment from the insurance carrier would be made directly from the insurance carrier to SkyTel and none of the funds would flow through TenFold. An unfavorable
outcome in the matter may have a material adverse impact on TenFolds business, results of operations, financial position, or liquidity.



On July 14, 2003, the Court entered an order dismissing the case without prejudice based on incorrect information, which TenFold immediately clarified for
the Court. TenFold has received no further notice from the Court. The Court retains jurisdiction to reopen the action upon motion of the parties.



As a result of the SkyTel matter noted above, TenFold has provided an allowance for doubtful accounts of $296,000 related to billed accounts receivable,
as of September 30, 2003.



Summary and Insurance



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



On March 1, 2001, TenFold secured an industry-standard, errors and omissions policy that covers claims made after March 1,
2001. TenFold renewed this policy on March 1, 2002 and again on March 1, 2003. TenFolds new policy excludes contractual related disputes such as cost and time guarantees, and only covers software errors or omissions that occur after the
delivery of software. TenFold believes this policy provides adequate coverage for potential damages related to errors and omissions in TenFolds delivered software.



Stockholder Matters



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 its officers and directors, and certain underwriters of TenFolds initial public offering. An amended complaint was filed on April 24, 2002. TenFold and its 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



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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, TenFolds Board of Directors ratified its committees conditional approval of 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 conduct alleged in the action to be wrongful in the Amended Complaint. TenFold would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release
certain potential claims TenFold may have against its underwriters. Any direct financial impact of the proposed settlement is expected to be borne by TenFolds insurers. The committee agreed to approve the settlement subject to a number of
conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of TenFolds insurers to the settlement, and the completion of acceptable final settlement documentation.
Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the litigation. However, due to the inherent uncertainties of litigation, TenFold cannot accurately predict the ultimate outcome of the litigation.
If there is an unfavorable outcome, there may be a material adverse impact on TenFolds business, results of operations, financial position, or liquidity.



Indemnifications and Warranties



As permitted under Delaware law, and as provided in agreements with its officers and Directors, TenFold has 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 TenFold could be required to make under these indemnification provisions is unlimited. However,
TenFold has purchased Directors and Officers insurance policies that reduce its monetary exposure and enable it to recover a portion of any future amounts paid. As a result of this insurance coverage, TenFold believes the estimated fair
value of these indemnification agreements is not material.



TenFolds agreements with customers generally require TenFold to indemnify the customer against claims that TenFolds 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, TenFold has not incurred costs to defend lawsuits
or settle claims related to these indemnification agreements, and no such claims were outstanding at September 30, 2003. As a result, TenFold has not recorded a liability for infringement costs as of September 30, 2003.



TenFolds agreements with customers also generally provide a warranty
that for so long as the customer is paying for support services, TenFolds software will materially conform to the related documentation, and that TenFolds software has been developed in a workmanlike manner. To date, TenFold has not
incurred significant warranty costs. As a result, TenFold has not recorded a liability for warranty costs as of September 30, 2003.



10. Special Charges



Special charges for the three and nine months ended September 30, 2003 include restructuring charge adjustments of $(578,000) and asset loss impairment
adjustments of $(95,000). Special charges for the three months ended September 30, 2002 include restructuring charges of $1.1 million. Special charges for the nine months ended September 30, 2002 include restructuring charges of $1.7 million and a
$24,000 asset impairment charge.



2003 Restructuring
Charges. During the three and nine months ended September 30, 2003, TenFold recorded restructuring charge adjustments of $(578,000) to reduce previously accrued restructuring charges for negotiated reductions in remaining lease payments due for
unoccupied properties, and to reflect higher sublease income received than previously estimated.



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2003 Asset Impairment Charges. During the three and nine months ended September 30, 2003, TenFold
recorded asset loss provision adjustments of $(95,000) to eliminate remaining estimated asset loss accruals that were no longer necessary upon TenFold completing its return of previously leased equipment.



2002 Restructuring Charges. During the three and nine months ended
September 30, 2002, TenFold incurred restructuring charges of $1.1 million and $1.7 million, respectively, including $1.1 million, related to termination of the unoccupied portions of TenFolds South Jordan Utah headquarters lease, and
$562,000, related to adjustments made to prior restructuring estimates.



2002 Asset Impairment Charges. During the nine months ended September 30, 2002, TenFold identified $24,000 of fixed assets that had no future value to TenFold and were no longer in active use, and accordingly recorded an asset
impairment charge of $24,000 for the nine months ended September 30, 2002.



Restructuring reserves are included in accounts payable and accrued liabilities at September 30, 2003. Detail of the restructuring charges as of and for the nine months ended September 30, 2003 are summarized below
(in thousands):



|                       |  | Balance atDecember 31,2002 |       | NewCharges |   | Adjustments |  |   | Utilized |   |  | Balance at September 30,2003
|---------------------- |  | -------------------------- | ----- | ---------- | - | ----------- |  | - | -------- | - |  | ----------------------------
|Restructuring Charges: |  |                            |       |            |   |             |  |   |          |   |  |                             
|Facilities related     |  | $                          | 1,565 |            |   |            |  |   | (578     | ) |  |                             
|                       |  |                            |       |            |   |             |  |   |          |   |  |                             
|                       |  | $                          | 1,565 |            | $ |            |  | $ | (578     | ) |  | $                           
|                       |  |                            |       |            |   |             |  |   |          |   |  |                             



TenFold has estimated
future sublease income which reduces future facility related charges, including lease obligations. TenFold considered current market conditions including current lease rates in the respective geographic regions, vacancy rates, and costs associated
with subleasing when estimating future sublease income. Variances between expected and actual sublease income have previously and may continue to result in restructuring charge adjustments in future periods.



11. Operating Segments



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



Revenues from customers
outside of North America were approximately 47 percent of total revenues for the three months ended September 30, 2003 as compared to 13 percent of total revenues for the same period in 2002. For the nine months ended September 30, 2003, revenues
from operations outside of North America were approximately 28 percent as compared to 21 percent of total revenues for the same period in 2002. TenFolds long-lived assets are deployed in the United States.



Two customers accounted for 44 percent and 42 percent of TenFolds total
revenues for the three months ended September 30, 2003, compared to two customers accounting for 64 percent and 18 percent of TenFolds total revenues for the same period in 2002. For the nine months ended September 30, 2003, three customers
accounted for 47 percent, 22 percent, and 22 percent of TenFolds total revenues, compared to two customers accounting for 62 percent, and 11 percent of TenFolds total revenues for the same period in 2002. No other single customer
accounted for more than 10 percent of TenFolds total revenues for the three or nine months ended September 30, 2003 or the same periods in 2002. TenFold continues to provide training and support services to the customer accounting for 47% of
TenFolds total revenues for the nine months ended September 30, 2003, but this customer is not expected to account for a significant percentage of ongoing revenues after the quarter ended June 30, 2003 since the subscription period for the
customers prior contract concluded along with its purchase of time-and-materials consulting services for application implementation.



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12. Recent Accounting Pronouncements



In June 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. TenFold adopted the provisions of SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 did not have a material impact on TenFolds results of operations and financial position.



In May 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar
to sale-leaseback transactions are accounted for in the same manner as sale-leaseback transactions. In addition, SFAS No. 145 makes technical corrections to some existing pronouncements. TenFold adopted the provisions related to the rescission of
Statements 4 and 64 on January 1, 2003, and for all transactions entered into beginning May 15, 2002 adopted the provision related to the amendment of Statement 13. The adoption of SFAS No. 145 did not have a material impact on TenFolds
results of operations and financial position.



In July 2002,
the FASB issued SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. 94-3. TenFold adopted the provisions of SFAS No. 146 for exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material impact on TenFolds results of operations and financial position.



In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides
guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material impact on TenFolds results of operations and financial position.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Guarantees of Indebtedness to Others, an Interpretation of FASB Statements No. 5, 57, and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual
periods ending after December 15, 2002. The adoption of Interpretation No. 45 did not have a material impact on TenFolds results of operations and financial position.



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In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure  an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and have been incorporated into these financial statements and
related notes.



In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation
applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The adoption of Interpretation No. 46 did not have a
material impact on TenFolds results of operations and financial position.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on TenFolds
results of operations and financial position.



In May 2003, the
FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance may have been
accounted for as equity, must now be accounted for as liabilities (or an asset in some circumstances). The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy
back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. This Statement is effective for all such financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 was adopted in the quarter ended June 30, 2003 and did not have a material impact on TenFolds results of operations or financial position.



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



Business Overview



TenFold is the provider of EnterpriseTenFold, a software applications platform that reduces enterprise applications design, development, deployment, and maintenance timeframes and costs.
EnterpriseTenFold (formerly known as Universal Application) automates most of what applications programmers typically do, and empowers small teams of business people and IT professionals to design, build, test, deploy, and maintain complex,
transaction-intensive applications, with significantly reduced demand on scarce IT resources as compared to other applications development approaches. Using a small team of business people supplemented with IT professionals for rapid applications
development is a radical change from the industry-standard approach that relies on large teams of IT professionals who expend significant person years of effort to design, program, test, change, and deploy enterprise applications. Customers get
high-quality, complex enterprise applications into production faster and at significantly lower cost with EnterpriseTenFold than with other applications development technologies.



We believe EnterpriseTenFold has two unique attributes that make building complex, database-intensive and
transaction-intensive applications substantially cheaper, easier, and faster than traditional applications development methodologies. First, because EnterpriseTenFold automates most of what applications programmers typically do and automatically
includes advanced applications functionality, customers get more powerful, higher quality applications faster and at a fraction of the cost of traditional programming approaches. Second, since TenFold-powered applications development provides a tool
and methodology that business people can effectively use, it enables organizations to directly leverage their business experience and insight and to adapt applications easily to meet changing business requirements.



We believe EnterpriseTenFold offers three unique benefits to its customer.



| | 1. | Speed. EnterpriseTenFold lets a small team of business people and IT professionals build and enhance high-quality, high-performance, powerful applications very quickly.
EnterpriseTenFold lets a trained team build a complex application at least ten times faster than with any other technology because building an application requires only describing applications features and functionality. Other applications
development technologies also let you build and enhance applications, but most require large teams of programmers, take longer, and are risky for complex applications. The high failure rate of most complex applications development projects suggests
that other applications development technologies often lead to project cost and schedule overruns, applications quality problems, and sometimes project cancellations.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Quality. EnterpriseTenFold includes the TenFold RenderingEngine which renders an application from its description. No one writes or tests newly-written code in the building
of an application. Thus, it is unlikely for the application to have defects. A TenFold-powered application always works  just as you described for it to work; it may not do what you want but it does do what your description says for it to do.
TenFold-powered systems are much higher quality than most other applications.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Power. The TenFold RenderingEngine contains thousands of features that make any TenFold-powered application much more functionally-rich than the same application that a
programmer-staffed applications development team could pragmatically afford to build. TenFold-powered applications have thousands of clever, powerful features unavailable in most other applications.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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While there are many companies supplying applications development tools, we know of no other applications
platform supplier with technology powerful enough to address the scale and robustness of the complex applications that we and our customers have built and taken into production using EnterpriseTenFold.



Business History



We founded TenFold in 1993. We spent the first several years primarily developing our patented Universal Application
technology (Universal Application was recently re-branded as EnterpriseTenFold as described in more detail below). In 1996, we began using Universal Application to build applications for customers. In 1999, we completed our initial public offering.
In 1999 and early 2000, we tested a new business model which included selling large custom application development projects with a unique-in-the-industry money back guarantee, and simultaneously structuring the company to launch and
build on an accelerated time frame eight separate vertical market facing applications product companies. Beginning in 2000, we experienced several difficult quarters and faced significant financial, legal, and operational issues. We incurred
substantial, increasing losses from operations in the last three quarters of 2000, including a $55 million operating loss in the fourth quarter of 2000.



Starting in the second half of 2000 and continuing through today, we have taken steps to refocus TenFold to its roots as a Universal Application
technology company, deal with the liabilities that arose as a result of the interim business model, and restore the company to sound business health.



During 2001, we refocused TenFold back to being a technology company. We consolidated operations into one corporate organization to reduce costs and
improve our core delivery and operational infrastructure. We significantly reduced our operating costs through headcount reductions, lease renegotiations and terminations, and other cost-control measures. During 2001, we improved customer
satisfaction and sold additional products and services to existing customers. We began promoting the Universal Application to customers desiring to use it to build applications. In November 2001, we entered into an expanded relationship with
Allstate Insurance Company (Allstate), which represented our first significant transaction under our new sales and business model.



During 2002, we continued disciplined execution of our business turnaround and built the business and marketing foundation for our emergence as a growth
technology company by continuing to meet customer expectations and establishing new Universal Application sales and marketing channels. We made substantial improvements in our business positioning and operations as part of a comprehensive turnaround
effort. We significantly reduced quarterly cash outflows with the goal of providing a cash flow positive basis for continuing operations by: renegotiating several major property leases thereby reducing immediate cash obligations and reducing our
long-term obligations by over $51 million in the aggregate; retiring our entire bank debt by making payment of a substantially reduced amount; and, continuing operational restructuring to better align capacity with current cash flow. We continued to
settle legacy litigation matters, bringing to a total of ten the number of disputes related to our interim business model that were satisfactorily settled without any admission of fault or payment by us except for the self-insurance retentions;
entered into an agreement to settle a shareholder lawsuit that subsequently settled in 2003; and, concluded a settlement with the Securities and Exchange Commission without paying any fine or civil penalty or needing to restate our financial
statements.



During 2002, we continued to reach important
milestones with key customers. We provided Universal Application technology and supporting services to 21 customers, 16 of whom have Universal Application-powered applications in production. Since we began operation in 1993, we have provided
licenses, and applications development, support and training services to over 50 customers in financial services, insurance, healthcare, and other vertical markets. Many of our customers are leaders in these markets.



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We made progress in establishing strategic distribution alliances and value added resellers
(VAR) relationships that we believe will accelerate and broaden market distribution of Universal Application for us at a significantly lower cost and greater speed than we could achieve on our own. During 2002, we entered into
distribution relationships including :



| |  | a strategic alliance with a global systems integrator, Sapient Corporation;
| | - | ---------------------------------------------------------------------------



| |  | a strategic alliance with Perot Systems Corporation, focused around accelerated penetration of the healthcare industry; and, with
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| |  | YouDevise Limited (formerly TenFold Systems UK Limited), which will distribute TenFold products and provide services to UK customers.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



During 2002, we began to enter into VAR relationships around Universal
Application-powered applications. Under these VAR relationships:



| |  | 3Genesis will resell a Universal Application-powered customer management, billing, and financial management application in the communications industry worldwide;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | PCX Systems, LLC (PCX Systems), a subsidiary of Cedars-Sinai Medical Center, will resell Universal Application in connection with the sale of the Patient Care Expert
application in the hospital and healthcare provider market globally;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Redi2 Corporation will resell TenFold Revenue Manager to investment managers;
| | - | -----------------------------------------------------------------------------



| |  | Vertex, a UK-based utility sector customer management and billing company will resell the utility and telecommunications industries focused customer management and billing
application, Generic Billing System (GBS), to their customers and others in the utility and telecommunications industries. In late 2002, Vertex completed its first sale of GBS to a large water company in the UK.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a consequence of these and other steps, our business performance during
2002 continued to improve as reflected in several key financial metrics, including that quarterly operating and net losses were changed from losses to profits for the fourth quarter of 2002 and we generated cash from operations in the fourth quarter
of 2002.



Year-to-Date 2003 Highlights



In 2003, we continue to complete key steps of our business turnaround. In
February 2003, we reached agreement with our two major equipment leasing vendors to buy out and retire their remaining equipment leasing debt of approximately $2.9 million at a substantial discount. We have no further material equipment leases and
no further bank debt. In September 2003, we settled a lease dispute with one of the landlords of our two unoccupied offices and restructured our payments beginning October 2003 and continuing through the remaining lease term. In October 2003, we
completed negotiations with the other landlord on restructuring payment terms for the lease and are in the process of finalizing the new arrangement.



In February 2003, we reached agreement with Fusion Capital to terminate an unused $10 million equity line. In February 2003, Robert W. Felton, a long-time
TenFold director, made an investment of $700,000 in TenFold, by acquiring unregistered TenFold common stock.



During Q3, we began shipping our first major new product, the output of our project, code named Tsunami, announced in Q4 2002. Launching Tsunami to
entirely redesign and rewrite all customer-facing parts of TenFold technology was an important initiative of 2002. The Tsunami project makes a single-user version of our patented technology ubiquitously available from our web site. Tsunami includes
a script that lets a person following that script both learn Tsunami and build an enterprise application in a few hours, without support from TenFold. Early feedback from Tsunami indicates that Tsunami meets our objective of making it possible for
someone to discover on their own the unique Speed, Quality, and Power value proposition that TenFold offers. We expect our Tsunami distribution strategy to increase leads for our core product sales and to shorten sales cycles. During Q1, we met our
goal of releasing the Tsunami demonstration



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and we have conducted numerous demonstrations of Tsunami to audiences in many different cities. During Q2, we met our goal of releasing beta copies of
Tsunami for further testing. In September of 2003, we began shipping Tsunami to any qualified person who wanted to try it.



In September, we began a series of public announcements related to re-branding our Universal Application technology as EnterpriseTenFold.



On September 30, 2003, we announced the release of the next generation of our
EnterpriseTenFold product in conjunction with its re-branding. EnterpriseTenFold is a portable, multi-user applications development and deployment platform that contains all Tsunami technologies, including the intuitive and ergonomic user-interface
enhancements that enable a customer to use this technology productively with little or no training, as well as all prior Universal Application technologies. We believe that EnterpriseTenFold introduces to the industry the unique capability to
automatically produce complete applications documentation that matches the application, at any time, at the click of a mouse. EnterpriseTenFold adds multiple forms of XML support, Web services, Citrix MetaFrame support, Sun Java Virtual Machine
support, performance improvements for browser-based applications, and many more features described in detailed, accompanying EnterpriseTenFold ReleaseNotes. We believe that EnterpriseTenFold also significantly improves browser performance.



We have continued to build sales and marketing processes to
support our emergence as a growth technology company through three complementary sales and marketing related initiatives.



| |  | First, we are using alliance relationships with VARs, systems integrators and software distributors in the U.S. and international markets to broaden and accelerate our distribution.
We have an agreement with Sapient to provide significant services to support their implementation of GBS for Vertexs first GBS customer. We are delivering these services in part by working with our UK Reseller, YouDevise Limited (formerly
TenFold Systems UK Limited). During Q3 we expanded our alliance relationships. Best Practices, LLC, an applications developer for the small-to-medium company market, obtained an EnterpriseTenFold license and signed on as a Value Added Reseller.
Protech Computer Services, Inc. acquired an EnterpriseTenFold license to develop applications for the legal applications market and signed on as a Value Added Reseller. A global systems integrator conducted substantial technology due diligence,
determined that EnterpriseTenFold was the best choice for building a complex, mission critical application for a prospective global banking customer, sent a number of its executives through training and initiated a serious sales effort predicated on
EnterpriseTenFold as the proposed application development platform.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Second, we are using our small direct sales channel to prosecute specific sales opportunities focusing on selling small, paid VersionOne projects with new accounts as a low-risk
first step for potential customers to test EnterpriseTenFold for their application needs. VersionOne is our one- to two-week interactive consulting project during which one or two TenFold Speed Team members work with one or two customer developers
to design, build, fully-test, and demonstrate a complete, running, initial-version of a complex application. This new sales model is intended to accelerate closure of initial proof-statement projects including limited services and small development
licenses, which introduce new customers to TenFold, and lead toward larger development and deployment licenses. During Q3 and Q4, we have begun to see this approach yield new customers. In Q1 2003, one of those customers acquired a deployment
license to put their first TenFold-powered system into production.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Third, in the first few weeks since the release of the Beta version of the single user, PC version of EnterpriseTenFold, code-named Tsunami and available without charge during its
Beta program, over 200 individuals outside TenFold have installed Tsunami from tsunami.10fold.com. We believe the Beta process is demonstrating that Internet installation works smoothly, that our introduction scripts provide an expedient, capable
introduction to Tsunami, and that the users are finding this to be a positive introduction to TenFolds technology. In time, we expect Internet installation of Tsunami to become an important, low-cost, marketing and sales channel for us.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Companies using TenFold-powered applications in production today include, among others, Abbey National
Bank, Allstate Insurance, Barclays Global Investors, Cedars-Sinai Medical Center, Deutsche Bank, Dresdner Bank, Franklin Templeton, iplan networks, JP Morgan Chase, MedCath, Rand Technology, and Trinity. One customer has two separate TenFold-powered
applications in production. Specific customer updates include:



| |  | Allstate, a customer since September 1999, was TenFolds first customer to take advantage of TenFolds current business model and to use EnterpriseTenFold to build its own
application. Allstate continues to rollout its TenFold-powered internet-enabled policy rating application to more states and lines of business. This application, which has been in production since April 2001, currently does more than 175,000
transactions weekly for multiple lines of business in many states. On June 30, 2003, Allstate completed its current use of our time-and-materials consulting services. We expect to continue to provide training and support services to Allstate, but do
not expect significant further cash inflows from related time-and-materials services in 2003. The subscription period for the prior Allstate contract concluded during the quarter ended June 30, 2003. We do not expect to recognize significant
revenues from Allstate in the remaining quarters of 2003. In July 2002, we notified Allstate of certain breaches by Allstate of our Agreement, as amended. We continue to work with Allstate to resolve these matters.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We continue to assist JP Morgan Chase, under a time-and-materials agreement, as it rolls the global securities lending application, Securities Lending Express, into production and
decommissions multiple legacy systems.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We continue to provide support to iplan networks of Argentina, which has had the TenFold-powered Enterprise Relationship Manager application that includes sales management, customer
support, customer relationship management, incident tracking, and provisioning tailored to the communications industry, in production since September 2001.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As part of our ongoing relationship with Vertex, a UK-based utility sector customer management and billing company, we provide support, training and other professional services. We
continue to work with Vertex as they progress on the implementation of a TenFold-powered customer management and billing application, Generic Billing System (GBS), for their initial water company customer.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As part of our continuing relationships with the global systems integrator Sapient, and with our UK reseller, YouDevise Limited, we provide expertise and consulting services to
support Sapients GBS implementation project for Vertex.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We continue to work with Perot Health Systems to support them as they provide Applications support to Cedars-Sinai Medical Center for the PCX application. In October 2003, we
executed a time-and-materials services agreement with Cedar-Sinai and began to provide the related services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Rand Technology is a relatively new customer who completely re-engineered significant, internal applications and converted from their legacy applications in under a year without
requiring TenFold consulting services.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Industry Challenge



Organizations worldwide face increasing pressure to
replace their legacy enterprise applications and introduce new applications as they seek to increase productivity, cut costs, introduce new products and services, address changing regulatory and competitive demands, and access new technology. But,
organizations face daunting odds of failure because traditional processes for building, integrating, and deploying complex applications is costly and risky. Consequently, many organizations continue to make substantial investments to maintain legacy
applications that inadequately meet current needs and do not address new business requirements. To obtain new or replacement applications, companies choose between buying a packaged software application or building a custom software application.



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Organizations generally turn to independent software vendors, such as Enterprise Resource Planning
(ERP) vendors or vertical software vendors, when seeking packaged applications. In general, packaged applications promise predictable quality and relatively quick implementation. However, packaged applications frequently require that an
organization adapt its business practices to the software; ERP systems generally fail to address specific industry problems, such as patient management or securities lending; often cost considerably more than planned to implement; and, once
installed, are difficult to modify to adapt to changing business needs. In addition, when an organization chooses the costly and time-consuming path of customizing a packaged application, cost and risk rise rapidly and the organization is generally
inhibited from future opportunities to upgrade the packaged application when subsequent new releases are available.



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



Applications development projects fail
because the process of building complex applications with conventional tools and approaches is very complicated and labor intensive. Designing, programming, testing, integrating, and deploying complex applications can be difficult, take a long time,
be expensive, and tie up scarce IT resources. This high cost and high risk is in stark contrast to the business need for new applications that address current business practices and can be adapted quickly and easily to meet the evolving business
requirements of a dynamic, highly competitive business environment.



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TenFold Technology and Products



LOGO



We believe TenFolds
patented EnterpriseTenFold presents a radically new approach to applications development. This approach dramatically reduces applications development and maintenance cost and time in two ways: first, by automating tedious, time-consuming,
error-prone tasks that programmers would generally do; and, second, by providing an applications development tool and methodology that lets business people actively participate in applications development. EnterpriseTenFold enables organizations to
directly leverage their business experience and insight and to adapt applications easily to meet changing business requirements.



EnterpriseTenFold has three key innovations that make designing, building, testing, deploying, and maintaining an application completely different from
traditional programming-oriented technologies:



|Innovation              |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TenFoldTools            |  |      Provides a sophisticated applications developer interface
that is convenient for describing applications requirements.      Is itself a set of
easy-to-use applications with security, concurrency control, audit trails, et cetera.      Is a set of TenFold-powered applications, so an applications developer has the same intuitive user interface, benefits from the same Quality and Power as other applications end-users.
|                        | 
|TenFold Dictionary      |  |      Saves the applications description in an RDBMS to make
changing the description easy and fast.      Secures and manages the applications
description just as an RDBMS does for any applications database data such as invoices or insurance policies.                                                                                                                                                                             
|                        | 
|TenFold RenderingEngine |  |      Reads the applications description and renders the
application.      Supports using and changing an application as you describe
it.      Scales to support tens of thousands of simultaneous
end-users.                                                                                                                                                                                                                          



These
EnterpriseTenFold innovations work together to automate tedious, repetitive, and error-prone tasks like writing SQL, Java, C++, or VisualBasic code. Automating tedious programming tasks lets applications developers focus their intellect and energy
on solving the business problem instead of fighting technology problems.



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We believe this revolutionary EnterpriseTenFold approach has important implications:



|Implication                                                                   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Requirements are easier, faster, and more rewarding                           |  |       Accelerates the difficult, time-consuming, resource
intensive, traditional first step in applications development, Requirements.       Lets users enter and unambiguously record requirements with TenFoldTools.       Lets users see a running application as they enter requirements.       Lets users build and modify their application quickly, so they can gather requirements in concert with developing and using their actual application.                                                                                                                                                                    
|                                                                              | 
|Power features make applications functionally richer                          |  |       Built-in TenFold RenderingEngine features make applications automatically powerful with
slick Windows and browser user-interfaces, powerful database features like TimeRelation, AuditTrail, and more.                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                              | 
|The meaning and purpose of Testing changes to everyones benefit              |  |       TenFold RenderingEngine renders a working application,
so testing becomes an exercise to verify the business solution, instead of figure out where it blows up and fix it.       With portions of the application running almost at the very start of the project, users can demonstrate it to business people and get feedback throughout the project, not just
at the end when the project should be complete.       Automated regression
testing tools let users capture what they want to automatically test and help them ensure that ongoing applications changes do not impact things that work as they wish.
|                                                                              | 
|Change is fast, responsive, and significantly (at least ten times) lower cost |  |       Since changing an application involves only changing
its description, change is extremely fast.       Automated regression testing
tools make it possible to fully test a new applications version quickly and verify that new features work and that existing features still work as before.       Built-in change management tools automate most of the work in promoting new
applications versions into production.                                                                                                                                                                                                  



The EnterpriseTenFold
value proposition provides three major benefits  Speed, Quality, and Power  to its customers. Speed. EnterpriseTenFold makes building complex applications at least ten times faster than other technologies so projects finish in
months, not years; and labor costs go down by 90%. Quality. EnterpriseTenFold addresses eleven key attributes of quality applications. Since TenFold RenderingEngine renders an application from its description, tedious, error-prone,
programming-like tasks are avoided in building or enhancing a TenFold-powered application. Thus the quality of the application is excellent. Power.EnterpriseTenFold renders an application from its description and automatically includes
considerable, rich built-in functionality in the application. Interestingly, complex feature requirements, which traditionally generate complexity and a high likelihood of project failure, add little incremental cost to TenFold applications
development. Just as a spreadsheet requiring more-complex formulas is not significantly more costly to build than one with only simple formulas. Solving the business problem (determining the formula or desired solution) is the
intellectual challenge; describing your solution (entering the formula or describing the solution) is no more challenging for complex problems than simple problems.



EnterpriseTenFold has been in development more than 10 years, contains more than 2.5 million lines of C and C++ code, and is
protected by three issued U.S. patents. With EnterpriseTenFold, business people or applications developers with little or no traditional programming skills can collaborate with IT professionals to build and maintain an application by describing the
application without needing to program in C, C++, Java, HTML, Structured Query Language (SQL) or other programming languages and without the need to do other programming-like tasks such as designing screens and writing technical designs.



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We believe EnterpriseTenFold delivers these benefits:



| |  | Faster development of complex transaction applications because EnterpriseTenFold automates tasks that programmers would otherwise have to do such as coding SQL, coding logic
functions, managing computer-to-computer communications, and coding user interface screens;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Longer-lived applications that can survive changes in underlying technologies without requiring applications rewrites, because EnterpriseTenFold insulates applications from many
technical changes such as new operating system and database software releases;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reduced maintenance costs because there is little or no code to maintain;
| | - | -------------------------------------------------------------------------



| |  | Improved quality because EnterpriseTenFold replaces individually-coded logic with already-existing, thoroughly-tested algorithms that provide both basic and sophisticated
applications behavior such as security, menuing, transaction behavior, and powerful windows and browser user interface features;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Greater consistency to look, feel and operation across the entire application, by replacing individually-built screen designs and transactions with a systematic, optimal, standard
design and by eliminating the details of screen layout and repetitive transaction behavior from the application developers task list;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Demonstrated scalability as customers add simultaneous end-users and computing capacity; and
| | - | --------------------------------------------------------------------------------------------



| |  | Typically sub-second response-time on properly configured hardware for most applications actions, because EnterpriseTenFold is carefully optimized to provide good performance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | Portability across popular databases such as Oracle, DB2, SQL Server, Sybase, and MySQL;
| | - | ----------------------------------------------------------------------------------------



| |  | Generation of all SQL statements for accessing and updating data, each highly optimized for each relational database;
| | - | ---------------------------------------------------------------------------------------------------------------------



| |  | Automatic screen layout to ensure consistency and quality in both Web and desktop environments;
| | - | -----------------------------------------------------------------------------------------------



| |  | Built-in support for query and update of time-varying data such as effective-dated employee records;
| | - | ----------------------------------------------------------------------------------------------------



| |  | Real-time, server-supplied screen refresh of detail and summary information as underlying data changes;
| | - | -------------------------------------------------------------------------------------------------------



| |  | Simplified business rule definition and optimized rule execution for workflow, posting, access control, and other sophisticated rule types;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | Formal rule abstractions for validation, propagation, population, without requiring application developers to master complex event models;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| |  | Shared middle-tier caching, deferred query execution, and optimistic concurrency control to minimize database server load;
| | - | --------------------------------------------------------------------------------------------------------------------------



| |  | Codeless integration with third-party applications via real-time messages, APIs, or files based on a simple interface description including support for many different messaging
layers such as Tibco, TCP/IP, MQSeries, and Pipes;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Application-level data synchronization between central servers and intermittently connected laptops; and
| | - | --------------------------------------------------------------------------------------------------------



| |  | Guided interfaces to help end-users quickly master complex business processes.
| | - | ------------------------------------------------------------------------------



EnterpriseTenFold is composed of components for developing, executing, integrating, and configuring applications.



Developing an Application. TenFoldTools provides a
sophisticated user interface that lets applications developers describe an application without traditional programming activities. Business people or other applications developers describe the database that the application



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manages, transactions that business end-users use to do each end-user activity, and rules that control transaction behavior. TenFoldTools includes an
application, named TenFold Librarian, itself a TenFold-powered application, that applications developers use to describe their application. TenFold AutoTest uses patented techniques to simplify and automate functional, performance, scalability and
regression testing. TenFold Reporter and TenFoldAnalyzer let business people define their own reports and real-time data analysis. These applications development tools store the description of their applications objects in a relational database
called TenFold Dictionary.



Executing an
Application TenFold RenderingEngine is an executable program, generally deployed in various configurations on multiple client and server computers, that reads an applications description from TenFold Dictionary and runs as that application.
TenFold RenderingEngine has these four major components:



|Component      |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TenFold Client |  | The TenFoldClient part of the TenFold RenderingEngine typically runs on a client computer and interacts with you as you use a
TenFold-powered application. TenFoldClient is a feature-rich, secure, portable, and graphical, transaction-execution environment that implements transaction requirements that applications developers describe in the TenFold Dictionary.  TenFoldClient includes TenFold Browser UI Library, TenFold Windows UI Library, TenFold
TransactionManager, TenFold FrameComposer, TenFold FrameManager, TenFold GraphicInterface Library, TenFold TransactionEngine, and TenFold GraphicInterface standard.                                                                                           
|               | 
|TenFold Server |  | The TenFoldServer part of the TenFold Rendering Engine typically runs on a server computer and provides non-visible applications
services. TenFoldServer provides an open-to-industry-standards messaging layer, applications server technologies, and standard business engines, and distributes data-intensive and computing-intensive processing across multiple server computers and
multiple distributed databases.  TenFoldServer includes TenFold Security
Library, TenFold Server Manager, TenFold FastConnect, TenFold Messages Library, TenFold Scheduler, TenFold Network Library, TenFold BusinessEngines, and TenFold Messages standard.                                                                           
|               | 
|LogicXpress    |  | The LogicXpress part of the TenFold RenderingEngine includes TenFold Language for describing complex applications logic, reports, and
processes, and technologies to compile, distribute, and efficiently run that logic portably across the various client and server computers on which you deploy an application.  LogicXpress includes TenFold Compiler, TenFold Interpreter, TenFold MetaFile Library, TenFold Language, and TenFold MetaFile
standards.                                                                                                                                                                                                                                                                   
|               | 
|TenFold Kernel |  | The TenFoldKernel part of the TenFold RenderingEngine provides rich, portable, data-related functionality and powerful, standard,
basic-applications functions to other TenFold RenderingEngine components. TenFoldKernel provides a dictionary-driven, read-write set interface to supported relational databases, and provides optimal performance, guaranteed portability, low
development cost, low maintenance cost, and rich functionality to both applications and EnterpriseTenFold.  TenFoldKernel includes TenFold Database Library, TenFold OptionsFile Library, TenFold Validation Library, TenFold Knobs&Dials Library, TenFold Error Library, TenFold CommonRoutines Library, and TenFold
OperatingSystem Library.



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LOGO



Integrating an
Application. EnterpriseTenFold integration tools connect a TenFold-powered application to other applications, both within a company and at its customers and suppliers. Whether exchanging files, directly accessing another database, or using
real-time messaging, integration developers codelessly describe the path that data follows to interface with typically-inflexible legacy or third party applications. Applications developers can convert and cleanse data during its passage to or from
a TenFold-powered application.



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



TenFold ComponentWare



TenFold ComponentWare is a family of pre-written applications components
that easily plug into EnterpriseTenFold to extend its functionality without programming. For example, PowerBilling provides a robust suite of billing transactions, engines, and features. PowerAccounting makes it easy to include accounting-system
integration to application descriptions.



TenFold Services



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



Training



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



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Applications Development and Implementation Services



We offer services to help customers build, implement, operate and maintain
their applications. Applications development services include helping customers identify requirements and describe their application using EnterpriseTenFold. Implementation services include converting and cleansing legacy data, integrating with
other applications, running parallel application testing, and managing the implementation project.



Customer and Technical Support



We provide our customers who purchase support services with new releases of EnterpriseTenFold as new releases become available and various levels of
on-site and telephone support.



Competition



The competitive landscape for new and legacy-replacement enterprise
applications is split among the options available to corporations today. These options are:



| |  | Status quo;
| | - | -----------



| |  | Buy a packaged application (with or without modification); and
| | - | --------------------------------------------------------------



| |  | Build a new application using internal IT resources or third-party consulting and software integration firms.
| | - | -------------------------------------------------------------------------------------------------------------



Status quo



TenFolds largest competitor is status quo. Corporations
continually wrestle with the issue of when to take on the challenge of building strategic new applications or attempting to retire and replace legacy applications. In recent years, most companies chose to invest large amounts of money to
maintain legacy applications rather than replace them. Remaining with the status quo results in: continuously increasing costs as maintenance on top of maintenance gets harder; acceptance of barely adequate applications; limitations on lowering
costs; limitations to embracing new technologies; and, difficulty in adding products or expanding markets. Status quo postpones the inevitable replacement of the application.



Buy a Packaged Application (with or without modification)



Many corporations prefer to obtain an off-the-shelf application from ERP or
vertical packaged software vendors. Corporations license software packages to limit the risks associated with new software development projects. However, packaged applications force corporations to conform their business problems to the packaged
solution, often with a poor fit. Corporations can modify a packaged application to solve their business problems, but such blended solutions are expensive, slow to implement, and suffer from poor integration.



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



Build New Applications



When companies contemplate building their own applications on their own or with help, TenFold competes primarily with suppliers of traditional programming
technologies and development tools. Internal IT organizations and third party consulting firms frequently use tools from Oracle, IBM, Microsoft, BEA, Computer Associates, and others.



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Programming languages such as COBOL, C, and C++ perform well and scale well, but require extraordinarily
large project teams to spend multiple years to complete projects. Such projects generally run over budget in time and dollars and frequently fail. Visual Basic, SmallTalk, and other personal computer technologies support rapid applications
development and improved productivity for smaller projects, but do not scale to support large numbers of end-users.



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



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Results of Operations



For the three months ended September 30, 2003, we had revenues of $4.6 million, operating income of $469,000, and net income of $472,000. This compares to
revenues of $8.1 million, an operating loss of $14,000, and a net loss of $77,000 for the same period of 2002.



For the nine months ended September 30, 2003, we had revenues of $23.5 million, operating income of $10.5 million, and net income of $12.8 million. This
compares to revenues of $19.9 million, an operating loss of $5.7 million, and a net loss of $5.5 million for the same period of 2002.



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



|                                     |  | Three MonthsEnded September 30, |    |  | Nine MonthsEnded September 30, |   
|------------------------------------ |  | ------------------------------- | -- |  | ------------------------------ | --
|                                     |  | 2003                            |    |  | 2002                           |   
|Revenues:                            |  |                                 |    |  |                                |   
|License                              |  |                                |    |  |                               |   
|Subscription                         |  |                                |    |  | 54                             | % 
|Services and other                   |  | 100                             | %  |  | 46                             | % 
|                                     |  |                                 |    |  |                                |   
|Total revenues                       |  | 100                             | %  |  | 100                            | % 
|                                     |  |                                 |    | 
|Operating expenses:                  |  |                                 |    |  |                                |   
|Cost of revenues                     |  | 64                              | %  |  | 32                             | % 
|Sales and marketing                  |  | 7                               | %  |  | 8                              | % 
|Research and development             |  | 19                              | %  |  | 25                             | % 
|General and administrative           |  | 15                              | %  |  | 21                             | % 
|Special charges                      |  | (15                             | )% |  | 14                             | % 
|                                     |  |                                 |    |  |                                |   
|Total operating expenses             |  | 90                              | %  |  | 100                            | % 
|                                     |  |                                 |    |  |                                |   
|Income (loss) from operations        |  | 10                              | %  |  |                               |   
|Total other income (expense), net    |  |                                |    |  | (1                             | )%
|                                     |  |                                 |    |  |                                |   
|Income (loss) before income taxes    |  | 10                              | %  |  | (1                             | )%
|Provision (benefit) for income taxes |  |                                |    |  |                               |   
|                                     |  |                                 |    |  |                                |   
|Net income (loss)                    |  | 10                              | %  |  | (1                             | )%
|                                     |  |                                 |    |  |                                |   



Revenues



Total revenues decreased $3.5 million, or 44 percent, to
$4.6 million for the three months ended September 30, 2003, as compared to $8.1 million for the same period in 2002. This decrease in total revenues is primarily due to having no subscription revenues during the three months ended September 30,
2003, as our existing subscription contracts reached the end of their subscription periods during the quarter ended June 30, 2003. The decrease in subscription revenues was partially offset by an increase in service revenues.



For the nine months ended September 30, 2003, total revenues increased $3.5
million, or 18 percent, to $23.5 million as compared to $19.9 million for the same period in 2002. This increase in total revenues is primarily due to a higher volume of services during the nine months ended September 30, 2003 as compared to the
same period in 2002.



We had no subscription revenues for the
three months ended September 30, 2003, as compared to $4.3 million for the same period in 2002. For the nine months ended September 30, 2003, and 2002 subscription revenues were $10.4 million in each period. Subscription revenues represent revenue
from contracts that include a subscription to new product releases on a when and if available basis. For certain contracts, including a subscription to future software products when and if they become available, we recognize the fees for
the software products ratably over the subscription term beginning with delivery of the first software product. For contracts that



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include a service element for which the fair value is undeterminable, and the contract includes a subscription to new product releases on a when and if
available basis, we recognize the entire contract fee ratably over the subscription period as subscription revenue. During the quarter ended June 30, 2003, our existing subscription contracts reached the end of their subscription periods, and
we recognized the final remaining subscription revenue for these contracts.



Services and other revenues increased $800,000, or 21 percent, to $4.5 million for the three months ended September 30, 2003, as compared to $3.7 million for the same period in 2002. For the nine months ended
September 30, 2003, services and other revenues increased $3.7 million, or 39 percent, to $13.0 million as compared to $9.3 million for the same period in 2002.



Service and other revenues increased in part due to providing a higher volume of time-and-material services during the three and nine months ended
September 30, 2003 as compared to the same periods in 2002. Services and other revenues for the three and nine months ended September 30, 2003 also include $400,000 and $900,000, respectively, from the reduction over time of a guarantee on one
contract as described in more detail below under Guarantees. Services and other revenues for the nine months ended September 30, 2003 also include $600,000 recognized upon completion of training obligations associated with a contract signed in 2002.



We continue to actively seek sales to new customers. However,
we continue to face a challenging sales environment, and it is unclear when we can expect to achieve significant sales to new customers.



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 increased $279,000, or 11 percent, to $2.9 million for the three months ended September 30, 2003, as compared to $2.6 million for the same period in 2002.
This increase was primarily due to a higher number of contractors working on customer projects. For the nine months ended September 30, 2003, cost of revenues decreased $2.8 million, or 28 percent, to $7.4 million as compared to $10.2 million for
the same period in 2002. This decrease was primarily due to a smaller number of personnel working on customer projects, and support and training activities.



Sales and Marketing.Sales and marketing expenses consist primarily of compensation, travel, and other related expenses for sales and
marketing personnel, as well as advertising and other marketing expenses. Sales and marketing expenses decreased $326,000, or 52 percent, to $298,000 for the three months ended September 30, 2003, as compared to $624,000 for the same period in 2002.
For the nine months ended September 30, 2003, sales and marketing expenses decreased $969,000, or 55 percent, to $788,000 as compared to $1.8 million for the same period in 2002. The decrease in sales and marketing expenses was primarily due to
having fewer sales and marketing employees in 2003.



Research and Development.Research and development expenses consist primarily of compensation and other related costs of personnel dedicated to research and development activities. Research and development expenses decreased
$1.2 million, or 57 percent, to $862,000 for the three months ended September 30, 2003, as compared to $2.0 million for the same period in 2002. For the nine months ended September 30, 2003, research and development expenses decreased $2.5 million,
or 48 percent, to $2.8 million as compared to $5.3 million for the same period in 2002. Research and development expenses decreased due primarily to having fewer research and development employees in 2003.



General and Administrative.General and administrative expenses
consist primarily of allowances for doubtful accounts, the costs of executive management, finance and administrative staff, recruiting, business insurance, and professional fees. General and administrative expenses decreased $1.0 million, or 59
percent, to $697,000 for the three months ended September 30, 2003,



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as compared to $1.7 million for the same period in 2002. For the nine months ended September 30, 2003, general and administrative expenses decreased $3.9
million, or 59 percent, to $2.7 million as compared to $6.6 million for the same period in 2002. General and administrative expenses decreased due primarily to having a smaller scale of operations and fewer general and administrative employees,
lower legal expenses from the settlement of legal matters, and reduced financing related expenses in 2003.



Special Charges. Special charges for the three and nine months ended September 30, 2003 include restructuring charge adjustments of
$(578,000) and asset loss impairment adjustments of $(95,000). Special charges for the three months ended September 30, 2002 include restructuring charges of $1.1 million. Special charges for the nine months ended September 30, 2002 include
restructuring charges of $1.7 million and a $24,000 asset impairment charge.



2003 Restructuring Charges. During the three and nine months ended September 30, 2003, we recorded restructuring charge adjustments of $(578,000) to reduce previously accrued restructuring charges for
negotiated reductions in remaining lease payments due for unoccupied properties, and to reflect higher sublease income received than previously estimated.



2003 Asset Impairment Charges. During the three and nine months ended September 30, 2003, we recorded asset loss provision adjustments of $(95,000)
to eliminate remaining estimated asset loss accruals that were no longer necessary upon our completing the return of previously leased equipment.



2002 Restructuring Charges. During the three and nine months ended September 30, 2002, we incurred restructuring charges of $1.1 million and $1.7
million, respectively, including $1.1 million, related to termination of the unoccupied portions of our South Jordan Utah headquarters lease, and $562,000, related to adjustments made to prior restructuring estimates.



2002 Asset Impairment Charges. During the nine months ended September
30, 2002, we identified $24,000 of fixed assets that had no future value to us and were no longer in active use, and accordingly recorded an asset impairment charge of $24,000 for the nine months ended September 30, 2002.



Restructuring reserves are included in accounts payable and accrued
liabilities at September 30, 2003. Detail of the restructuring charges as of and for the nine months ended September 30, 2003 are summarized below (in thousands):



|                       |  | Balance atDecember 31,2002 |       | NewCharges |   | Adjustments |  |   | Utilized |   |  | Balance atSeptember 30,2003
|---------------------- |  | -------------------------- | ----- | ---------- | - | ----------- |  | - | -------- | - |  | ---------------------------
|Restructuring Charges: |  |                            |       |            |   |             |  |   |          |   |  |                            
|Facilities related     |  | $                          | 1,565 |            |   |            |  |   | (578     | ) |  |                            
|                       |  |                            |       |            |   |             |  |   |          |   |  |                            
|                       |  | $                          | 1,565 |            | $ |            |  | $ | (578     | ) |  | $                          
|                       |  |                            |       |            |   |             |  |   |          |   |  |                            



We have estimated
future sublease income which reduces future facility related charges, including lease obligations. We considered current market conditions including current lease rates in the respective geographic regions, vacancy rates, and costs associated with
subleasing when estimating future sublease income. Variances between expected and actual sublease income have previously and may continue to result in restructuring charge adjustments in future periods.



Total Other Income, net



Net total other income was $3,000 for the three months ended September 30,
2003, as compared to $(58,000) for the same period in 2002. Net total other income was $2.4 million for the nine months ended September 30, 2003, as compared to $(295,000) for the same period in 2002. Net total other income for the nine months ended
September 30, 2003 included a gain of approximately $2.2 million that we recognized on the retirement of capital lease obligations at a significant discount to their carrying value.



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Provision for Income Taxes



There was no provision for income taxes for the three months ended September 30, 2003, as compared to a provision of $5,000
for the same period in 2002. The provision for income taxes for the nine months ended September 30, 2003 of $17,000 relates primarily to foreign taxes and reversing a portion of our valuation allowance attributable to the current operating income.
The $5,000 provision for income taxes for the three months ended September 30, 2002 relates primarily to foreign taxes. The $496,000 benefit for income taxes for the nine months ended September 30, 2002 relates primarily to reversing accrued Federal
alternative minimum taxes from 2001 due to tax legislation enacted in 2002.



At September 30, 2003, management has recognized a valuation allowance for the net deferred tax assets related to temporary differences, foreign tax credit carryforwards and net operating loss carryforwards. The
valuation allowance was recorded in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires that a valuation allowance be established when there is
significant uncertainty as to the realizability of the deferred tax assets. Based on a number of factors, the currently available, objective evidence indicates that it is more likely than not that the net deferred tax assets will not be realized.



Critical Accounting Policies



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



Revenue Recognition and
Project Profitability



We believe risks relating to
revenue recognition primarily 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-material billings or if we grant concessions to time-and-material customers in order to sell additional business or collect cash
under the contract. These variances between managements estimate of the lowest point in the range of estimated profit margin and actual results may result in a significant adjustment to our results of operations and financial position.



Previously, risks relating to revenue recognition also
included the judgment required to determine fixed-price project completion percentages, fixed-price project profit or loss projections, and forecasting of fixed-price project end-dates. However, during the year ended December 31, 2002 we converted
our remaining on-going legacy fixed-price contracts to time-and-materials arrangements. As a result, we have no significant on-going fixed-price contracts at September 30, 2003.



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.



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Restructuring Charges



We recognize restructuring charges consistent with EITF 94-3, prior to January 1, 2003 and consistent with SFAS 146
beginning on January 1, 2003. For amounts accrued at December 31, 2002, we reduce current charges for abandoned facilities with sublease income. Management analyzes current market conditions including current lease rates in the respective geographic
regions, vacancy rates, and costs associated with subleasing when evaluating the reasonableness of future sublease income. Significant management judgments and estimates must be made and used in calculating future sublease income. Variances between
expected and actual sublease income have previously and may continue to result in restructuring charge adjustments in future periods.



Liquidity and Capital Resources



During 2002 and continuing into 2003, we improved our cash flow through a variety of means, including carefully managing our accounts receivable and
generating additional cash inflows wherever possible from our existing customer base, and continuing to reduce our operating cash outflows wherever possible, including negotiating the elimination or reduction of liabilities, and further
restructuring of our operations, with the goal of providing a cash flow positive basis for continuing operations. For the nine months ended September 30, 2003, our change in cash was $428,000 compared to $(8.5) million for the same period of the
prior year.



Net cash provided by operating activities was
$155,000 for the nine months ended September 30, 2003 as compared to $(11.8) million for the same period in 2002. The increase in cash flow provided by operating activities results from maintaining and building our ongoing services base in existing
customer accounts and from the significant restructuring and other actions we have taken during 2002 and continuing into 2003 to reduce cash outflows.



Net cash provided by investing activities was $102,000 for the nine months ended September 30, 2003 as compared to $7.8 million for the same period in
2002. During the nine months ended September 30, 2002, we sold two buildings and related land in San Rafael, California for proceeds of $2.4 million (before repayment of related notes payable). The decreases to restricted cash of $5.9 million for
the nine months ended September 30, 2002, were primarily from our releasing restricted cash to landlords in connection with termination of excess office space in San Francisco, California; Chicago, Illinois; and Salt Lake City, Utah.



Net cash provided by financing activities was $171,000 for the nine months
ended September 30, 2003 as compared to $(4.5) million for the same period in 2002. Net cash provided by financing activities for the nine months ended September 30, 2003 included net cash proceeds of $666,000 from the sale of 3,888,889 shares of
common stock to a member of our Board of Directors. During the three months ended March 31, 2003 we made payments of approximately $588,000 to retire capital lease obligations at a significant discount. Net cash used by financing activities for the
nine months ended September 30, 2002 was primarily for repayment of notes payable related to our sale of two buildings and related land in San Rafael, California; and principal payments on other notes and capital leases.



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 $7.6 million at September 30, 2003 and $20.3 million at December 31, 2002. The decrease in deferred revenues from December 31, 2002 to
September 30, 2003 was primarily a result of our recognizing as revenues the remaining previously deferred subscription revenues from our existing subscription contracts as these contracts reached the end of their subscription periods during the
quarter ended June 30, 2003. When over time we recognize 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.



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In order to strengthen our financial foundation, we have taken aggressive steps to restructure our
operations through work force reductions, terminating leases or subleasing facilities, negotiating significantly discounted debt retirements, and other operational cost-saving measures. We have made significant progress reducing operating cash
outflows during 2001, 2002 and continuing into 2003. Progress made in 2003 includes:



| |  | During February 2003, we executed agreements with our two major equipment lessors to buy out and fully retire their equipment lease debt at a substantial discount, and return
substantially all the related equipment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During February 2003, we sold 3,888,889 shares of common stock to a member of our Board of Directors for a total purchase price of $700,000.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



Although we believe we are making good progress towards strengthening our
financial foundation, substantial challenges and risks remain:



| |  | While our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors report on our December 31, 2002
financial statements, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We are substantially dependent on a small number of large customers for most of our cash inflows. One of those customers, Allstate Corporation, completed its current use of our
time- and-materials consulting services on June 30, 2003 around their application, Interlink, which has been in production since May 2001. We continue to provide training and support services to Allstate, but do not expect further significant cash
inflows from additional time-and-materials consulting during the remainder of 2003.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We continue to face a challenging sales environment, and it is unclear when we can expect to achieve significant sales to new customers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | We may need to raise additional capital in the near term, and it is unclear if additional sources of financing will be available upon acceptable terms.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We are overdue in paying some creditors who could take actions against us.
| | - | --------------------------------------------------------------------------



| |  | We may still have one outstanding former customer litigation matter with SkyTel Communications, Inc. In July 2003, the U.S. District Court dismissed the case without prejudice,
based on incorrect information, which TenFold immediately clarified for the Court. TenFold has not received any further notice. See Note 9 of Notes to Condensed Consolidated Financial Statements for more information.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that we are continuing to appropriately manage and reduce or
eliminate these risks. However, there can be no assurance that we will be successful, and if these risks have a materially adverse affect on our cash flow, we could have insufficient cash flow to continue operations beyond the near term.



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



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Disclosure about Contractual Obligations and Commercial Commitments



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



|                                   |  | As of September 30, 2003
|---------------------------------- |  | ------------------------
|Contractual Obligations            |  | Lessthan 1year          
|Capital Lease Obligations          |  | $                       
|Real Estate Operating Leases       |  |                         
|                                   |  |                         
|Total Contractual Cash Obligations |  | $                       
|                                   |  |                         



Real Estate Lease
Obligations



The real estate operating leases above
include $1.5 million of restructured real estate lease obligations which have not been reduced by sublease income of $592,000 due from sublease tenants. In the Condensed Consolidated Balance Sheet at September 30, 2003, these obligations are
included in accounts payable and accrued liabilities, net of the related sublease income. On September 30, 2003, we settled a lease dispute with one of our landlords and agreed to make restructured payments beginning October 1, 2003 and continuing
through the remaining term of the lease. At September 30, 2003, we were in default under one additional leases for overdue lease payments. That landlord had demanded past due payments totaling approximately $264,000 but not taken legal action. We
have completed negotiations with this landlord on restructuring the payment terms for this lease and are in the process of finalizing the new arrangement.



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



Guarantees



As of September 30, 2003, we had two remaining contracts subject to
guarantees.



We have received cash payments under one contract
totaling $9.5 million through September 30, 2003 that are subject to potential refund under the related guarantee. We have a deferred revenue balance of $5.7 million related to this contract, and $2.7 million in accrued liabilities under a related
contract, included in the accompanying Condensed Consolidated Balance Sheet at September 30, 2003.



During the year ended December 31, 2002, we converted the remaining work under the other contract to a time-and-materials arrangement, and reduced the
guarantee from over $5 million to $1.5 million. During the quarter ended June 30, 2003, we revised the terms of this contracts guarantee such that the $1.5 million guarantee draws down over the passage of time during 2003 in monthly amounts,
with the final two monthly reductions totaling $400,000 also contingent on achievement of certain milestones. This reduced the guarantee from $1.5 million to $600,000 as of September 30, 2003. We recognized this reduction as revenue during the nine
months ended September 30, 2003 and have a related deferred revenue balance of $600,000 at September 30, 2003, which is included in our consolidated deferred revenue balance at September 30, 2003 in the accompanying Condensed Consolidated Balance
Sheet.



We believe that the application and required deliveries
under the contracts will comply with the contractual terms of our customer agreements; however, these guarantees represent a risk to us.



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Recent Accounting Pronouncements



In June 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. We adopted the provisions of SFAS No. 143 on January 1, 2003. The adoption of SFAS No.
143 did not have a material impact on our results of operations and financial position.



In May 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates Statement 4 (and Statement 64,
as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion No. 30
will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions are accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS No. 145 makes technical corrections to some existing pronouncements. We adopted the provisions related to the rescission of Statements 4 and 64 on January 1, 2003, and for all transactions entered into
beginning May 15, 2002 adopted the provision related to the amendment of Statement 13. The adoption of SFAS No. 145 did not have a material impact on our results of operations and financial position.



In July 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as
opposed to when the entity commits to an exit plan under EITF No. 94-3. We adopted the provisions of SFAS No. 146 for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on our
results of operations and financial position.



In November
2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material impact on our
results of operations and financial position.



In November
2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness to Others, an Interpretation of FASB Statements No. 5, 57, and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of Interpretation No. 45 did not have a material impact on our results of operations and financial
position.



In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123, Stock-Based Compensation, to provide alternative methods of transition for a voluntary



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change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of
SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and have been incorporated into these financial statements and related notes.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31,
2003, and to variable interests in variable interest entities obtained after January 31, 2003. The adoption of Interpretation No. 46 did not have a material impact on our results of operations and financial position.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our results of operations and financial position.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance may have been accounted for as equity, must now be accounted for as liabilities (or an asset in some circumstances). The
financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled
with shares of stock. This Statement is effective for all such financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 was
adopted in the quarter ended June 30, 2003 and did not have a material impact on our results of operations or financial position.



Factors that May Affect Future Results and Market Price of Stock



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



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



While our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors report on
our December 31, 2002 financial statements, prepared by Tanner+Co, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern. Our business model relies upon generating new sales to
existing and new customers and receiving payments from existing customers. If we do not generate sufficient new sales and receive payments from existing customers, we will be required to pursue one or a combination of the following remedies: seek
additional sources of financing, further reduce operating expenses, sell part or all of our assets, or terminate operations. There can be no assurance that we will be successful achieving sufficient cash flow.



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If we file for bankruptcy protection, either voluntarily or involuntarily, or sell all or
substantially all our assets, it is unlikely that our existing stockholders would receive any value for their stock



We are overdue in paying some creditors, including service providers and a landlord of an unoccupied office lease. We are in discussions to reduce or
eliminate these liabilities. If we are unsuccessful in maintaining sufficient cash flow, or in certain circumstances as a result of actions that could be taken by a group of unsecured creditors, we might be forced to into the bankruptcy process. If
we become a debtor in bankruptcy for these or any other reasons, it is unlikely that our existing stockholders would receive any value for their stock.



If we are unable to maintain sufficient cash flow to continue to operate as an independent company, we may be required to consider selling all or
substantially all of our assets. If we sell our assets in such circumstances, it is unlikely that the proceeds from such sale would be sufficient to fully satisfy our obligations to our creditors, and therefore it is unlikely that our existing
stockholders would receive any value for their stock.



Our
future prospects are difficult to evaluate



In light of
our operating results for recent periods and the national economic downturn in the technology sector, it is difficult to evaluate our future prospects. There can be no assurance that we will be able to successfully complete any current or new
projects. In the past we received customer complaints concerning some of our projects. Although we have substantially changed the business model under which we sold and delivered business that generated customer complaints, we cannot be certain that
we will not receive more customer complaints in the future. Additionally, our failure to successfully complete any current or new projects may have a material adverse impact on our financial position and results of operations. We cannot be certain
that our business strategy will succeed.



We continue to
experience difficulty in securing future customer revenue



There is no assurance that we will be able to convince prospective customers to purchase products or services from us or that any customer revenue that is achieved can be sustained. TenFolds most significant recent source of new
revenue was established in Q4 2002 as a result of our VAR, Vertex, selling a GBS license to one of its customers. If we are unable to obtain future customer revenue, our operations, financial condition, liquidity, and prospects will be materially
and adversely affected, and we will be required to pursue one or a combination of the following remedies: seek additional sources of financing, further reduce operating expenses, sell part or all of our assets, or terminate operations. There can be
no assurance that additional financing sources will be available to us when needed or that we will be able to execute the other potential remedies sufficiently to continue operations.



Our errors and omissions coverage may not cover contractual disputes



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



Our new errors and omissions insurance policy, which we renewed on March 1, 2002 and again on March 1, 2003, is in the form of an industry standard software errors and omissions policy. As such, it only covers software errors and omissions
that occur after the delivery of software and excludes contractual disputes such as cost and time related guarantees. We have previously had contractual disputes related to our guarantees. While we have substantially changed our business model and
no longer offer the TenFold Guarantee, no assurance can be



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given that we will not be subject to these types of claims in the future. In the event that liabilities from claims are not covered by or exceed our errors
and omissions coverage, our business, results of operations, financial position, or liquidity could be materially and adversely affected.



We are substantially dependent on a small number of large customers and the loss of one or more of these customers may cause revenues and cash flow to
decline



We have derived, and over the near term we expect
to continue to derive, a significant portion of our revenues and cash flow from a limited number of large customers. For the nine months ended September 30, 2003, Allstate accounted for 47 percent of our total revenues, JP Morgan Chase accounted for
22 percent, and Sapient accounted for 22 percent. Significant reductions in the amount of business they conduct with us could materially and adversely affect our business, results of operations, financial position and liquidity. Replacing the loss
of a large customer is unpredictable. In the future, revenues from a single customer or a few large customers may constitute a significant portion of our total revenues and cash inflows in a particular period. The volume of work performed for
specific customers is likely to vary from period to period, and a major customer in one period may not continue to purchase licenses or services from us in a subsequent period. We continue to provide training and support services to Allstate, but we
do not expect Allstate to account for a significant percentage of our revenues during the second half of 2003 since Allstates contract reached the end of its subscription period, and Allstate completed its use of our time-and-materials
services for application implementation during the first half of 2003. See Managements Discussion and Analysis of Financial Condition and Results of Operations generally for more information concerning our customers and revenues.



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



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



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



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



We have been recently involved in litigation with a former customer (in July 2003, the U.S. District Court dismissed the case without prejudice) and in a class action suit against more than 300 issuers involving the
underwriters of those issuers initial public offerings. We may in the future face other litigation or disputes with customers, employees, business partners, stockholders, or other third parties. Such litigation or disputes could result in
substantial costs and diversion of resources that would harm our business. An unfavorable outcome of these matters may have a material adverse impact on our business, results of operations, financial position, or liquidity. See Note 9 of Notes to
Condensed Consolidated Financial Statements for more information.



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



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



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



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



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



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



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



We believe that a
customers decision to purchase our software involves a significant commitment of resources and is influenced by customer budget cycles. To successfully sell our products, we generally must educate our potential customers regarding the use and
benefit of our products. Historically, this has required significant time and resources. Consequently, the period between initial contact and the purchase of our products is often long and subject to delays associated with the lengthy budgeting,
approval, and competitive evaluation processes that typically accompany significant capital expenditures. Historically, our sales cycles have been lengthy and variable, typically ranging between three to twelve months from initial contact with a
potential customer to the signing of a contract. In addition, the national economic downturn has caused current and potential customers to delay or change their purchasing decisions. Sales delays could cause our operating results to vary widely.
There can be no assurance that we will not experience sales delays in the future. In addition, we face a challenging sales environment and there can be no assurance that we will have sales in the future.



We have historically derived a significant portion of our revenues from
customers in a small number of vertical industries



We
have developed software applications for companies in a small number of vertical industries. Our reliance on customers from particular industries subjects our business to the economic conditions impacting those industries, including those
industries demand for information technology resources. If we continue to rely on a small number of vertical industries



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as a major source of revenues, and those industries suffer adverse economic conditions, there will likely be a significant reduction in the demand for our
products, causing revenues to suffer. For example, the events of September 11, 2001 adversely affected some of our customers in the insurance and financial services industries. Although we intend to seek to diversify our customer base, there can be
no assurance that we will be able to do so in the near term or at all.



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



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



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



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



Our failure to attract and retain highly skilled employees, particularly project managers and other senior technical personnel, could impair our
ability to complete projects and expand our business



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



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



Our success is dependent, in part, upon our proprietary EnterpriseTenFold technology and other intellectual property rights. If we are unable to protect
and enforce these intellectual property rights, our competitors will have the ability to introduce competing products that are



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



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



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



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



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



Revenues from customers outside of North America were approximately 47 percent of total revenues for the three months ended September 30, 2003 as compared to 13 percent of total revenues for the same period in 2002.
For the nine months ended September 30, 2003, revenues from operations outside of North America were approximately 28 percent as compared to 21 percent of total revenues for the same period in 2002. The international political and economic
uncertainty caused by the ongoing war on terrorism may adversely impact our ability to continue existing relationships with our foreign customers and to develop new business abroad.



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



The executive officers, directors, and entities
affiliated with them, in the aggregate, beneficially own approximately 58 percent of our outstanding common stock. Jeffrey L. Walker, Chairman, Executive Vice President and Chief Technology Officer, and the Walker Childrens Trust, in the
aggregate, currently beneficially own approximately 44 percent of our outstanding common stock. Mr. Walker, acting with others, would be able to decide or significantly influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination transactions. This concentration of ownership may have the effect of delaying or preventing a merger or other business combination transaction, even if the transaction
would be beneficial to our other stockholders.



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



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



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Item 3. Quantitative and Qualitative Disclosures About Market Risk.



Interest Rate Risk



As of September 30, 2003, we had cash and cash equivalents of $4.3 million, and restricted cash of $73,000. Substantially all of the cash equivalents
consist of highly liquid investments with remaining maturities at the date of purchase of less than ninety days. These investments are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical
increase or decrease in market interest rates by 10 percent from the September 30, 2003 rates would cause the fair value of these cash investments to change by an insignificant amount. Risk is mitigated through limits regarding investment
concentration in particular securities and institutions, and investments in varying maturities. We do not invest in any financial derivatives or any other complex financial instruments. We do not own any equity investments, and therefore, we do not
currently have any direct equity price risk.



Currency Risk



Our operations include some transactions with customers
and partners in the United Kingdom. Some of these transactions are denominated in British pounds. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and the
British pound, or by weak economic conditions in the United Kingdom. When the U.S. dollar strengthens against the British pound, the value of receivables or payables denominated in British pounds decreases. When the U.S. dollar weakens against the
British pound, the value of receivables or payables denominated in British pounds increases. The monetary activities which are impacted by foreign currency fluctuations are cash, accounts receivable, accounts payable, and certain accrued
liabilities. A hypothetical 10 percent increase or decrease in the exchange rate between the U.S. dollar and the British pound from the September 30, 2003 rate would cause the fair value of such monetary assets and liabilities denominated in British
pounds to change by approximately $44,000. We are not currently engaged in any foreign currency hedging activities.



Item 4. Controls and Procedures



An evaluation was performed under the supervision and with the participation of the Companys management, including Nancy Harvey (Chief Executive Officer and Chief Financial Officer), of the effectiveness of the design and operation of
the Companys disclosure controls and procedures as of September 30, 2003. Based on that evaluation, Ms. Harvey concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be
disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as specified in the rules and forms of the Securities and Exchange Commission. There have
been no material changes in the Companys internal controls over financial reporting or in other factors reasonably likely to affect the internal controls over financial reporting during the quarter ended September 30, 2003.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings



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



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Item 6. Exhibits and Reports on Form 8-K



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



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

---

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



|(b) | Reports on Form 8-K
|--- | -------------------



None



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SIGNATURES



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



|TenFold Corporation                                            
|---------------------------------------------------------------
|                                                               
|/s/ Nancy M. Harvey                                            
|Nancy M. Harvey                                                
|President, Chief Executive Officer, and Chief Financial Officer
|October 29, 2003                                               



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