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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)



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



For the year ended December 31, 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)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share



---



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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K. x



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



Market value of shares of Common Stock held by non-affiliates of the
registrant, based on the closing price of the Common Stock on June 30, 2003 was approximately $26,251,000. Shares of Common Stock held by each current executive officer and director, and by each person who is known by the registrant to own 10
percent or more of the outstanding Common Stock, have been excluded from this computation in that such persons may be deemed to be affiliates of the Company. Share ownership information of certain persons known by the Company to own greater than 10
percent of the outstanding common stock for purposes of the preceding calculation is based solely on information known by the Company and is as of June 30, 2003. This determination of affiliate status is not a conclusive determination for other
purposes.



As of January 31, 2004, there were 45,978,898 shares
of the registrants Common Stock outstanding.



DOCUMENTS
INCORPORATED BY REFERENCE



Portions of the Proxy Statement for the
Registrants 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.



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TENFOLD CORPORATION

2003 FORM 10-K AND ANNUAL REPORT



TABLE OF CONTENTS



|          |  |                                                                                                              |  |     
|--------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|          |  |                                                                                                              |  | Page
|          |  | Forward-Looking Statements                                                                                   |  | 3   
|          |  |                                                                                                             
|PART I.   |  |                                                                                                              |  |     
|Item 1.   |  | Business                                                                                                     |  | 4   
|Item 2.   |  | Properties                                                                                                   |  | 19  
|Item 3.   |  | Legal Proceedings                                                                                            |  | 20  
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                          |  | 20  
|          |  |                                                                                                             
|PART II.  |  |                                                                                                              |  |     
|Item 5.   |  | Market for Registrants Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities |  | 21  
|Item 6.   |  | Selected Financial Data                                                                                      |  | 24  
|Item 7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 26  
|Item 7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 45  
|Item 8.   |  | Financial Statements and Supplementary Data                                                                  |  | 46  
|Item 9.   |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 46  
|Item 9A.  |  | Controls and Procedures                                                                                      |  | 46  
|          |  |                                                                                                             
|PART III. |  |                                                                                                              |  |     
|Item 10.  |  | Directors and Executive Officers of the Registrant                                                           |  | 47  
|Item 11.  |  | Executive Compensation                                                                                       |  | 47  
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management                                               |  | 47  
|Item 13.  |  | Certain Relationships and Related Transactions                                                               |  | 47  
|Item 14.  |  | Principal Accountant Fees and Services                                                                       |  | 47  
|          |  |                                                                                                             
|PART IV.  |  |                                                                                                              |  |     
|Item 15.  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                              |  | 48  
|          |  | Signatures                                                                                                   |  | 82  



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FORWARD-LOOKING STATEMENTS



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



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PART I



|Item 1. | Business
|------- | --------



Business Overview



TenFold is the provider of EnterpriseTenFold (formerly Universal Application), a software applications platform that reduces enterprise applications design, development, deployment, and maintenance timeframes and costs. EnterpriseTenFold automates
most of what applications programmers typically do, and empowers small teams of business people and information technology (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 significant change from
the industry-standard approach that relies on large teams of IT professionals who expend significant numbers of person years of effort to design, program, test, change, and deploy enterprise applications. We believe that with EnterpriseTenFold,
customers get high-quality, complex enterprise applications into production faster and at significantly lower cost 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, we believe 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, we believe 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 faster than with other technology because building an application using EnterpriseTenFold 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. With EnterpriseTenFold, there is no need to write or test
newly-written code in the building of an application. Thus, it is unlikely for the application to have defects. We believe that a TenFold-powered application 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. Consequently, we believe that 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Business History



We founded TenFold in 1993. We spent the first several years primarily developing our patented EnterpriseTenFold technology. In 1996, we began using
EnterpriseTenFold to build applications for customers. In 1999, we completed our initial public offering. In 1999 and early 2000, we tested a new business model 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 software applications platform 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 EnterpriseTenFold to customers desiring to use it to
build applications. We suffered a setback following the events of September 11, 2001, after which we lost two of our largest customers and restructured TenFold again. 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 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 EnterpriseTenFold 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 EnterpriseTenFold technology and supporting services to 21 customers, 16 of whom have put EnterpriseTenFold-powered applications in production.



We made progress in establishing strategic distribution alliances and value added resellers (VAR) relationships that we believe will
accelerate and broaden market distribution of EnterpriseTenFold 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
| | - | ---------------------------------------------------------------------------------------------------------------------------------



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| |  | 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
EnterpriseTenFold-powered applications. Under these VAR relationships:



| |  | 3Genesis can resell an EnterpriseTenFold-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, can resell EnterpriseTenFold in connection with the sale of the Patient Care Expert
application in the hospital and healthcare provider market globally;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | Vertex, a UK-based utility sector customer management and billing company can 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.



2003 Highlights



In 2003, we continued 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 $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 have finalized 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.



In December 2003, we closed a private placement of 5 million shares of restricted common stock, with no warrants, which we sold at $2.00 per share (before
related fees and expenses). This strengthened our balance sheet and provided an opportunity for a new group of investors to obtain a meaningful investment in TenFold.



During Q3 2003, we began shipping our first major new product (the single user PC version of EnterpriseTenFold), the output
of our project, code named Tsunami, announced in Q4 2002. Launching Tsunami to redesign and rewrite customer-facing parts of TenFold technology was an important initiative of 2002. The Tsunami project makes a single-user version of our patented
technology available over the internet. Tsunami includes a script that lets a person who so desires to follow that script both learn Tsunami and build an enterprise application in a few hours. During Q1 2003, we met our goal of releasing the Tsunami
demonstration and we have conducted numerous demonstrations of Tsunami to audiences in many different cities. During Q2 2003, we met our goal of releasing beta copies of Tsunami for further testing. In September of 2003, we began shipping Tsunami
without charge during its Beta program to any qualified person who wanted to try it.



On September 30, 2003, we announced the release of the next generation of our EnterpriseTenFold product. EnterpriseTenFold is a portable, multi-user applications development and deployment platform



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that contains all Tsunami technologies, including the user-interface enhancements that enable a customer to use this technology productively with little
training, as well as all prior EnterpriseTenFold technologies. We believe that EnterpriseTenFold introduces to the industry an innovative 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 developing alliance relationships with VARs, systems integrators and software distributors in the U.S. and international markets. 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. 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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, 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 modest new sales.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Third, following the release of the Beta version of Tsunami many individuals outside TenFold installed Tsunami without charge during its Beta program from tsunami.10fold.com. We
believe the Beta process is demonstrating that Internet installation works smoothly, that our introduction scripts provide a 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customers 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. This TenFold-powered internet-enabled policy rating application has been in production since April 2001. On June 30, 2003, Allstate completed its current use of our time-and-materials consulting services. The subscription period for the
prior Allstate contract concluded during the quarter ended June 30, 2003. We have not received and do not expect to receive significant further cash inflows or to recognize significant revenues from Allstate after June 30, 2003. In July 2002, we
notified Allstate of certain breaches by Allstate of our Agreement, as amended. We continue to attempt 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 legacy systems.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | 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. Cedars-Sinai has since engaged us to perform additional time-and-material projects.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



During 2003, we earned
revenues from 26 customers. Some of our customers accounted for more than 10 percent of our annual revenues. Allstate accounted for 41 percent, JP Morgan Chase accounted for 25 percent, and Sapient accounted for 23 percent of our revenues for the
year ended December 31, 2003. Allstate accounted for 63 percent and JP Morgan Chase accounted for 12 percent of our revenues for the year ended December 31, 2002. Bonneville Power Administration accounted for 27 percent, Abbey National accounted for
16 percent, and Allstate accounted for 11 percent of our revenues for the year ended December 31, 2001.



Revenues from operations outside of North America were 29 percent of total revenues for 2003, 17 percent of total revenues for 2002, and 28 percent of
total revenues for 2001. Revenues from operations in the United Kingdom were 29 percent of total revenues for 2003, 9 percent of total revenues for 2002, and 22 percent of total revenues for 2001. Revenues from operations in Argentina were 0.5
percent of total revenues for 2003, 8 percent of total revenues for 2002, and 6 percent of total revenues for 2001.



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.



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.



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Alternatively, organizations can build custom applications, either internally or with third parties. This
approach promises them the functionality, flexibility, and fit they seek, but 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.



TenFold Technology and Products



LOGO



We believe TenFolds
patented EnterpriseTenFold presents a significantly new approach to applications development. We believe that this approach 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. We believe that EnterpriseTenFold enables
organizations to directly leverage their business experience and insight and to adapt applications easily to meet changing business requirements.



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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 Rendering-Engine |  |       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. We believe that automating tedious programming tasks lets applications developers focus their
intellect and energy on solving the business problem instead of fighting technology problems.



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 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.                                                                                                                                                                                                  



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The EnterpriseTenFold value proposition provides three major benefits  Speed, Quality, and Power
 to its customers. Speed. EnterpriseTenFold makes building complex applications faster than other technologies so projects can be finished in months, not years. 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.



EnterpriseTenFold has been in development more than 10 years,
contains more than 2.5 million lines of C and C++ code, and is covered by three issued U.S. patents. We believe that 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.



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;
| | - | ----------------------------------------------------------------------------------------------------



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| |  | 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 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.



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|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.



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.



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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. Training programs include classroom instruction, detailed courseware, and on-site training.



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 dont exist.



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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.



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 significantly reduced 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.



Patents,
Intellectual Property Rights and Licensing



We rely
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 received three separate patents in the
United States. The first patent (US Patent # 6016394) relates to EnterpriseTenFold. The second (US Patent # 6016643) relates to TenFold AutoTest, our automated testing technology. The third patent (US Patent # 6301701) relates to our
computer-assisted testing of software application components. We have one pending U.S. patent and have additional patents and pending patent applications in other countries. Our trademark portfolio contains 11 U.S. trademark registrations, 27
trademarks registered in other countries and 15 pending applications in the U.S. and other countries.



In addition, as part of our confidentiality procedures, we enter into nondisclosure agreements with our employees, customers, consultants, and corporate
partners, and limit access to and distribution of our software, documentation, and other proprietary information. We retain ownership of EnterpriseTenFold, TenFold ComponentWare, and the EnterpriseTenFold Integrator. Under our prior business model
we generally retained ownership of the applications products that we developed for customers; however, we allowed a small number of customers to own rights to the applications we developed for them. In some cases, our contracts obligate us to pay
royalties on future sales of specific applications, or prohibit us from licensing applications for specified periods of time or to specified third parties.



For information concerning risks associated with intellectual property rights, see Managements Discussion and Analysis of Financial Condition
and Results of Operations  Factors That May Affect Future Results and Market Price of Stock.



Research and Development



Our technology development organization consists of teams of development engineers and product managers. These teams use a documentation-centric development process that includes planning and documenting deliverables in advance,
adhering to coding standards, and performing nightly regression tests of all technology. We continuously monitor quality, analyze the root-cause of defects, report daily and weekly status, and regularly communicate individual and team performance
and adherence to schedule and functionality requirements.



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Our development infrastructure and processes produce documentation, quality assurance, platform
certification, release management, and delivery capabilities (in addition to design and implementation functions) for our technology and products. Developers use TenFold AutoTest  our patented integrated testing technology  to perform
nightly regression tests on all products, components, and technologies under development or modification. Developers use DocuManage, our web-based documentation management and reference system, to access and maintain product documentation.



Our development organization regularly produces new versions
and releases of our EnterpriseTenFold technology. In addition to quality improvements and enhancements for new EnterpriseTenFold releases, our development organization completed our major new Tsunami product during 2003.



Research and development expenses were $3.5 million for the year ended
December 31, 2003, $6.2 million for the year ended December 31, 2002, and $12.7 million in 2001. As of December 31, 2003, we had 23 research and development staff. We intend to continue to make investments in research and development to maintain and
enhance EnterpriseTenFold, EnterpriseTenFold integration tools, and TenFold ComponentWare.



Employees



As of
December 31, 2003, we had 67 employees, including 24 in applications development, training and support, 23 in research and development, 7 in sales and marketing, and 13 in finance, administrative, and information technology support functions. During
the year ended December 31, 2003, our average headcount was 66. None of our employees is represented by a labor union or a collective bargaining agreement and most are at-will employees.



Acquisition and Sale of Subsidiaries



On October 19, 2002, we sold the entire equity interest in our wholly owned subsidiary, TenFold Systems UK Limited, to the management of that subsidiary.
Accordingly, the operations of TenFold Systems UK Limited have been included in the accompanying consolidated statements of operations for TenFold for all periods presented through October 19, 2002. We have previously distributed and supported our
products in the United Kingdom through TenFold Systems UK Limited. Under the terms of this transaction, youDevise Limited (formerly TenFold Systems UK Limited) will continue to distribute TenFold products in the United Kingdom and provide local
support to its customers. We will provide support for EnterpriseTenFold to youDevise Limited and will share with youDevise Limited revenues from existing and future youDevise Limited customers.



On September 30, 1999, we entered into a Stock Purchase Agreement with
Barclays California Corporation (BarCal) under which we purchased the entire equity interest of BarCal in its wholly owned subsidiary, The LongView Group, Inc. (LongView). On October 7, 1999, the acquisition was closed. On
March 15, 2001, we sold LongView for $29.0 million to Linedata Services (Linedata). Accordingly, the operations of LongView have been included in the accompanying consolidated statements of operations from the acquisition through March
15, 2001. The acquisition was accounted for using the purchase method of accounting.



Executive Officers



The executive officers of TenFold are as
follows:



|                   |  |     |  |                                                                                       
|------------------ |  | --- |  | --------------------------------------------------------------------------------------
|Name               |  | Age |  | Position(s)                                                                           
|Nancy M. Harvey    |  | 50  |  | President, Chief Executive Officer, Chief Financial Officer and Director              
|Jeanne Marie Kiss  |  | 57  |  | Senior Vice President, Operations                                                     
|Linda B. Valentine |  | 53  |  | Senior Vice President, Operations, Chief of Staff                                     
|Jeffrey L. Walker  |  | 61  |  | Chairman of the Board of Directors, Executive Vice President, Chief Technology Officer



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Nancy M. Harveyjoined TenFold in July 2000, and has served as President and Chief Executive
Officer since January 2001, and as Chief Financial Officer since November 2002. From July 2000 to December 2000, Dr. Harvey served as TenFolds Chief Operating Officer. Prior to joining TenFold, Dr. Harvey served in various capacities with
Computer Science Corporations (CSC) Healthcare Group, a large-scale applications development, outsourcing and consulting company, including from 1999 to 2000 as Executive Vice President, from 1998 to 1999 as Chief of Staff and
Acting Group Vice President of Finance and Administration, from 1997 to 1998 as a Vice President, and from 1995 to 1997 as a Principal of APM Management Consultants, a management consulting firm acquired in 1996 by CSC. From 1994 to 1995, Dr. Harvey
was a Senior Manager with Ernst & Young, a public accounting firm. In addition, Dr. Harvey held executive positions with MacNeal Health Services Corporation, a regional health delivery system. Dr. Harvey holds a BS in biology and chemistry from
the College of Creative Studies at the University of California at Santa Barbara, an MBA from the Wharton School of the University of Pennsylvania, a Ph.D. in chemical physics from the University of Minnesota, and was a post-doctoral fellow at the
California Institute of Technology.



Jeanne Marie Kissjoined TenFold in November 2001 as a Vice President and has served as Senior Vice President, Operations since September 2002. She has Operations responsibility for the Eastern U.S. and Europe. Prior to joining TenFold, Dr. Kiss served in various
capacities with Computer Science Corporations (CSC) Healthcare Group from 1996 to 2001, including from 1998 to 2001, as Chief Operating Officer of CSC Healthcare. From 1993 to 1996, Dr. Kiss served as Chief Operating Officer of St.
Lukes Roosevelt Hospital Center, an academic medical center in Manhattan, New York. Dr. Kiss holds a Ph.D. in Organizational Development from the Wagner School at New York University and is an adjunct professor at New York Medical College.



Linda B. Valentine joined TenFold in December 2003 and
serves as Senior Vice President with Operations responsibility for the Central and Western U.S. and South America. She also has responsibility for TenFold University and TenFold Support. In addition, as Chief of Staff, Ms. Valentine oversees
TenFolds Legal, Human Resources and Information Technology departments. Prior to joining TenFold, Ms. Valentine served in various capacities with Motorola Inc., including from 2001 to 2002 as Senior Vice President, e-business Transformation,
from 1998 to 2001 as Senior Vice President (from 2000) and Assistant General Counsel, with general counsel responsibilities for Motorolas communications businesses, and from 1996 to 1998 as Corporate Vice President and Assistant General
Counsel. Prior to joining Motorola in 1984, Ms. Valentine held positions in the legal departments of United Airlines and Atlantic Richfield Company. Ms. Valentine is a graduate of the University of Michigan and Georgetown University Law Center and
studied business in the MBA program of the University of Southern California.



Jeffrey L. Walkerfounded TenFold in February 1993 and has served as its Chairman, Executive Vice President, and Chief Technology Officer since October 1996. From TenFolds inception to October 1996, Mr.
Walker served as TenFolds Chairman, President, Chief Executive Officer, and Chief Technology Officer. Prior to founding TenFold, from 1991 to 1993, Mr. Walker was an independent consultant. From 1985 to 1991, Mr. Walker held several management
positions at Oracle Corporation, a large database and applications software company, including Executive Vice President from 1987 to 1991, General Manager Applications Division from 1985 to 1991, Chief Financial Officer from 1987 to 1991, and Senior
Vice President of Marketing during 1986. Prior to joining Oracle, Mr. Walker founded and served as Chief Executive Officer of Walker Interactive Products, an application software company, from 1980 to 1985. Mr. Walker holds a BA in mathematics from
Brown University.



Available Information



Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge from links on our website at www.tenfold.com as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The information posted on the Companys web site is not incorporated into this Annual Report.



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You may read and copy all or any portion of reports, statements or other information we file with the SEC
at the public reference facility maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material are also available by mail from the Public Reference Branch of the SEC at 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates.



Please call
the SEC at 1-800-SEC-0330 for more information on the public reference room. You can also find our SEC filings at the SECs website at http://www.sec.gov.



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##### Table of Contents

|Item 2. | Properties
|------- | ----------



TenFold currently owns no real property. Below is a description of our leased property and the status of each facility at March 1, 2004:



|                  |  |          |  |                |  |                                                                                                                                  
|----------------- |  | -------- |  | -------------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|Location          |  | Sq. Feet |  | Lease expires  |  | Use                                                                                                                              
|South Jordan , UT |  | 22,310   |  | September 2007 |  | Corporate headquarters, research and development, consulting, support, education, sales, executive and administrative activities.
|                  |  |          | 
|San Francisco, CA |  | 3,518    |  | Month to month |  | Research and development, sales, executive and administrative activities.                                                        
|                  |  |          | 
|Irving, TX        |  | 23,386   |  | April 2005     |  | We no longer occupy this property. We have subleased 15,404 sq. feet of this space for the remaining term.                       



We conduct much of our
operations from our principal executive office located near Salt Lake City, Utah where we lease 22,310 square feet under a lease that expires in September 2007. Our staff currently work at this office, at our San Francisco office, at customer sites,
or from home offices. During 2004, we do not presently anticipate needing material additional office space.



During the year ended December 31, 2003, we were, at times, in default of our Irving office lease and our now expired lease for our former Dallas office,
for overdue lease payments. During September 2003, we settled a dispute with our Dallas landlord and agreed to make restructured payments beginning October 1, 2003 and continuing through the remaining term of the lease, which expired in January
2004. During November 2003, we similarly amended our Irving lease to restructure our payments and agreed to make payments beginning November 26, 2003 and continuing through the remaining term of the lease. At December 31, 2003, we were current on
our payments under these leases and no longer in default.



During 2002, we completed a series of agreements with various landlords that eliminated a total of approximately $51 million of long-term lease obligations. This included terminating office leases in Chicago, Illinois; Draper, Utah; Foster
City, California; and San Francisco, California; and negotiating a termination of the unoccupied portions of our South Jordan, Utah headquarters lease reducing the square footage leased from 105,068 to 22,310 square feet, reducing the term from 11
years to 5 years, and reducing the rental rate per square foot.



During 2001, we closed offices in Atlanta, Georgia; Foster City, California; Irving, Texas; New York, New York; Park Ridge, New Jersey; and Raleigh, North Carolina. We subsequently terminated the Atlanta, Georgia lease, and subsequently
subleased approximately 15,404 sq. feet of the lease in Irving, Texas. We also canceled an expansion requirement in Chicago, Illinois that would have commenced on October 1, 2001.



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##### Table of Contents

|Item 3. | Legal Proceedings
|------- | -----------------



See Part IV, Item 15, Note 10 of Notes to Consolidated Financial Statements for a description of legal proceedings.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None



20



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##### Table of Contents

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------



Our common stock is quoted on the OTC Bulletin Board Market under the
trading symbol TENF.OB. Our high and low prices by quarter during 2003 and 2002 are presented below. These prices reflect inter-dealer quotations and may not represent actual transactions.



|               |  |      |      |     |   |     
|-------------- |  | ---- | ---- | --- | - | ----
|               |  | 2003
|               |  | HIGH |      | LOW
|First Quarter  |  | $    | 0.39 |     | $ | 0.14
|Second Quarter |  | $    | 3.00 |     | $ | 0.30
|Third Quarter  |  | $    | 2.77 |     | $ | 1.23
|Fourth Quarter |  | $    | 3.41 |     | $ | 1.85
|               | 
|               |  | 2002
|               |  | HIGH |      | LOW
|First Quarter  |  | $    | 0.87 |     | $ | 0.34
|Second Quarter |  | $    | 0.77 |     | $ | 0.35
|Third Quarter  |  | $    | 0.40 |     | $ | 0.10
|Fourth Quarter |  | $    | 0.49 |     | $ | 0.07



On December 31, 2003,
we had approximately 243 stockholders of record of our common stock and 45,969,524 shares of our common stock were issued and outstanding. On January 31, 2004, we had 45,978,898 shares of common stock outstanding.



We have never declared or paid dividends on our common stock. We expect to
retain any earnings generated by our operations for the development and growth of our business, and we do not anticipate paying any dividends to our stockholders for the foreseeable future.



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Equity Compensation Plan Information



The following table provides the information about our common stock that may be issued upon the exercise of options and rights under all of
our existing equity compensation plans as of December 31, 2003, including the 1993 Flexible Stock Incentive Plan, the 1999 Stock Plan, the 1999 Employee Stock Purchase Plan, and the 2000 Employee Stock Option Plan.



|                                                           |  |                                                                                                                     |     |  |                                                                              |      |                                                                                                                                                                  |            |    
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---
|Plan category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and
rights asof December 31, 2003 (a) |     |  | Weighted-averageexercise price ofoutstanding options,warrants and
rights (b) |      | Number of securitiesremaining availablefor future issuanceunder equitycompensation
plansas of December 31, 2003 (excludingsecurities reflectedin column (a)) (c) |           
|Equity compensation plans approved by security holders     |  | 15,073,439                                                                                                          | (1) |  | $                                                                            | 1.94 |                                                                                                                                                                  | 7,020,820  | (2)
|Equity compensation plans not approved by security holders |  | 1,790,550                                                                                                           | (3) |  | $                                                                            | 1.10 |                                                                                                                                                                  | 5,031,550  | (4)
|Total                                                      |  | 16,863,989                                                                                                          |     |  | $                                                                            | 1.85 |                                                                                                                                                                  | 12,052,370 |    



|(1) | 4,265,235 to be issued under the 1993 Flexible Stock Incentive Plan, and 10,808,204 to be issued under the 1999 Stock Plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(2) | 1,163,533 available for future issuance under the 1993 Flexible Stock Incentive Plan, 4,387,193 available for future issuance under the 1999 Stock Plan, and
1,470,094 available for future issuance under the 1999 Employee Stock Purchase Plan. The 1999 Stock Plan includes an evergreen feature, which provides for an automatic annual increase in the number of shares available under the 1999 Stock Plan on
the first day of our fiscal year beginning in 2004 equal to the lesser of 1,000,000 shares, 3% of the outstanding common stock on the last day of the immediately preceding fiscal year, or a lesser number of shares as the Board of Directors shall
determine. The 1999 Employee Stock Purchase Plan, designed to comply with Internal Revenue Code Section 423, also includes an evergreen feature, which provides for an automatic annual increase in the number of shares available under the plan on the
first day of our fiscal year beginning in 2004 equal to the lesser of 300,000 shares, three-quarters of one percent (0.75%) of the outstanding common stock on the last day of the immediately preceding fiscal year, or a lesser number of shares as the
Board of Directors shall determine.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Issued under the 2000 Employee Stock Option Plan.
|--- | -------------------------------------------------



|(4) | Shares available at December 31, 2003 under the 2000 Employee Stock Option Plan.
|--- | --------------------------------------------------------------------------------



2000 Employee Stock Option Plan. Our 2000 Employee
Stock Option Plan was adopted by the Board of Directors in December 2000. A total of 7,000,000 shares of common stock have been reserved for issuance under the 2000 Stock Option Plan. The 2000 Stock Option Plan provides for the granting of
nonstatutory options to purchase shares of our common stock to employees, excluding officers and members of our Board of Directors. Nonstatutory options do not qualify as an Incentive Stock Option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The 2000 Employee Stock Option Plan is administered by the Board of Directors. The plan administrator determines the terms of options granted under the 2000 Stock Option Plan, including the number of shares subject
to an option, the exercise price, the term and exercisability of options, and any vesting or other restrictions that apply to awards. The 2000 Stock Option Plan allows us to issue options with an exercise price equal to any price determined
appropriate by the administrator. To date, all options issued under the 2000 Stock Option Plan have had exercise prices equal to the fair market value of the common stock on the date the option was granted. The plan allows for payment of the
exercise price with cash, check, promissory note, or other shares of TenFold common stock, through a brokered cashless exercise program, or with any other form of consideration permitted by the administrator.



Options issued under the 2000 Stock Option Plan generally vest over a
four-year period and expire ten years from the date of grant. However, in December 2000, we granted 6,525,800 options under the 2000 Stock Option Plan that vested over a three-year period. 5,758,346 of these options have been cancelled, 48,217 have
been exercised, and 719,237 of these options remain outstanding.



The 2000 Stock Option Plan provides for automatic adjustment of shares remaining available for issuance as well as adjustment of outstanding awards in the event of any stock split, stock dividend, or similar change in our capital structure.
In the event we were to be acquired by a third-party acquiror, we



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would expect that outstanding options would be assumed by our acquiror so that they would convert into awards to purchase acquiror stock (adjusted to reflect
the terms of the transaction). If our acquiror did not agree to assume outstanding awards, then the vesting of such awards would accelerate in full prior to the closing of the acquisition and unexercised awards would terminate upon the closing.
Unless terminated earlier, the 2000 Stock Plan will terminate in December 2010.



Recent Sales of Unregistered Securities



Our
unregistered stock sales during 2003 are as follows:



| |  | On February 5, 2003, we entered into a Purchase Agreement with the Robert W. Felton Trust for the sale of 3,888,889 shares of unregistered common stock at a purchase price of $0.18
per share.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On December 22, 2003, we entered into a Securities Purchase Agreement for the sale of 5,000,000 shares of unregistered common stock for a purchase price of $2.00 per share.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

|Item 6. | Selected Financial Data
|------- | -----------------------



The selected consolidated statement of operations data for the years ended December 31, 2003, 2002, 2001, 2000, and 1999, and the selected consolidated
balance sheet data as of December 31, 2003, 2002, 2001, 2000, and 1999, are derived from, and are qualified by reference to, TenFolds audited financial statements. The historical results are not necessarily indicative of future results.



|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                   |  | Year ended December 31,               |       
|                                                                                   |  | 2003                                  |        |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                                                                   |  | (in thousands, except per share data) |       
|Consolidated Statement of Operations Data:                                         |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues:                                                                          |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|License                                                                            |  | $                                     | 248    |   |      | $ | 207     |      |  | $ | 8,532   |   |  | $    | 12,416  |   |  | $ | 47,088  |  
|Subscription                                                                       |  |                                       | 10,431 |   |      |   | 15,548  |      |  |   | 689     |   |  |      |        |   |  |   |        |  
|Services and other                                                                 |  |                                       | 17,030 |   |      |   | 12,475  |      |  |   | 45,692  |   |  |      | 57,117  |   |  |   | 50,710  |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                                                     |  |                                       | 27,709 |   |      |   | 28,230  |      |  |   | 54,913  |   |  |      | 69,533  |   |  |   | 97,798  |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating expenses:                                                                |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of revenues                                                                   |  |                                       | 9,454  |   |      |   | 12,998  |      |  |   | 30,990  |   |  |      | 69,151  |   |  |   | 36,413  |  
|Sales and marketing                                                                |  |                                       | 1,088  |   |      |   | 1,985   |      |  |   | 5,556   |   |  |      | 22,558  |   |  |   | 24,922  |  
|Research and development                                                           |  |                                       | 3,471  |   |      |   | 6,229   |      |  |   | 12,672  |   |  |      | 25,660  |   |  |   | 18,436  |  
|General and administrative                                                         |  |                                       | 3,046  |   |      |   | 7,803   |      |  |   | 11,113  |   |  |      | 25,664  |   |  |   | 5,341   |  
|Amortization of goodwill and acquired intangibles                                  |  |                                       |       |   |      |   |        |      |  |   | 962     |   |  |      | 4,603   |   |  |   | 1,064   |  
|In process research and development                                                |  |                                       |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 2,000   |  
|Special charges                                                                    |  |                                       | (673   | ) |      |   | 2,838   |      |  |   | 18,876  |   |  |      | 4,810   |   |  |   |        |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                                                           |  |                                       | 16,386 |   |      |   | 31,853  |      |  |   | 80,169  |   |  |      | 152,446 |   |  |   | 88,176  |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                                                      |  |                                       | 11,323 |   |      |   | (3,623  | )    |  |   | (25,256 | ) |  |      | (82,913 | ) |  |   | 9,622   |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total other income, net                                                            |  |                                       | 2,456  |   |      |   | 1,938   |      |  |   | 12,553  |   |  |      | 2,152   |   |  |   | 981     |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes                                                  |  |                                       | 13,779 |   |      |   | (1,685  | )    |  |   | (12,703 | ) |  |      | (80,761 | ) |  |   | 10,603  |  
|Provision (benefit) for income taxes                                               |  |                                       | 32     |   |      |   | (497    | )    |  |   | 2,965   |   |  |      | (619    | ) |  |   | 4,736   |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                                  |  | $                                     | 13,747 |   |      | $ | (1,188  | )    |  | $ | (15,668 | ) |  | $    | (80,142 | ) |  | $ | 5,867   |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Accretion of Series A and B redeemable Preferred stock                             |  |                                       |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (391    | )
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) applicable to common stockholders                                |  | $                                     | 13,747 |   |      | $ | (1,188  | )    |  | $ | (15,668 | ) |  | $    | (80,142 | ) |  | $ | 5,476   |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic earnings (loss) per common share                                             |  | $                                     | 0.34   |   |      | $ | (0.03   | )    |  | $ | (0.44   | ) |  | $    | (2.29   | ) |  | $ | 0.19    |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted earnings (loss) per common share                                           |  | $                                     | 0.29   |   |      | $ | (0.03   | )    |  | $ | (0.44   | ) |  | $    | (2.29   | ) |  | $ | 0.16    |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Weighted average shares - basic(1)                                                 |  |                                       | 40,634 |   |      |   | 37,249  |      |  |   | 35,623  |   |  |      | 35,035  |   |  |   | 29,278  |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Weighted average shares - diluted(1)                                               |  |                                       | 47,623 |   |      |   | 37,249  |      |  |   | 35,623  |   |  |      | 35,035  |   |  |   | 34,384  |  
|                                                                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Consolidated Balance Sheet Data (at period end):                                   |  |                                       |        |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                                          |  | $                                     | 12,236 |   |      | $ | 3,838   |      |  | $ | 10,969  |   |  | $    | 13,854  |   |  | $ | 58,247  |  
|Total current assets                                                               |  |                                       | 13,489 |   |      |   | 7,654   |      |  |   | 16,604  |   |  |      | 19,751  |   |  |   | 77,956  |  
|Total assets                                                                       |  |                                       | 14,417 |   |      |   | 9,284   |      |  |   | 27,476  |   |  |      | 65,275  |   |  |   | 112,632 |  
|Total current liabilities                                                          |  |                                       | 15,857 |   |      |   | 34,484  |      |  |   | 50,942  |   |  |      | 66,088  |   |  |   | 44,574  |  
|Long-term obligations, redeemable preferred and common stock, less current portion |  |                                       |       |   |      |   | 25      |      |  |   | 1,878   |   |  |      | 10,023  |   |  |   | 3,464   |  
|Stockholders equity (deficit)                                                     |  |                                       | (1,440 | ) |      |   | (25,225 | )    |  |   | (25,344 | ) |  |      | (11,448 | ) |  |   | 61,840  |  
|Working capital (deficit)                                                          |  |                                       | (2,368 | ) |      |   | (26,830 | )    |  |   | (34,338 | ) |  |      | (46,337 | ) |  |   | 33,382  |  



|(1) | See Note 4 to the financial statements for an explanation of the determination of the method used to determine the number of shares used in computing net earnings
(loss) per share.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

Supplementary Financial Information



The following tables set forth certain unaudited quarterly results of operations of TenFold for 2003 and 2002. In the
opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated
below to present fairly the quarterly information when read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The quarterly operating results are not
necessarily indicative of future results.



|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|---------------------------------------- |  | ------------------------------------------------ | ------ | - | ------------ | - | ------ | ------------ |  | - | ----------- | - |  | ----------- | ----- | ------------ |  | ------------ | ----- |  | ----------- | ----- |  | - | ----- | - |  | - | -----
|                                         |  | Quarter ended                                   
|                                         |  | Mar 31,2002                                      |        |   | June 30,2002 |   |        | Sept 30,2002 |  |   | Dec 31,2002 |   |  | Mar 31,2003 |       | June 30,2003 |  | Sept 30,2003 |       |  | Dec 31,2003
|                                         |  | (in thousands, except per share data)(unaudited)
|Revenues:                                |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|License                                  |  | $                                                | 104    |   |              | $ | 46     |              |  | $ | 33          |   |  | $           | 24    |              |  | $            | 3     |  | $           | 42    |  | $ | 11    |   |  | $ | 192  
|Subscription                             |  |                                                  | 2,603  |   |              |   | 3,509  |              |  |   | 4,315       |   |  |             | 5,121 |              |  |              | 6,052 |  |             | 4,379 |  |   |      |   |  |   |     
|Services and other                       |  |                                                  | 2,868  |   |              |   | 2,695  |              |  |   | 3,745       |   |  |             | 3,167 |              |  |              | 3,313 |  |             | 5,120 |  |   | 4,547 |   |  |   | 4,050
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Total revenues                           |  |                                                  | 5,575  |   |              |   | 6,250  |              |  |   | 8,093       |   |  |             | 8,312 |              |  |              | 9,368 |  |             | 9,541 |  |   | 4,558 |   |  |   | 4,242
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Operating expenses:                      |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Cost of revenues                         |  |                                                  | 3,743  |   |              |   | 3,869  |              |  |   | 2,626       |   |  |             | 2,760 |              |  |              | 2,275 |  |             | 2,240 |  |   | 2,905 |   |  |   | 2,034
|Sales and marketing                      |  |                                                  | 526    |   |              |   | 607    |              |  |   | 624         |   |  |             | 228   |              |  |              | 225   |  |             | 265   |  |   | 298   |   |  |   | 300  
|Research and development                 |  |                                                  | 1,895  |   |              |   | 1,381  |              |  |   | 2,015       |   |  |             | 938   |              |  |              | 915   |  |             | 982   |  |   | 862   |   |  |   | 712  
|General and administrative               |  |                                                  | 2,873  |   |              |   | 2,007  |              |  |   | 1,702       |   |  |             | 1,221 |              |  |              | 1,241 |  |             | 773   |  |   | 697   |   |  |   | 335  
|Special charges                          |  |                                                  | 24     |   |              |   | 562    |              |  |   | 1,140       |   |  |             | 1,112 |              |  |              |      |  |             |      |  |   | (673  | ) |  |   |     
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Total operating expenses                 |  |                                                  | 9,061  |   |              |   | 8,426  |              |  |   | 8,107       |   |  |             | 6,259 |              |  |              | 4,656 |  |             | 4,260 |  |   | 4,089 |   |  |   | 3,381
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Income (loss) from operations            |  |                                                  | (3,486 | ) |              |   | (2,176 | )            |  |   | (14         | ) |  |             | 2,053 |              |  |              | 4,712 |  |             | 5,281 |  |   | 469   |   |  |   | 861  
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Total other income (loss), net           |  |                                                  | (64    | ) |              |   | (172   | )            |  |   | (58         | ) |  |             | 2,232 |              |  |              | 2,295 |  |             | 82    |  |   | 3     |   |  |   | 76   
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Income (loss) before income taxes        |  |                                                  | (3,550 | ) |              |   | (2,348 | )            |  |   | (72         | ) |  |             | 4,285 |              |  |              | 7,007 |  |             | 5,363 |  |   | 472   |   |  |   | 937  
|Provision (benefit) for income taxes     |  |                                                  | (508   | ) |              |   | 7      |              |  |   | 5           |   |  |             | (1    | )            |  |              | 12    |  |             | 5     |  |   |      |   |  |   | 15   
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Net income (loss)                        |  | $                                                | (3,042 | ) |              | $ | (2,355 | )            |  | $ | (77         | ) |  | $           | 4,286 |              |  | $            | 6,995 |  | $           | 5,358 |  | $ | 472   |   |  | $ | 922  
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Basic earnings (loss) per common share   |  | $                                                | (0.08  | ) |              | $ | (0.06  | )            |  | $ | (0.00       | ) |  | $           | 0.11  |              |  | $            | 0.18  |  | $           | 0.13  |  | $ | 0.01  |   |  | $ | 0.02 
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      
|Diluted earnings (loss) per common share |  | $                                                | (0.08  | ) |              | $ | (0.06  | )            |  | $ | (0.00       | ) |  | $           | 0.11  |              |  | $            | 0.18  |  | $           | 0.11  |  | $ | 0.01  |   |  | $ | 0.02 
|                                         |  |                                                  |        |   |              |   |        |              |  |   |             |   |  |             |       |              |  |              |       |  |             |       |  |   |       |   |  |   |      



25



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##### Table of Contents

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Business Overview



TenFold is the provider of EnterpriseTenFold (formerly Universal Application), a software applications platform that reduces enterprise applications design, development, deployment,
and maintenance timeframes and costs. EnterpriseTenFold 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 significant change from the industry-standard approach that relies on large teams of IT professionals who expend significant numbers of person years of effort to design, program, test, change, and deploy enterprise applications. We
believe that with EnterpriseTenFold, customers get high-quality, complex enterprise applications into production faster and at significantly lower cost 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, we believe 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, we believe it enables organizations to directly leverage their business experience and insight and to adapt applications easily to
meet changing business requirements.



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



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



26



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##### Table of Contents

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
December 31, 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.



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.



Results of Operations



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



|                                                  |  |                          |    |  |      |    |  |      |   
|------------------------------------------------- |  | ------------------------ | -- |  | ---- | -- |  | ---- | --
|                                                  |  | Years Ended December 31, |   
|                                                  |  | 2003                     |    |  | 2002 |    |  | 2001 |   
|Revenues:                                         |  |                          |    |  |      |    |  |      |   
|License                                           |  | 1                        | %  |  | 1    | %  |  | 16   | % 
|Subscription                                      |  | 38                       | %  |  | 55   | %  |  | 1    | % 
|Services and other                                |  | 61                       | %  |  | 44   | %  |  | 83   | % 
|                                                  |  |                          |    |  |      |    |  |      |   
|Total revenues                                    |  | 100                      | %  |  | 100  | %  |  | 100  | % 
|Operating expenses:                               |  |                          |    |  |      |    |  |      |   
|Cost of revenues                                  |  | 34                       | %  |  | 46   | %  |  | 57   | % 
|Sales and marketing                               |  | 4                        | %  |  | 7    | %  |  | 10   | % 
|Research and development                          |  | 12                       | %  |  | 22   | %  |  | 23   | % 
|General and administrative                        |  | 11                       | %  |  | 28   | %  |  | 20   | % 
|Amortization of goodwill and acquired intangibles |  |                         |    |  |     |    |  | 2    | % 
|Special charges                                   |  | (2                       | %) |  | 10   | %  |  | 34   | % 
|                                                  |  |                          |    |  |      |    |  |      |   
|Total operating expenses                          |  | 59                       | %  |  | 113  | %  |  | 146  | % 
|                                                  |  |                          |    |  |      |    |  |      |   
|Income (loss) from operations                     |  | 41                       | %  |  | (13  | %) |  | (46  | %)
|Total other income, net                           |  | 9                        | %  |  | 7    | %  |  | 23   | % 
|                                                  |  |                          |    |  |      |    |  |      |   
|Income (loss) before income taxes                 |  | 50                       | %  |  | (6   | %) |  | (23  | %)
|Provision (benefit) for income taxes              |  |                         |    |  | (2   | %) |  | 6    | % 
|                                                  |  |                          |    |  |      |    |  |      |   
|Net income (loss)                                 |  | 50                       | %  |  | (4   | %) |  | (29  | %)
|                                                  |  |                          |    |  |      |    |  |      |   



2003 as Compared to 2002



Revenues



Total revenues decreased $521,000, or 2 percent, to $27.7 million for the
year ended December 31, 2003, as compared to $28.2 million for the year ended December 31, 2002.



27



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##### Table of Contents

License revenues increased $41,000, or 20 percent, to $248,000 for the year ended December 31, 2003, as
compared to $207,000 for the year ended December 31, 2002. The increase in license revenues is due to some recent small new license sales.



Subscription revenues decreased $5.1 million, or 33 percent, to $10.4 million for the year ended December 31, 2003, as compared to $15.5 million for the
year ended December 31, 2002. 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 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. The decrease
in subscription revenues is due to the completion of the amortization of our deferred subscription revenues during the second quarter of 2003, when our existing subscription contracts reached the end of their subscription periods.



Service and other revenues increased $4.5 million, or 37 percent, to $17.0
million for the year ended December 31, 2003, as compared to $12.5 million for the year ended December 31, 2002. Service and other revenues increased in part due to providing a higher volume of time-and-material services during 2003 as compared to
2002. Services and other revenues for the year ended December 31, 2003 also include $1.5 million from the reduction over time of a guarantee on one contract as described in more detail below under Guarantees, and $600,000 recognized upon completion
of training obligations associated with a contract signed in 2002.



Revenues from operations outside of North America were 29 percent of total revenues for the year ended December 31, 2003 as compared to 17 percent in 2002. The 2003 and 2002 revenues from operations outside of North America were
attributable to four customers. Revenues from operations in the United Kingdom were 29 percent of total revenues for 2003, and 9 percent of total revenues for 2002. The increase in percent on total revenues from the United Kingdom during 2003 is
primarily due to a large consulting project we commenced in November 2002 and have underway in the United Kingdom where we are working with our global systems integrator partner, Sapient, and with our UK reseller, youDevise Limited, to provide
expertise and consulting services to support Sapients GBS implementation project for Vertex. Revenues from operations in Argentina were 0.5 percent of total revenues for 2003, and 8 percent of total revenues for 2002. At December 31, 2003, all
of TenFolds long-lived assets are deployed in the United States.



Three customers accounted for 41 percent, 25 percent and 23 percent of our total revenues for 2003, compared to two customers accounting for 63 percent and 12 percent of our total revenues for the year ended December 31, 2002. No other
single customer accounted for more than 10 percent of our total revenues for the year ended December 31, 2003 or 2002. The customer accounting for 41% of our total revenues for the year ended December 31, 2003 is not expected to account for a
significant percentage of ongoing revenues since the subscription period for the customers prior contract concluded along with its purchase of time-and-materials consulting services, and technical support.



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



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 decreased $3.5 million, or 27 percent, to $9.5 million for the year ended December



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31, 2003, as compared to $13.0 million for the year ended December 31, 2002. The decreases were 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 $897,000, or 45 percent, to $1.0 million for the year ended December 31, 2003, as compared to $2.0 million for the year ended December 31, 2002. The decreases in sales and marketing expenses were 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 $2.7 million, or 44
percent, to $3.5 million for the year ended December 31, 2003, as compared to $6.2 million for the year ended December 31, 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, business insurance, and professional fees. General and administrative expenses decreased $4.8
million, or 61 percent, to $3.0 million for the year ended December 31, 2003, as compared to $7.8 million for the year ended December 31, 2002. General and administrative expenses decreased due primarily to having a smaller scale of operations and
fewer general and administrative employees, voluntary executive compensation reductions, lower legal expenses from the settlement of legal matters, and reduced financing related expenses in 2003.



Special Charges. Special charges for the year ended December
31, 2003 of $(673,000) include restructuring charge adjustments of $(578,000) and asset loss impairment adjustments of ($95,000). Special charges for the year ended December 31, 2002 of $2.8 million include restructuring charges of $2.0 million and
$851,000 of asset impairment charges.



Asset Impairment
Charges. During year ended December 31, 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.



During year ended December 31, 2002, we identified
$851,000 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 $851,000 for the year ended December 31, 2002. This charge included the impairment of the leased
equipment assets that we returned to our two major equipment lessors pursuant to agreements reached with these lessors subsequent to December 31, 2002, under which we bought out and fully retired the related equipment lease debt and returned
substantially all the related equipment.



Restructuring
Charges. During the year ended December 31, 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.



During the year ended December 31, 2002, we incurred restructuring charges of $2.0 million, including $1.1 million, related to termination of the unoccupied portions of our South Jordan Utah headquarters lease, and
$836,000, related to adjustments made to prior restructuring estimates. The termination of the unoccupied portions of the South Jordan lease reduced the square footage leased from 105,068 to 22,310 square feet, reduced the term from 11 years to 5
years, and reduced the rental rate per square foot. This reduced our total base rent obligations (before operating expenses) under this lease by approximately $19 million over the term of the lease. As part of this transaction, we released to the
landlord $1.5 million previously held as restricted cash to support these leases. The restructuring charge of $1.1 million is comprised of a charge of $1.5 million for release of the restricted cash, less the reversal of a prior rent accrual of
$400,000 no longer needed under the terms of the restructured lease. The adjustments to prior restructuring estimates primarily resulted from higher facilities lease



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termination payments, and lower revised estimates of future facilities sublease income payments (in part due to the default of one of our subtenants), than
previously estimated.



We determined our restructuring charges
in accordance with Emerging Issues Task Force Issue No. 94-3 (EITF 94-3) and Staff Accounting Bulletin No. 100 (SAB 100). EITF 94-3 and SAB 100 require that we commit to an exit plan before we accrue employee termination
costs and exit costs.



Restructuring reserves are included in
accounts payable and accrued liabilities at December 31, 2003. Detail of the restructuring charges as of and for the year ended December 31, 2003 are summarized below (in thousands):



|                      |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    
|--------------------- |  | -------------------------- | ----- | ---------- | - | ----------- |  | - | -------- | - |  | --------------------------- | ---- | - |  | - | ---
|RestructuringCharges: |  | Balance atDecember 31,2002 |       | NewCharges |   | Adjustments |  |   | Utilized |   |  | Balance at December 31,2003
|Employee related      |  | $                          |      |            | $ |            |  | $ |         |   |  | $                           |     |   |  | $ |   
|Facilities related    |  |                            | 1,565 |            |   |            |  |   | (578     | ) |  |                             | (456 | ) |  |   | 531
|                      |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    
|                      |  | $                          | 1,565 |            | $ |            |  | $ | (578     | ) |  | $                           | (456 | ) |  | $ | 531
|                      |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    



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.



During the quarter ended December 31, 2003, we reduced some variable
compensation accrued during the first half of 2003, to lower levels that we believe better reflect our estimates due to our financial performance and cash position for 2003 as a whole. This reduced operating expenses for the fourth quarter of 2003
by $550,000.



Total Other Income (Expense), net



Net total other income was $2.5 million for the year
ended December 31, 2003, as compared to $1.9 million for the year ended December 31, 2002. Net total other income for the year ended December 31, 2003 included a gain of $2.2 million that we recognized on the retirement of capital lease obligations
at a significant discount to their carrying value. Net total other income for the year ended December 31, 2002 included a gain of $2.4 million that we recognized on the retirement of debt, and a loss of $279,000 on our sale of TenFold Systems UK
Limited on October 19, 2002. Interest income decreased for 2003 as compared to 2002 due to lower cash and cash equivalent balances in 2003. Interest expense decreased for 2003 as compared to 2002 due to lower notes payable and obligations under
capital lease balances in 2003.



Provision for Income Taxes



The provision for income taxes was $32,000 for the year
ended December 31, 2003 as compared to a benefit of $497,000 for 2002. The provision for income taxes for the year ended December 31, 2003 relates primarily to foreign taxes. The net income tax benefit for the year ended December 31, 2002, relates
primarily to reversing accrued Federal alternative minimum taxes from 2001 due to tax legislation enacted in 2002. No tax benefit was recorded during 2002 for TenFolds net operating losses.



At December 31, 2003, we had established a valuation allowance of $38.0
million for the net deferred tax assets related to temporary differences, foreign tax credit carryforwards and projected 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, including the size of the prior operating losses, the



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currently available, objective evidence indicates that it is more likely than not that the net deferred tax assets will not be realized.



Balance Sheet Items



Cash and cash equivalents.We had cash and cash
equivalents of $12.2 million at December 31, 2003 compared to $3.8 million at December 31, 2002. The increase was primarily due to the proceeds from the private placement we completed in December 2003. See Note 12 of Notes to Consolidated Financial
Statements for more information.



Other current assets
and other current liabilitiesWe had other current assets of $10,000 at December 31, 2003 compared to $2.1 million at December 31, 2002. We had other current liabilities of $0 at December 31, 2003 compared to $2.0 million at December 31,
2002. The changes in other current assets and other current liabilities were primarily due to our removing a previously accrued other receivable and a previously accrued other liability related to a litigation matter, as a result of the dismissal of
the case. See Note 10 of Notes to Consolidated Financial Statements for more information.



Deferred revenues We had deferred revenues of $7.6 million at December 31, 2003 compared to $20.3 million at December 31, 2002. The decrease 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. We had a deferred revenue balance of $7.6 million
at December 31, 2003 that we expect to recognize as revenues in future periods, but the timing of recognition is uncertain. As a result, we do not expect to recognize revenues or profits from deferred revenues during 2004 at the same levels that we
experienced during 2003.



Current installments of
obligations under capital leases We had current installments of obligations under capital leases of $0 at December 31, 2003 compared to $3.0 million at December 31, 2002. The decrease was primarily the result of completing 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.



2002 as Compared to 2001



Revenues



Total revenues decreased $26.7 million, or 49 percent, to $28.2 million for the year ended December 31, 2002, as compared to $54.9 million for the year
ended December 31, 2001. The decrease in revenues is primarily due to the completion or cancellation of various fixed-price build projects in 2001.



License revenues decreased $8.3 million, or 98 percent, to $207,000 for the year ended December 31, 2002, as compared to $8.5 million for the year ended
December 31, 2001. The decrease in license revenues is primarily due to the completion or cancellation of fixed-price build projects in 2001, under which the licenses were recognized as costs were incurred on the build projects, and due to license
fees in subscription contracts being recognized as subscription revenue.



Subscription revenues were $15.5 million for the year ended December 31, 2002, as compared to $689,000 for the year ended December 31, 2001. 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 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. The increase in subscription revenues is primarily due to the fact that we did not have a subscription
contract prior to the fourth quarter of 2001.



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Service and other revenues decreased $33.2 million, or 73 percent, to $12.5 million for the year ended
December 31, 2002, as compared to $45.7 million for the year ended December 31, 2001. Service and other revenues decreased due to the completion or cancellation of various fixed-price build projects in 2001, and due to time-and-material revenue from
our largest customer being recognized as subscription revenue.



Revenues from operations outside of North America were 17 percent of total revenues for the year ended December 31, 2002 as compared to 28 percent in 2001. The 2002 and 2001 revenues from operations outside of North America was attributable
to four customers. Revenues from operations in the United Kingdom were 9 percent of total revenue for 2002, and 22 percent of total revenue for 2001. Revenues from operations in Argentina were 8 percent of total revenue for 2002, and 6 percent of
total revenue for 2001. At December 31, 2002, all of TenFolds long-lived assets were deployed in the United States.



Two customers accounted for 63 percent and 12 percent of our total revenues for 2002, compared to three customers accounting for 27 percent, 16 percent
and 11 percent of our total revenues for the year ended December 31, 2001. No other single customer accounted for more than 10 percent of our total revenues for the year ended December 31, 2002 or 2001.



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



Operating Expenses



Cost of Revenues. Cost of revenues consists primarily of
compensation and other related costs of personnel to provide applications development and implementation, support, and training services. Cost of revenues decreased $18.0 million, or 58 percent, to $13.0 million for the year ended December 31, 2002,
as compared to $31.0 million for the year ended December 31, 2001. The decreases were primarily due to a smaller number of employees working on customer projects, and support and training activities.



Sales and Marketing. Sales and marketing expenses consist
primarily of compensation, travel, and other related expenses for sales and marketing personnel, as well as advertising and other marketing expenses. Sales and marketing expenses decreased $3.6 million, or 64 percent, to $2.0 million for the year
ended December 31, 2002, as compared to $5.6 million for the year ended December 31, 2001. The decreases in sales and marketing expenses were primarily due to having fewer sales and marketing employees in 2002.



Research and Development. Research and development expenses
consist primarily of compensation and other related costs of personnel dedicated to research and development activities. Research and development expenses decreased $6.4 million, or 51 percent, to $6.2 million for the year ended December 31, 2002,
as compared to $12.7 million for the year ended December 31, 2001. Research and development expenses decreased due primarily to having fewer research and development employees in 2002.



General and Administrative. General and administrative expenses consist primarily of allowances for doubtful
accounts, the costs of executive management, finance and administrative staff, business insurance, and professional fees. General and administrative expenses decreased $3.3 million, or 30 percent, to $7.8 million for the year ended December 31,
2002, as compared to $11.1 million for the year ended December 31, 2001. General and administrative expenses decreased due primarily to having a smaller scale of operations and fewer general and administrative employees in 2002.



Amortization of Goodwill and Acquired Intangibles. We recorded
no amortization expense of goodwill and acquired intangibles for the year ended December 31, 2002. For the year ended December 31, 2001, we recorded $962,000 of amortization expense of goodwill and acquired intangibles associated with our prior
purchase of LongView. We completed the sale of LongView on March 15, 2001. We no longer have any goodwill or acquired intangibles.



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Special Charges. Special charges for the year ended December 31, 2002 of $ 2.8 million
include restructuring charges of $2.0 million and $851,000 of asset impairment charges. Special charges for the year ended December 31, 2001 of $18.9 million include $10.1 million of asset impairment charges, and $8.8 million of restructuring
charges.



Asset Impairment Charges. During year ended
December 31, 2002, We identified $851,000 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 $851,000 for the year ended December 31, 2002. This charge included the
impairment of the leased equipment assets that we returned to our two major equipment lessors pursuant to agreements reached with these lessors subsequent to December 31, 2002, under which we bought out and fully retired the related equipment lease
debt and returned substantially all the related equipment.



During the year ended December 31, 2001, we restructured our operations to reduce operating expenses. As part of the restructuring, we closed or planned to close excess facilities in Atlanta, Georgia; Chicago, Illinois; Foster City,
California; Irving, Texas; New York, New York; Park Ridge, New Jersey; Raleigh, North Carolina; Richmond, UK; Salt Lake City, Utah; and San Francisco, California. We had $7.7 million in computer equipment, leasehold improvements, furniture and
fixtures, and other assets in these offices that we determined had no future value to us. We also recorded an impairment charge on our fixed assets of $2.4 million to state them at their estimated fair market value at December 31, 2001. Accordingly,
we recorded asset impairment charges of $10.1 million during the year ended December 31, 2001.



Restructuring Charges. During the year ended December 31, 2002, we incurred restructuring charges of $2.0 million, including $1.1 million, related
to termination of the unoccupied portions of our South Jordan Utah headquarters lease, and $836,000, related to adjustments made to prior restructuring estimates. The termination of the unoccupied portions of the South Jordan lease reduced the
square footage leased from 105,068 to 22,310 square feet, reduced the term from 11 years to 5 years, and reduced the rental rate per square foot. This reduced our total base rent obligations (before operating expenses) under this lease by
approximately $19 million over the term of the lease. As part of this transaction, we released to the landlord $1.5 million previously held as restricted cash to support these leases. The restructuring charge of $1.1 million is comprised of a charge
of $1.5 million for release of the restricted cash, less the reversal of a prior rent accrual of $400,000 no longer needed under the terms of the restructured lease. The adjustments to prior restructuring estimates primarily resulted from higher
facilities lease termination payments, and lower revised estimates of future facilities sublease income payments (in part due to the default of one of our subtenants), than previously estimated.



During the year ended December 31, 2001, we incurred restructuring charges
of $8.8 million as part of our plans to improve operating results by reducing headcount, by closing duplicative facilities in Atlanta, Georgia; Chicago, Illinois; Foster City, California; Irving, Texas; New York, New York; Park Ridge, New Jersey;
Raleigh, North Carolina; Richmond, UK; Salt Lake City, Utah; and San Francisco, California; and by implementing other measures. The restructuring charges were comprised of $873,000 for a headcount reduction of 173 staff, and $7.9 million for
facilities related costs including penalties associated with the terminating leases and future lease payments.



We determined our restructuring charges in accordance with Emerging Issues Task Force Issue No. 94-3 (EITF 94-3) and Staff Accounting Bulletin
No. 100 (SAB 100). EITF 94-3 and SAB 100 require that we commit to an exit plan before we accrue employee termination costs and exit costs.



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Restructuring reserves are included in accounts payable and accrued liabilities at December 31, 2002.
Detail of the restructuring charges as of and for the year ended December 31, 2002 are summarized below (in thousands):



|                      |  |                            |       |            |   |             |  |          |     |  |                             |        |   |  |   |      
|--------------------- |  | -------------------------- | ----- | ---------- | - | ----------- |  | -------- | --- |  | --------------------------- | ------ | - |  | - | -----
|RestructuringCharges: |  | Balance atDecember 31,2001 |       | NewCharges |   | Adjustments |  | Utilized |     |  | Balance at December 31,2002
|Employee related      |  | $                          | 106   |            | $ |            |  | $        |    |  | $                           | (106   | ) |  | $ |     
|Facilities related    |  |                            | 5,521 |            |   | 1,140       |  |          | 836 |  |                             | (5,932 | ) |  |   | 1,565
|                      |  |                            |       |            |   |             |  |          |     |  |                             |        |   |  |   |      
|                      |  | $                          | 5,627 |            | $ | 1,140       |  | $        | 836 |  | $                           | (6,038 | ) |  | $ | 1,565
|                      |  |                            |       |            |   |             |  |          |     |  |                             |        |   |  |   |      



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 (Expense), net



Net total other income was $1.9 million for the year ended December 31,
2002, as compared to $12.6 million for the year ended December 31, 2001. Net total other income for the year ended December 31, 2002 included a gain of $2.4 million that we recognized on the retirement of debt, and a loss of $279,000 on our sale of
TenFold Systems UK Limited on October 19, 2002. Net total other income for the year ended December 31, 2001 included a gain of $12.4 million that we recognized on the sale of The LongView Group, Inc. to Linedata Services on March 15, 2001. Interest
income decreased for 2002 as compared to 2001 due to lower cash and cash equivalent balances in 2002. Interest expense decreased for 2002 as compared to 2001 due to lower notes payable and obligations under capital lease balances in 2002. Other
income decreased for 2002 as compared to 2001, as we recognized less office sublease income in 2002 due to our having included the sublease income in our prior restructuring accruals.



Provision for Income Taxes



The benefit for income taxes was $497,000 for the year ended December 31, 2002 as compared to a provision of $3.0 million for 2001. The net income tax
benefit for the year ended December 31, 2002, relates primarily to reversing accrued Federal alternative minimum taxes from 2001 due to tax legislation enacted in 2002. No tax benefit was recorded during 2002 for TenFolds net operating losses.
The net income tax provision for the year ended December 31, 2001, relates primarily to foreign income and withholding taxes, state franchise taxes and federal alternative minimum taxes.



At December 31, 2002, we had established a valuation allowance of $42.7 million for the net deferred tax assets related to
temporary differences, foreign tax credit carryforwards and projected 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, including the size of prior
operating losses, the currently available, objective evidence indicates that it is more likely than not that the net deferred tax assets will not be realized.



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. Our operating cash flow was $(868,000) for the year ended December 31, 2003 as compared to $(9.6) million for the year ended December 31, 2002. In December 2003, we closed a private placement of 5



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million shares of restricted common stock, with no warrants, which we sold at $2.00 per share (before related fees and expenses).



Net cash used in operating activities was $868,000 for the year ended
December 31, 2003 as compared to $9.6 million for 2002. The decrease in net cash used 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 used in operating activities during Q4 2003 of $1.0 million was greater than in earlier quarters of 2003 due primarily to an increase in our cash
outflows as we made payments to reduce some older accounts payable items from prior quarters, including amounts due our United Kingdom subcontractor for their work on a large project, and amounts required for the Dallas and Irving lease settlements
we reached. During Q1 2004, we similarly expect to require cash to further reduce some accounts payable and accrued liabilities accrued in earlier quarters, as well as for seasonally higher legal and accounting fees due in Q1 related to our year-end
audit and Form 10-K.



Net cash provided by investing activities
was $24,000 for the year ended December 31, 2003 as compared to $7.3 million for 2002. During the year ended December 31, 2002, we sold two buildings and related land in San Rafael, California for proceeds of $2.0 million (before repayment of
related notes payable). The decreases to restricted cash of $5.9 million for the year ended December 31, 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. As of December 31, 2003 we had no significant commitments for capital spending.



Net cash provided by financing activities was $9.2 million for the year ended December 31, 2003 as compared to net cash used by financing activities of
$4.8 million for 2002. Net cash provided by financing activities for the year ended December 31, 2003 was primarily from the proceeds of common stock sales. In 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. In December 2003, we closed a private placement of 5 million shares of restricted common stock, with no warrants, which we sold at $2.00 per share (before related fees and expenses). During the three
months ended March 31, 2003 we made payments of $588,000 to retire capital lease obligations at a significant discount. Net cash used by financing activities for the year ended December 31, 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 revenues balances of $7.6 million and $20.3 million at December 31, 2003 and 2002, respectively. When over time we recognize these deferred revenue balances as revenues in the statement of operations, we will not have corresponding
increases in cash, as the related cash amounts have previously been received by us. Our unbilled accounts receivable represents revenue that we have earned but which we have not yet billed.



In order to strengthen our financial foundation, we have taken 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 carefully managed our accounts
receivable and generated additional cash inflows wherever possible from our existing customer base, and we have raised capital. We made progress improving cash flow 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | During December 2003, we closed a private placement of 5 million shares of restricted common stock, with no warrants, which we sold at $2.00 per share (before related fees and
expenses).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We believe we have made good progress towards strengthening our financial foundation, and that our
existing cash and expected continuing cash flows from existing customers will provide us with sufficient resources for the coming year. However, some challenges and risks remain:



| |  | We have derived, and over the near term we expect to continue to derive, a significant portion of our cash inflows from a limited number of large customers. The loss of a large
customer could materially and adversely affect our business, results of operations, financial position and liquidity.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



We believe that we are continuing to
appropriately manage these risks. However, there can be no assurance that we will be successful, and that these risks will not have a materially adverse affect on our future cash flow.



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



Disclosure about Contractual Obligations



The following table sets forth certain contractual obligations recorded in
the audited consolidated financial statements as of December 31, 2003 and summary information is presented in the following table (in thousands):



|                                                                                   |  |       |       |                 |   |          |  |          |       |                  |   |     |  |  
|---------------------------------------------------------------------------------- |  | ----- | ----- | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | --- |  | -
|Contractual Obligations                                                            |  | Total |       | Less than1 year |   | 1-3years |  | 4-5years |       | More than5 years
|Long-term debt                                                                     |  | $     |      |                 |   |         |  |          |      |                  |   |    |  | 
|Capital lease obligations                                                          |  |       |      |                 |   |         |  |          |      |                  |   |    |  | 
|Operating lease obligations                                                        |  |       | 2,608 |                 |   | 1,235    |  |          | 1,083 |                  |   | 290 |  | 
|Purchase obligations                                                               |  |       | 917   |                 |   | 917      |  |          |      |                  |   |    |  | 
|Other long term liabilities reflected on the registrants Balance Sheet under GAAP |  |       |      |                 |   |         |  |          |      |                  |   |    |  | 
|                                                                                   |  |       |       |                 |   |          |  |          |       |                  |   |     |  |  
|Total                                                                              |  | $     | 3,525 |                 | $ | 2,152    |  | $        | 1,083 |                  | $ | 290 |  | 
|                                                                                   |  |       |       |                 |   |          |  |          |       |                  |   |     |  |  



The real estate
operating leases above include $1.0 million of restructured real estate lease obligations that have not been reduced by $501,000 of sublease income due from sublease tenants. In the Consolidated Balance Sheet at December 31, 2003, these obligations
are included in accounts payable and accrued liabilities, net of the related sublease income. See Notes 7 and 19 of Notes to Consolidated Financial Statements for more information.



We have purchase obligations to our United Kingdom distributor, you Devise Limited (formerly TenFold Systems UK Limited),
reflected in the table above, for the provision of consulting staff for a project we have underway in the United Kingdom. We can reduce or terminate our obligation if our customer, under certain circumstances, reduces its purchase of consulting
staff for the project from us.



In addition to the items shown
in the table above, we have at December 31, 2003, one remaining contract subject to a guarantee. We have received cash payments under this contract totaling $9.5 million through December 31, 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 Consolidated Balance Sheet at December 31, 2003. We
believe that the application and required deliveries under the contract will comply with the contractual terms of our customer agreement; however, this guarantee represents a risk to us.



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During the year ended December 31, 2002, we converted the remaining work under a legacy fixed-price
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 drew
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, which we completed during 2003. This reduced the guarantee from $1.5 million
to $0 as of December 31, 2003. We recognized this reduction as revenue during the year ended December 31, 2003, with the final $600,000 recognized during the fourth quarter of 2003.



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



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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
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 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.



In December 2003, the FASB issued Interpretation No. 46 (FIN 46R)
(revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (ARB 51), which addresses how a business enterprise should evaluate whether it has a controlling
interest in an entity though means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN 46), which was issued in January 2003. Before concluding that it is appropriate
to apply ARB 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity (VIE). As of the effective date of FIN 46R, an enterprise must evaluate its
involvement with all entities or legal structures created before February 1, 2003, to determine whether consolidation requirements of FIN 46R apply to those entities. There is no grandfathering of existing entities. Public companies must apply
either FIN 46 or FIN 46R immediately to entities created after January 31, 2003 and no later than the end of the first reporting period that ends after March 15, 2004. The adoption of FIN 46 had no effect on our results of operations and financial
position.



On December 18, 2003 the SEC issued Staff Accounting
Bulletin No. 104, Revenue Recognition (SAB 104), which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element
revenue arrangements, which was superceded as a result of the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. SAB 104 does not have a material impact on our financial position or results of
operations.



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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 would be unable to continue operations as a going concern



Our business model relies upon generating new sales to existing and new
customers. We have improved our operating cash flow and recently closed a private placement in which we sold 5 million shares of restricted common stock, with no warrants, at $2.00 per share, to strengthen our financial position. We believe that our
existing cash and expected continuing cash flows from existing customers will provide us with sufficient resources for the coming year. However, if longer-term we do not generate sufficient new sales to existing and new customers, we would 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.



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 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. 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 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 significant products or services from us involves a significant commitment of resources and is influenced by customer budget cycles. To successfully sell our products and services, we generally must educate our
potential customers regarding the use and benefit of our products and services. Historically, this has required significant time and resources. Consequently, the period between initial contact and the purchase of our products or services can be long
and subject to delays associated with the lengthy budgeting, approval, and competitive evaluation processes that typically accompany significant capital expenditures. Historically, our sales cycles have been lengthy and variable, typically ranging
between three to twelve months from initial contact with a potential customer to the signing of a contract. 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.



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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 year ended December 31, 2003, Allstate accounted for 41 percent of our total revenues, JP
Morgan Chase accounted for 25 percent, and Sapient accounted for 23 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 do not expect Allstate to account for a
significant percentage of our revenues during 2004 since Allstates contract reached the end of its subscription period, and Allstate completed its use of our consulting and technical support services during 2003. See Managements
Discussion and Analysis of Financial Condition and Results of Operations generally for more information concerning our customers and revenues.



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



Our deferred revenue balance generally results from contractual commitments
made by customers to pay amounts to us in advance of revenues earned. We had deferred revenue balances of $7.6 million at December 31, 2003 and $20.3 million at December 31, 2002. The decrease in deferred revenues from December 31, 2002 to December
31, 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. We had a deferred revenue balance of $7.6 million at December 31, 2003 that we expect to recognize as revenues in future periods, but the timing of recognition is uncertain. As a result, we do not expect to recognize revenues or
profits from deferred revenues during 2004 at the same levels that we experienced during 2003, and may experience lower profitability or a loss if this decrease is not offset by revenue from other sources.



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.



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 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



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contain serious defects. Serious defects or errors could result in lost revenues or a delay in market acceptance, which would damage our reputation and
business.



Because our customers may use our products for
mission-critical applications, errors, defects, or other performance problems could result in financial or other damages to customers. Our customers could seek damages for these losses. Any successful claims for these losses, to the extent not
covered by insurance, could result in our being obligated to pay substantial damages, which would cause operating results to suffer. Although our license agreements typically contain provisions designed to limit our 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.



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 current or future claims. In addition, no assurance can be given that we will not be subject to material additional liabilities and significant additional litigation
relating to errors and omissions for existing claims and future claims.



Our errors and omissions insurance policy, which we renewed on March 1, 2004, is in the form of an industry standard software errors and omissions policy. As such, it only covers software errors and omissions that occur after the delivery
of software and excludes contractual disputes such as cost and time related guarantees. We have previously had contractual disputes related to our guarantees. While we have substantially changed our business model and no longer offer a money-back
guarantee, no assurance can be given that we will not be subject to these types of claims in the future. In the event that liabilities from claims are not covered by or exceed our errors and omissions coverage, our business, results of operations,
financial position, or liquidity could be materially and adversely affected.



We are involved in 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 were also recently named as one of many
defendants in a lawsuit related to the death of a patient at Cedars-Sinai Medical Center, one of our customers. We may in the future face other litigation or disputes with customers, employees, business partners, stockholders, or other third
parties. Such litigation or disputes could result in substantial costs and diversion of resources that would harm our business. An unfavorable outcome of these matters may have a material adverse impact on our business, results of operations,
financial position, or liquidity. See Legal Proceedings generally for more information concerning our litigation and disputes.



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.



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



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



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



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



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



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



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



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



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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 29 percent of total
revenues for the year ended December 31, 2003. 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.



Our stock price may continue to be volatile



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



If we elected to or were required to account for
employee stock option and employee stock purchase plans using the fair value method, it could significantly reduce our net income



There has been ongoing public debate whether employee stock option and employee stock purchase plans shares should be treated as a compensation expense
and, if so, how to properly value such charges. Although we are not currently required to record compensation expense using the fair value method in connection with option grants that have an exercise price at or above fair market value at the grant
date and for shares issued under our employee stock purchase plan, it is possible that future accounting pronouncements will require us to treat all stock-based compensation as an expense using the fair value



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method. If we elected to or were required to record expenses for option awards under our option or employee stock purchase plans using the fair value method,
we could have significant charges. For the year ended December 31, 2003, had we accounted for stock-based compensation plans using the fair-value method prescribed in FASB Statement No. 123 as amended by Statement 148, net income would have been
reduced by $5.2 million. See Notes 3, 13 and 14 of Notes to Consolidated Financial Statements for more information.



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 53 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 39 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.



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 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------



Interest Rate Risk



As of December 31, 2003, we had cash and cash equivalents of $12.2 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 December 31, 2003 rates would cause the fair value of these cash investments to change by an insignificant amount. We do not invest in any financial derivatives or any other
complex financial instruments. TenFold does not own any equity investments. 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.
For example, we currently have a project underway in the United Kingdom for which receive payment from our customer in British pounds. We pay a contractor we use for the project 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 December 31,
2003 rate would cause the fair value of such monetary assets and liabilities denominated in British pounds to change by $64,000. We are not currently engaged in any foreign currency hedging activities.



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|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



The responses to this item are submitted in other sections of this Form 10-K. See Item 6 for Supplementary Data. See Item 15 for Financial Statements.



|Item 9. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



On February 10, 2003, we dismissed our independent accountant, KPMG LLP (KPMG), and engaged the services of
Tanner + Co. (Tanner) as our new independent accountant for our last fiscal year ending December 31, 2002 and our current fiscal year ending December 31, 2003. The Audit Committee of our Board of Directors approved the dismissal of KPMG
and the appointment of Tanner as of February 10, 2003. For more information, see our Current Report on Form 8-K, filed February 18, 2003.



|Item 9A. | 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 December 31, 2003. Based on that evaluation, Dr. 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 December 31, 2003.



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##### Table of Contents

Part III



Certain information required by Part III is omitted from this Report on Form 10-K since we will file a definitive Proxy pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended (the Proxy Statement), not later than 120 days after the end of the fiscal year covered by this Report, and certain information included in the Proxy Statement is incorporated herein by
reference.



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



(a) Executive Officers



The information required by this Item is incorporated by reference to the section entitled Executive Officers in Part I of this Form 10-K and
by reference to the Section entitled Code of Ethics in the Proxy Statement.



(b) Directors



The information
required by this Item is incorporated by reference to the sections entitled Board of Directors and Nominations in the Proxy Statement.



(c) Section 16



The information required by this Item is incorporated by reference to the section entitled Section 16 (a) Beneficial Ownership Reporting
Compliance in the Proxy Statement.



|Item 11. | Executive Compensation
|-------- | ----------------------



The information required by this Item is incorporated by reference to the section entitled Executive Compensation in the Proxy Statement.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management
|-------- | --------------------------------------------------------------



The information required by this Item is incorporated by reference to the section entitled Equity Compensation Plan Information in Part II of
this Form 10-K and by reference to the section entitled Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



The information required by this Item is incorporated by reference to the section entitled Certain Transactions in the Proxy Statement.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



The information required by this Item is incorporated by reference to the section entitled Independent Public Accountants in the Proxy
Statement.



47



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##### Table of Contents

Part IV



|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K.
|-------- | ----------------------------------------------------------------



|(a) | 1. Financial Statements and Notes to Consolidated Financial Statements
|--- | ----------------------------------------------------------------------



The following financial statements are filed as part of this report:



TENFOLD CORPORATION



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                                            |  |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                            |  | Page
|Reports of Independent Auditors                                                                                                                                             |  | 51  
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                                                                |  | 53  
|Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2003                                                                |  | 54  
|Consolidated Statements of Changes in Stockholders Equity (Deficit) and Comprehensive Income (Loss) for each of the years in the three year period ended December 31, 2003 |  | 55  
|Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2003                                                                |  | 56  
|Notes to Consolidated Financial Statements                                                                                                                                  |  | 57  



|(a) | 2. Financial Statement Schedule
|--- | -------------------------------



The following financial statement schedule is filed as a part of this report:



Schedule II  Valuation and Qualifying Accounts for the Years Ended December 31, 2003, 2002, and 2001



All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes thereto.



48



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##### Table of Contents

|(a) | 3. Exhibits
|--- | -----------



The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of this Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.



|         |  |                                                                                                                                                                                                                        
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                                                                            
|         | 
|3.2**    |  | Fourth Amended and Restated Certificate of Incorporation of TenFold. (1)                                                                                                                                               
|         | 
|3.3**    |  | Bylaws of TenFold. (1)                                                                                                                                                                                                 
|         | 
|3.4**    |  | Amendment to Bylaws dated March 2, 1999. (3)                                                                                                                                                                           
|         | 
|4.1**    |  | Reference is made to Exhibits 3.2, 3.3, and 3.4. (1) and (3)                                                                                                                                                           
|         | 
|4.2**    |  | Specimen Stock Certificate. (1)                                                                                                                                                                                        
|         | 
|4.3**    |  | Amended and Restated Investors Rights Agreement dated November 24, 1997, as Amended, by and among TenFold, Gary D. Kennedy, Jeffrey L. Walker, the Walker Childrens Trust and the
Investors (as defined therein). (1)
|         | 
|4.4**    |  | Form of Securities Purchase Agreement dated December 22, 2003, between Registrant and purchasers of stock (13)                                                                                                         
|         | 
|4.5**    |  | Form of Amendment No. 1 to Securities Purchase Agreement dated December 22, 2003, between Registrant and purchasers of stock (14)                                                                                      
|         | 
|10.1**   |  | Form of Indemnification Agreement between TenFold and an executive officer and its directors. (1)                                                                                                                      
|         | 
|10.2**#  |  | 1993 Flexible Stock Incentive Plan, as amended. (2)                                                                                                                                                                    
|         | 
|10.3**#  |  | 1999 Stock Plan, as amended. (9)                                                                                                                                                                                       
|         | 
|10.4**#  |  | 1999 Employee Stock Purchase Plan, as amended. (9)                                                                                                                                                                     
|         | 
|10.5**#  |  | 2000 Employee Stock Option Plan. (5)                                                                                                                                                                                   
|         | 
|10.6**   |  | Restructuring Agreement effective December 8, 2000 between Perot Systems Corporation and TenFold. (5)                                                                                                                  
|         | 
|10.7**   |  | Lease Agreement effective April 28, 2000 between Boyer Jordan Valley 1, L.C. and TenFold. (4)                                                                                                                          
|         | 
|10.8**   |  | First Amendment to Lease Agreement effective November 30, 2000 between Boyer Jordan Valley 1, L.C. and TenFold. (5)                                                                                                    
|         | 
|10.9**   |  | Second Amendment to Lease Agreement between Boyer Jordan Valley 1, L.C. and TenFold. (10)                                                                                                                              
|         | 
|10.10**  |  | Third Amendment to Lease Agreement Between Boyer Jordan Valley 1, L.C. and Tenfold. (11)                                                                                                                               
|         | 
|10.11**# |  | Employment Agreement between TenFold and Nancy M. Harvey. (6)                                                                                                                                                          
|         | 
|10.12**# |  | Amendment to Employment Agreement TenFold Corporation and Nancy M. Harvey. (9)                                                                                                                                         
|         | 
|10.13**# |  | Amendment No. 2 to Employment Agreement between TenFold and Nancy M. Harvey. (10)                                                                                                                                      
|         | 
|10.14**# |  | Amendment No. 3 to Employment Agreement between TenFold and Nancy M. Harvey. (13)                                                                                                                                      
|         | 
|10.15#   |  | Amendment No. 4 to Employment Agreement between TenFold and Nancy M. Harvey.                                                                                                                                           
|         | 
|10.16**# |  | Restricted Stock Bonus Agreement Between TenFold and Nancy M. Harvey. (7)                                                                                                                                              
|         | 
|10.17**# |  | Resignation Agreement between TenFold and Gary D. Kennedy. (8)                                                                                                                                                         
|         | 
|10.18**# |  | Resignation Agreement between TenFold and Donald R. Jefferis. (8)                                                                                                                                                      
|         | 
|10.19**# |  | Separation Agreement between TenFold and Sameer Shalaby. (9)                                                                                                                                                           
|         | 
|10.20**  |  | Master Software License and Services Agreement, dated September 27, 1999, as amended, between TenFold and Allstate Insurance Company. (10)                                                                             
|         | 
|10.21**  |  | Termination and Settlement Agreement, dated October 18, 2001, among TenFold Corporation, Argenesis Corporation, and Linedata Services. (9)                                                                             
|         | 
|10.22**  |  | Stock Issuance Agreement and Release, dated as of February 5, 2003, between TenFold and the Robert W. Felton Trust. (12)                                                                                               
|         | 
|10.23**  |  | Placement Agent Agreement dated December 12, 2003 between Registrant and Brean Murray & Co., Inc. (14)                                                                                                                 
|         | 
|11*      |  | Computation of Shares used in Computing Basic and Diluted Net Income (Loss) Per Share.                                                                                                                                 
|         | 
|23.1     |  | Consent of Tanner + Co.                                                                                                                                                                                                
|         | 
|23.2     |  | Consent of KPMG LLP                                                                                                                                                                                                    
|         | 
|31       |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                    



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##### Table of Contents

|   |  |                                                                                                                                    
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------
|   | 
|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 Consolidated Financial Statements herein
|- | --------------------------------------------------------------------------------



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



|# | Indicates management contract or compensatory plan or arrangement
|- | -----------------------------------------------------------------



|1) | Filed on March 8, 1999 as an exhibit to the Companys Registration Statement on Form S-1 and incorporated by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------



|2) | Filed on April 20, 1999 as an exhibit to Amendment No. 1 to the Companys Registration Statement on Form S-1 and incorporated by reference.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------



|3) | Filed on May 18, 1999 as an exhibit to Amendment No. 4 to the Companys Registration Statement on Form S-1 and incorporated by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------



|4) | Filed on May 5, 2000 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|-- | ----------------------------------------------------------------------------------------------------------------



|5) | Filed on April 12, 2001 as an exhibit to the Companys Annual Report on Form 10-K and incorporated by reference.
|-- | ----------------------------------------------------------------------------------------------------------------



|6) | Filed on May 21, 2001 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|-- | -----------------------------------------------------------------------------------------------------------------



|7) | Filed on July 27, 2001 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|-- | ------------------------------------------------------------------------------------------------------------------



|8) | Filed on November 19, 2001 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|-- | ----------------------------------------------------------------------------------------------------------------------



|9) | Filed on April 15, 2002 as an exhibit to the Companys Annual Report on Form 10-K and incorporated by reference.
|-- | ----------------------------------------------------------------------------------------------------------------



|10) | Filed on August 14, 2002 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|--- | --------------------------------------------------------------------------------------------------------------------



|11) | Filed on November 19, 2002 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------



|12) | Filed on March 31, 2003 as an exhibit to the Companys Annual Report on Form 10-K and incorporated by reference.
|--- | ----------------------------------------------------------------------------------------------------------------



|13) | Filed on May 13, 2003 as an exhibit to the Companys Quarterly Report on Form 10-Q and incorporated by reference.
|--- | -----------------------------------------------------------------------------------------------------------------



|14) | Filed on December 23, 2003 as an exhibit to the Companys Report on Form 8-K and incorporated by reference.
|--- | -----------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K



On December 24, 2003, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission announcing that the Company raised $10,000,000 (before related fees and expenses) through the private placement of 5,000,000 shares of common stock at a price of $2.00 per share.



50



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders

TenFold Corporation:



We have audited the consolidated financial statements of TenFold Corporation and subsidiaries as of December 31, 2003 and
2002 and for the two years then ended. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as of December 31, 2003 and 2002 and for the two years then ended as listed in Item
15a of the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements
and financial statement schedule based on our audits.



We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TenFold
Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the related financial statement schedule as of and for the two years ended December 31, 2003, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



/s/
Tanner+Co.



Salt Lake City, Utah

March 17, 2003



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders

TenFold Corporation:



We have
audited the consolidated statements of operations, stockholders equity (deficit) and comprehensive income (loss), and cash flows of TenFold Corporation and subsidiaries for the year ended December 31, 2001 listed in Item 15a of the accompanying
index. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule for the year ended December 31, 2001, as listed in Item 15a of the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.



We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and the cash flows of TenFold Corporation and subsidiaries for
the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule for the year ended December 31, 2001, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



The accompanying consolidated financial statements and related financial statement schedule have been prepared assuming that the Company will continue as
a going concern. The Company suffered a significant loss from operations during the year ended December 31, 2001, has a substantial deficit in working capital and stockholders equity at December 31, 2001, had negative cash flow from operations
for the year ended December 31, 2001 and is involved in significant legal proceedings that raise substantial doubt about its ability to continue as a going concern. Managements plans in regards to these matters are described in Note 2. The
consolidated financial statements and related financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.



/s/ KPMG LLP



Salt Lake City, Utah

April 4, 2002



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##### Table of Contents

TENFOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                |  |              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                |  | December 31, |        
|                                                                                                                                                |  | 2003         |         |   | 2002 |  
|Assets                                                                                                                                          |  |              |         |  
|Current assets:                                                                                                                                 |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                       |  | $            | 12,236  |   |      | $ | 3,838   |  
|Accounts receivable, (net of allowances for doubtful accounts of $0 and $296 respectively)                                                      |  |              | 942     |   |      |   | 1,370   |  
|Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0 respectively)                                               |  |              | 58      |   |      |   | 31      |  
|Prepaid expenses and other assets                                                                                                               |  |              | 243     |   |      |   | 278     |  
|Income taxes receivable                                                                                                                         |  |              |        |   |      |   | 17      |  
|Other assets                                                                                                                                    |  |              | 10      |   |      |   | 2,120   |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total current assets                                                                                                                            |  |              | 13,489  |   |      |   | 7,654   |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Restricted cash                                                                                                                                 |  |              | 73      |   |      |   | 138     |  
|Property and equipment, net                                                                                                                     |  |              | 855     |   |      |   | 1,467   |  
|Other assets                                                                                                                                    |  |              |        |   |      |   | 25      |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                    |  | $            | 14,417  |   |      | $ | 9,284   |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Liabilities and Stockholders Deficit                                                                                                           |  |              |         |  
|Current liabilities:                                                                                                                            |  |              |         |   |      |   |         |  
|Accounts payable                                                                                                                                |  | $            | 1,127   |   |      | $ | 937     |  
|Income taxes payable                                                                                                                            |  |              | 1,728   |   |      |   | 1,743   |  
|Accrued liabilities                                                                                                                             |  |              | 5,416   |   |      |   | 6,436   |  
|Deferred revenue                                                                                                                                |  |              | 7,586   |   |      |   | 20,328  |  
|Current installments of obligations under capital leases                                                                                        |  |              |        |   |      |   | 3,012   |  
|Other current liabilities                                                                                                                       |  |              |        |   |      |   | 2,028   |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                       |  |              | 15,857  |   |      |   | 34,484  |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Long-term liabilities:                                                                                                                          |  |              |         |   |      |   |         |  
|Other long-term liabilities                                                                                                                     |  |              |        |   |      |   | 25      |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total long-term liabilities                                                                                                                     |  |              |        |   |      |   | 25      |  
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Contingencies                                                                                                                                   |  |              |         |   |      |   |         |  
|Stockholders deficit:                                                                                                                          |  |              |         |   |      |   |         |  
|Common stock, $0.001 par value:                                                                                                                 |  |              |         |   |      |   |         |  
|Authorized: 120,000,000 shares Issued and outstanding shares: 45,969,524 shares at December 31, 2003 and 37,382,080 shares at December 31,
2002 |  |              | 46      |   |      |   | 37      |  
|Additional paid-in capital                                                                                                                      |  |              | 75,936  |   |      |   | 65,953  |  
|Deferred compensation                                                                                                                           |  |              | (43     | ) |      |   | (89     | )
|Accumulated deficit                                                                                                                             |  |              | (77,379 | ) |      |   | (91,126 | )
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total stockholders deficit                                                                                                                     |  |              | (1,440  | ) |      |   | (25,225 | )
|                                                                                                                                                |  |              |         |   |      |   |         |  
|Total liabilities and stockholders deficit                                                                                                     |  | $            | 14,417  |   |      | $ | 9,284   |  
|                                                                                                                                                |  |              |         |   |      |   |         |  



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



53



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TENFOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                  |  | Year Ended December 31, |       
|                                                                                                  |  | 2003                    |        |   | 2002 |   |        | 2001 | 
|Revenues:                                                                                         |  |                         |        |   |      |   |        |      |  |   |         |  
|License                                                                                           |  | $                       | 248    |   |      | $ | 207    |      |  | $ | 8,532   |  
|Subscription                                                                                      |  |                         | 10,431 |   |      |   | 15,548 |      |  |   | 689     |  
|Services and other                                                                                |  |                         | 17,030 |   |      |   | 12,475 |      |  |   | 45,692  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Total revenues                                                                                    |  |                         | 27,709 |   |      |   | 28,230 |      |  |   | 54,913  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Operating expenses:                                                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|Cost of revenues                                                                                  |  |                         | 9,454  |   |      |   | 12,998 |      |  |   | 30,990  |  
|Sales and marketing                                                                               |  |                         | 1,088  |   |      |   | 1,985  |      |  |   | 5,556   |  
|Research and development                                                                          |  |                         | 3,471  |   |      |   | 6,229  |      |  |   | 12,672  |  
|General and administrative                                                                        |  |                         | 3,046  |   |      |   | 7,803  |      |  |   | 11,113  |  
|Amortization of goodwill and acquired intangibles                                                 |  |                         |       |   |      |   |       |      |  |   | 962     |  
|Special charges                                                                                   |  |                         | (673   | ) |      |   | 2,838  |      |  |   | 18,876  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Total operating expenses                                                                          |  |                         | 16,386 |   |      |   | 31,853 |      |  |   | 80,169  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Income (loss) from operations                                                                     |  |                         | 11,323 |   |      |   | (3,623 | )    |  |   | (25,256 | )
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Other income (expense):                                                                           |  |                         |        |   |      |   |        |      |  |   |         |  
|Interest income                                                                                   |  |                         | 50     |   |      |   | 215    |      |  |   | 850     |  
|Interest expense                                                                                  |  |                         | (173   | ) |      |   | (638   | )    |  |   | (1,249  | )
|Other income (expense)                                                                            |  |                         | 373    |   |      |   | 367    |      |  |   | 591     |  
|Gain on retirement of debt                                                                        |  |                         | 2,206  |   |      |   | 2,393  |      |  |   |        |  
|Gain (loss) on sale of subsidiaries                                                               |  |                         |       |   |      |   | (399   | )    |  |   | 12,361  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Total other income, net                                                                           |  |                         | 2,456  |   |      |   | 1,938  |      |  |   | 12,553  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Income (loss) before income taxes                                                                 |  |                         | 13,779 |   |      |   | (1,685 | )    |  |   | (12,703 | )
|Provision (benefit) for income taxes                                                              |  |                         | 32     |   |      |   | (497   | )    |  |   | 2,965   |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Net income (loss)                                                                                 |  | $                       | 13,747 |   |      | $ | (1,188 | )    |  | $ | (15,668 | )
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Basic earnings (loss) per common share                                                            |  | $                       | 0.34   |   |      | $ | (0.03  | )    |  | $ | (0.44   | )
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Diluted earnings (loss) per common share                                                          |  | $                       | 0.29   |   |      | $ | (0.03  | )    |  | $ | (0.44   | )
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Weighted average common and common equivalent shares used to calculate earnings (loss) per share: |  |                         |        |   |      |   |        |      |  |   |         |  
|Basic                                                                                             |  |                         | 40,634 |   |      |   | 37,249 |      |  |   | 35,623  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Diluted                                                                                           |  |                         | 47,623 |   |      |   | 37,249 |      |  |   | 35,623  |  
|                                                                                                  |  |                         |        |   |      |   |        |      |  |   |         |  



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



54



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##### Table of Contents

TENFOLD CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)



|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------ | - | -------------------------- | ------ | -- | ---------------------------------- | - | ------ | --------------------- |  | - | --------------------------------------- | - |  | --------------------------- | ------ | - | --------------------------------------------- | - | ------- | ------------------------------------ |  | - | -------- | -- |  | - | ---- | - |  | - | ------- | -
|                                                                                |  | Common Stock |   | Additional Paid-in Capital |        |    | Notes Receivable From Stockholders |   |        | Deferred Compensation |  |   | Retained Earnings (Accumulated Deficit) |   |  | Comprehensive Income (Loss) |        |   | Accumulated Other Comprehensive Income (Loss) |   |         | Total Stockholders Equity (Deficit) | 
|                                                                                |  | Shares       |   |                            | Amount |    |                                    |   |        |                       |  |  
|Balance at December 31, 2000                                                    |  | 35,735,858   |   |                            |        | 36 |                                    |   | 66,170 |                       |  |   | (429                                    | ) |  |                             | (2,132 | ) |                                               |   | (74,270 | )                                    |  |   |          |    |  |   | (823 | ) |  |   | (11,448 | )
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Common stock issued upon exercise of options                                    |  | 241,680      |   |                            |        |   |                                    |   | 65     |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 65      |  
|Common stock issued for ESPP                                                    |  | 261,429      |   |                            |        |   |                                    |   | 533    |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 533     |  
|Restricted stock grant                                                          |  | 800,000      |   |                            |        | 1  |                                    |   | 279    |                       |  |   |                                        |   |  |                             | (280   | ) |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Restricted stock repurchase                                                     |  | (226,505     | ) |                            |        |   |                                    |   | (2     | )                     |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | (2      | )
|Amortization of deferred compensation                                           |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             | 857    |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 857     |  
|Cancellation of stock options                                                   |  |             |   |                            |        |   |                                    |   | (976   | )                     |  |   |                                        |   |  |                             | 976    |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Notes receivable from stockholder                                               |  |             |   |                            |        |   |                                    |   |       |                       |  |   | (140                                    | ) |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | (140    | )
|Changes in and payments of notes receivable, net                                |  |             |   |                            |        |   |                                    |   |       |                       |  |   | 192                                     |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 192     |  
|Compensation expense associated with extension of stock option exercise periods |  |             |   |                            |        |   |                                    |   | 43     |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 43      |  
|Net loss                                                                        |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   | (15,668 | )                                    |  | $ | [(15,668 | )] |  |   |     |   |  |   | (15,668 | )
|Currency translation                                                            |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   | [224     | ]  |  |   | 224  |   |  |   | 224     |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Comprehensive loss                                                              |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  | $ | [(15,444 | )] |  |   |     |   |  |   |        |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Balance at December 31, 2001                                                    |  | 36,812,462   |   |                            |        | 37 |                                    |   | 66,112 |                       |  |   | (377                                    | ) |  |                             | (579   | ) |                                               |   | (89,938 | )                                    |  |   |          |    |  |   | (599 | ) |  |   | (25,344 | )
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Common stock issued upon exercise of options                                    |  | 74,315       |   |                            |        |   |                                    |   | 23     |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 23      |  
|Common stock issued for ESPP                                                    |  | 39,817       |   |                            |        |   |                                    |   | 14     |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 14      |  
|Restricted common stock issued                                                  |  | 672,911      |   |                            |        |   |                                    |   | 249    |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 249     |  
|Restricted stock repurchase                                                     |  | (217,425     | ) |                            |        |   |                                    |   | (119   | )                     |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | (119    | )
|Amortization of deferred compensation                                           |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             | 164    |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 164     |  
|Cancellation of stock options                                                   |  |             |   |                            |        |   |                                    |   | (326   | )                     |  |   |                                        |   |  |                             | 326    |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Changes in and payments of notes receivable, net                                |  |             |   |                            |        |   |                                    |   |       |                       |  |   | 233                                     |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 233     |  
|Allowance for notes receivable from stockholders                                |  |             |   |                            |        |   |                                    |   |       |                       |  |   | 144                                     |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 144     |  
|Net loss                                                                        |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   | (1,188  | )                                    |  | $ | [(1,188  | )] |  |   |     |   |  |   | (1,188  | )
|Currency translation loss recognized                                            |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |         |    |  |   | 599  |   |  |   | 599     |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Comprehensive loss                                                              |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  | $ | [(1,188  | )] |  |   |     |   |  |   |        |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Balance at December 31, 2002                                                    |  | 37,382,080   |   |                            | $      | 37 |                                    | $ | 65,953 |                       |  | $ |                                        |   |  | $                           | (89    | ) |                                               | $ | (91,126 | )                                    |  |   |          |    |  | $ |     |   |  | $ | (25,225 | )
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Common stock issued upon exercise of options                                    |  | 283,988      |   |                            |        |   |                                    |   | 173    |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 173     |  
|Common stock issued for ESPP                                                    |  | 47,478       |   |                            |        |   |                                    |   | 6      |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 6       |  
|Restricted common stock issued                                                  |  | 8,888,889    |   |                            |        | 9  |                                    |   | 9,741  |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 9,750   |  
|Restricted stock cancelled                                                      |  | (632,911     | ) |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Amortization of deferred compensation                                           |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             | 109    |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   | 109     |  
|Cancellation of stock options                                                   |  |             |   |                            |        |   |                                    |   | (9     | )                     |  |   |                                        |   |  |                             | 9      |   |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Deferred compensation related to grants of stock options                        |  |             |   |                            |        |   |                                    |   | 72     |                       |  |   |                                        |   |  |                             | (72    | ) |                                               |   |        |                                      |  |   |          |    |  |   |     |   |  |   |        |  
|Net income                                                                      |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   | 13,747  |                                      |  | $ | [13,747  | ]  |  |   |     |   |  |   | 13,747  |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Comprehensive income                                                            |  |             |   |                            |        |   |                                    |   |       |                       |  |   |                                        |   |  |                             |       |   |                                               |   |        |                                      |  | $ | [13,747  | ]  |  |   |     |   |  |   |        |  
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  
|Balance at December 31, 2003                                                    |  | 45,969,524   |   |                            | $      | 46 |                                    | $ | 75,936 |                       |  | $ |                                        |   |  | $                           | (43    | ) |                                               | $ | (77,379 | )                                    |  |   |          |    |  | $ |     |   |  | $ | (1,440  | )
|                                                                                |  |              |   |                            |        |    |                                    |   |        |                       |  |   |                                         |   |  |                             |        |   |                                               |   |         |                                      |  |   |          |    |  |   |      |   |  |   |         |  



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



55



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##### Table of Contents

TENFOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                     |  | Year Ended December 31, |        
|                                                                                     |  | 2003                    |         |   | 2002 |   |        | 2001 | 
|Cash flows from operating activities:                                                |  |                         |         |   |      |   |        |      |  |   |         |  
|Net income (loss)                                                                    |  | $                       | 13,747  |   |      | $ | (1,188 | )    |  | $ | (15,668 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                         |         |   |      |   |        |      |  |   |         |  
|Deferred income tax benefit                                                          |  |                         |        |   |      |   |       |      |  |   | 407     |  
|Amortization of goodwill and acquired intangibles                                    |  |                         |        |   |      |   |       |      |  |   | 962     |  
|Depreciation and amortization                                                        |  |                         | 766     |   |      |   | 2,621  |      |  |   | 6,006   |  
|Provision (reversal) to bad debt reserve                                             |  |                         | 6       |   |      |   | (70    | )    |  |   | 76      |  
|Amortization of deferred compensation                                                |  |                         | 109     |   |      |   | 164    |      |  |   | 857     |  
|Impaired assets charge                                                               |  |                         |        |   |      |   | 851    |      |  |   | 10,081  |  
|Provision for stockholder notes receivable                                           |  |                         |        |   |      |   | 146    |      |  |   |        |  
|Compensation expense related to stock options                                        |  |                         |        |   |      |   |       |      |  |   | 43      |  
|(Gain) loss on retirement of debt                                                    |  |                         | (2,206  | ) |      |   | (2,393 | )    |  |   |        |  
|(Gain) loss on sale of property and equipment                                        |  |                         | (113    | ) |      |   | (21    | )    |  |   |        |  
|(Gain) loss on sale of subsidiaries                                                  |  |                         |        |   |      |   | 399    |      |  |   | (12,361 | )
|Changes in operating assets and liabilities:                                         |  |                         |         |   |      |   |        |      |  |   |         |  
|Accounts receivable                                                                  |  |                         | 422     |   |      |   | 594    |      |  |   | 320     |  
|Unbilled accounts receivable                                                         |  |                         | (27     | ) |      |   | (23    | )    |  |   | 134     |  
|Prepaid expenses and other assets                                                    |  |                         | 2,051   |   |      |   | (540   | )    |  |   | (683    | )
|Accounts payable                                                                     |  |                         | 190     |   |      |   | 102    |      |  |   | (8,570  | )
|Income taxes payable, net                                                            |  |                         | 2       |   |      |   | (533   | )    |  |   | 1,745   |  
|Accrued liabilities                                                                  |  |                         | (1,020  | ) |      |   | (7,242 | )    |  |   | 2,095   |  
|Deferred revenue                                                                     |  |                         | (12,742 | ) |      |   | (2,892 | )    |  |   | (6,655  | )
|Other current and long-term liabilities                                              |  |                         | (2,053  | ) |      |   | 415    |      |  |   | (498    | )
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Net cash used in operating activities                                                |  |                         | (868    | ) |      |   | (9,610 | )    |  |   | (21,709 | )
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Cash flows from investing activities:                                                |  |                         |         |   |      |   |        |      |  |   |         |  
|Additions to property and equipment and assets held for sale                         |  |                         | (178    | ) |      |   | (846   | )    |  |   |        |  
|(Additions) decreases to restricted cash                                             |  |                         | 65      |   |      |   | 5,944  |      |  |   | (3,595  | )
|Proceeds from sale of property and equipment                                         |  |                         | 137     |   |      |   | 2,212  |      |  |   |        |  
|Proceeds from sale of subsidiaries                                                   |  |                         |        |   |      |   |       |      |  |   | 27,113  |  
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Net cash provided by investing activities                                            |  |                         | 24      |   |      |   | 7,310  |      |  |   | 23,518  |  
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Cash flows from financing activities:                                                |  |                         |         |   |      |   |        |      |  |   |         |  
|Proceeds from employee stock purchase plan stock issuance                            |  |                         | 6       |   |      |   | 14     |      |  |   | 533     |  
|Exercise of common stock options                                                     |  |                         | 173     |   |      |   | 23     |      |  |   | 65      |  
|Principal payments on obligations under capital lease                                |  |                         | (687    | ) |      |   | (1,567 | )    |  |   | (2,276  | )
|Principal payments on notes payable                                                  |  |                         |        |   |      |   | (3,761 | )    |  |   | (2,507  | )
|Proceeds from issuance of restricted stock                                           |  |                         | 9,750   |   |      |   | 249    |      |  |   |        |  
|Repurchase of restricted stock                                                       |  |                         |        |   |      |   | (119   | )    |  |   | (2      | )
|Receipt of amounts due from stockholders                                             |  |                         |        |   |      |   | 334    |      |  |   | 232     |  
|Notes receivable from stockholders                                                   |  |                         |        |   |      |   | 41     |      |  |   | (140    | )
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) financing activities                                  |  |                         | 9,242   |   |      |   | (4,786 | )    |  |   | (4,095  | )
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Effect of exchange rate changes                                                      |  |                         |        |   |      |   | (45    | )    |  |   | (599    | )
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                 |  |                         | 8,398   |   |      |   | (7,131 | )    |  |   | (2,885  | )
|Cash and cash equivalents at beginning of year                                       |  |                         | 3,838   |   |      |   | 10,969 |      |  |   | 13,854  |  
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Cash and cash equivalents at end of year                                             |  | $                       | 12,236  |   |      | $ | 3,838  |      |  | $ | 10,969  |  
|                                                                                     |  |                         |         |   |      |   |        |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                    |  |                         |         |   |      |   |        |      |  |   |         |  
|Cash paid for income taxes                                                           |  | $                       | 32      |   |      | $ | 65     |      |  | $ | 1,371   |  
|Cash paid for interest                                                               |  | $                       | 8       |   |      | $ | 489    |      |  | $ | 824     |  
|Non cash investing and financing activities:                                         |  |                         |         |   |      |   |        |      |  |   |         |  
|Deferred compensation related to grants of stock or stock options                    |  | $                       | 72      |   |      | $ |       |      |  | $ | 280     |  



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



56



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##### Table of Contents

TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | Nature of Operations
|-- | --------------------



TenFold is the provider of EnterpriseTenFold, a software applications platform (formerly Universal Application) that reduces enterprise applications design, development, deployment,
and maintenance timeframes and costs. EnterpriseTenFold 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. TenFold also offers services for developing and implementing applications, training, and customer and technical support.



TenFold sells its products and services primarily to customers in the United States, but it currently has a small number of customers outside the United
States.



TenFold was incorporated in the state of Delaware in
February 1993.



|2. | Going Concern and Liquidity
|-- | ---------------------------



The independent auditors opinion on TenFolds December 31, 2001 financial statements included an explanatory paragraph relating to
TenFolds ability to continue as a going concern.



TenFold
has taken steps to strengthen its financial foundation, including restructuring its operations through work force reductions, terminating leases or subleasing facilities, negotiating significantly discounted debt retirements, and other operational
cost-saving measures. TenFold has carefully managed its accounts receivable and generated additional cash inflows wherever possible from its existing customer base, and has raised capital. TenFold has made progress improving cash flow during 2001,
2002 and continuing into 2003. Progress made in 2003 includes:



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



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



| |  | During December 2003, TenFold closed a private placement of 5 million shares of restricted common stock, with no warrants, which it sold at $2.00 per share (before related fees and
expenses).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



TenFold believes it has made good
progress strengthening its financial foundation, and that its existing cash and expected continuing cash flows from existing customers will provide it with sufficient resources for the coming year. However, some challenges and risks remain:



| |  | TenFold has derived, and over the near term expects to continue to derive, a significant portion of its cash inflows from a limited number of large customers. The loss of a large
customer could materially and adversely affect TenFolds business, results of operations, financial position and liquidity.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



TenFold believes that it is
continuing to appropriately manage these risks. However, there can be no assurance that TenFold will be successful, and that these risks will not have a materially adverse affect on its future cash flow.



57



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TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|3. | Significant Accounting Policies
|-- | -------------------------------



Basis of Presentation



The consolidated financial statements include the accounts of TenFold and its subsidiaries. All intercompany accounts and transactions have been
eliminated.



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.



TenFold believes risks relating to revenue recognition primarily include the judgment and estimation required to determine project profit or loss
projections on time-and-material contracts. TenFold recognizes time-and-materials revenue at the lowest point in the range of estimated profit margin, which represents TenFolds best estimate of the profit to be achieved. Variances may occur if
TenFold is unable to collect time-and-material billings or if TenFold grants concessions to time-and-material customers in order to sell additional business or collect cash under the contract. These variances between TenFolds estimate of the
lowest point in the range of estimated profit margin and actual results may result in a significant adjustment to its results of operations and financial position.



Previously, risks relating to revenue recognition also included the judgment and estimation 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 TenFold converted its remaining on-going legacy
fixed-price contracts to time-and-materials arrangements. As a result, TenFold has no significant on-going fixed-price contracts at December 31, 2003.



TenFold reviews 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 TenFold accrues the estimated loss. If a loss is considered probable but cannot be reasonably
estimated, TenFold discloses the contingency in the notes to its 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.



TenFold recognizes 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, TenFold reduces 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.



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



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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.



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 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



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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.



The following table sets forth, for the periods indicated, the revenue recognized by type (in thousands):



|                                             |  |                         |        |      |   |        |  |   |       
|-------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                             |  | Year ended December 31,
|                                             |  | 2003                    |        | 2002 |   | 2001  
|Products:                                    |  |                         |        |      |   |        |  |   |       
|EnterpriseTenFold license revenue            |  | $                       | 198    |      | $ | 81     |  | $ |      
|Vertical application product license revenue |  |                         |       |      |   |       |  |   |      
|Solutions:                                   |  |                         |        |      |   |        |  |   |       
|Percentage-of-completion license revenue     |  |                         | 50     |      |   | 126    |  |   | 8,532 
|                                             |  |                         |        |      |   |        |  |   |       
|Total license revenues                       |  | $                       | 248    |      | $ | 207    |  | $ | 8,532 
|Subscription revenue                         |  | $                       | 10,431 |      | $ | 15,548 |  | $ | 689   
|Percentage-of-completion service revenue     |  | $                       | 254    |      | $ | 1,056  |  | $ | 24,483
|Time-and-materials service revenue           |  |                         | 10,145 |      |   | 4,224  |  |   | 13,535
|Maintenance revenue                          |  |                         | 3,183  |      |   | 5,481  |  |   | 4,002 
|Training revenue                             |  |                         | 822    |      |   | 482    |  |   | 1,324 
|Reimbursed expenses and other revenues       |  |                         | 2,626  |      |   | 1,232  |  |   | 2,348 
|                                             |  |                         |        |      |   |        |  |   |       
|Total services and other revenues            |  | $                       | 17,030 |      | $ | 12,475 |  | $ | 45,692
|                                             |  |                         |        |      |   |        |  |   |       
|Total revenues                               |  | $                       | 27,709 |      | $ | 28,230 |  | $ | 54,913
|                                             |  |                         |        |      |   |        |  |   |       



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Cash Equivalents



Cash equivalents include all highly liquid investments purchased with remaining maturities of three or fewer months. Cash
equivalents are recorded at cost, which approximates fair value, and consist primarily of investments in money market mutual funds.



Financial Instruments



The carrying values of accounts receivable, unbilled accounts receivable, income taxes receivable, accounts payable, accrued liabilities, and income taxes
payable, approximates their estimated fair values due to the relative short maturity of these instruments.



Restricted Cash



Restricted cash at December 31, 2003 relates to $73,000 held to support various other accounts payable activities.



Restricted cash at December 31, 2002 relates to $66,000 held as collateral
for TenFolds letter of credit obligations used to secure a lease on office space in Dallas, Texas; and $72,000 held to support various other accounts payable activities.



Property and Equipment



Property and equipment, including leasehold improvements, are stated at cost, as adjusted for impairment charges. See Notes 6 and 19 for more information.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years, or the life of the lease, whichever is shorter.



Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and
betterments that extend the useful lives of existing equipment are capitalized and depreciated. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the statement of operations.



Accounting for Impairment of Long-Lived Assets



TenFold reviews its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured
by a comparison of the carrying amount of an asset to future un-discounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets. Fair value is determined utilizing cash flow analyses, and other market valuations. Assets held for sale are reported at the lower of their carrying amount or fair value
less estimated cost to sell.



Cost of Revenues



Cost of revenues consists primarily of compensation and
other related costs of services personnel, and contractor and distributor costs related to customer projects. Costs of license revenues, including product packaging, documentation, and reproduction have not been significant.



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Advertising



Advertising costs are expensed as incurred. Advertising costs amounted to $1,000 in 2003, $33,000 in 2002, and $0 in 2001.



Research and Development Costs



Research and development expenses consist primarily of costs for development
and enhancement of the EnterpriseTenFold, and TenFold ComponentWare. In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed (SFAS 86), development costs incurred in the research and development of new software products to be sold, leased or otherwise marketed are expensed as incurred until technological feasibility
has been established. TenFold achieves technological feasibility through a working model. TenFold has charged its software development costs to research and development expense in the accompanying Consolidated Statements of Operations.



Royalties



TenFold has entered into agreements with certain of its customers and others
requiring TenFold to make royalty payments ranging from 1.9 percent to 25 percent of specified future revenues. These royalties typically become payable if and when applications products developed for these customers are subsequently re-sold to
other customers, generally with the assistance of the original customer; or are payable to certify an applications compliance with certain industry standards and to obtain industry benchmarking data. TenFold incurred royalty expense of
$11,000, $10,000, and $0 during the years ended December 31, 2003, 2002, and 2001, respectively.



Warranty



TenFold provides reserves for warranty costs expected to be incurred. To date, TenFold has not incurred significant warranty costs.



Income Taxes



TenFold records income taxes using the asset and liability method. Deferred
income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement basis amounts of existing assets and liabilities and their respective income tax bases. Future tax benefits,
such as net operating loss carryforwards and tax credits, are recognized to the extent that realization of such benefits is more likely than not.



Currency Translation



The functional currency of TenFolds foreign operations was the applicable local foreign currency. As such, TenFold did not recognize any transaction
gains or losses during the years ended December 31, 2003, 2002 and 2001. The translation of the functional currencies into U.S. dollars was performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for
revenue and expense accounts using average rates of exchange prevailing during the reporting period. Adjustments resulting from the translation of TenFolds foreign operations was included in accumulated other comprehensive income as a
component of stockholders equity. During October 2002, TenFold sold the entire equity interest in its wholly owned subsidiary, TenFold Systems UK Limited, to the management of that subsidiary. See Note 5 for more information. Transaction gains
and losses subsequent to sale of TenFold Systems UK Limited were insignificant.



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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 years ended December 31, 2003, 2002, and
2001 would have been as follows (in thousands except per share information):



|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                                                            |  | 2003 |        |   | 2002 |   |        | 2001 | 
|Net income (loss) applicable to common stock  as reported                                                                                  |  | $    | 13,747 |   |      | $ | (1,188 | )    |  | $ | (15,668 | )
|Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects                           |  |      | 109    |   |      |   | 164    |      |  |   | 857     |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (5,348 | ) |      |   | (7,779 | )    |  |   | (16,830 | )
|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |         |  
|Net income (loss) applicable to common stock  pro forma                                                                                    |  | $    | 8,508  |   |      | $ | (8,803 | )    |  | $ | (31,641 | )
|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |         |  
|Earnings (loss) per common shareas reported:                                                                                               |  |      |        |   |      |   |        |      |  |   |         |  
|Basic                                                                                                                                       |  | $    | 0.34   |   |      | $ | (0.03  | )    |  | $ | (0.44   | )
|Diluted                                                                                                                                     |  |      | 0.29   |   |      |   | (0.03  | )    |  |   | (0.44   | )
|Earnings (loss) per common share  pro forma:                                                                                               |  |      |        |   |      |   |        |      |  |   |         |  
|Basic                                                                                                                                       |  | $    | 0.21   |   |      | $ | (0.24  | )    |  | $ | (0.89   | )
|Diluted                                                                                                                                     |  |      | 0.18   |   |      |   | (0.24  | )    |  |   | (0.89   | )



The effect of SFAS 123
on pro forma net income (loss) and net income (loss) per share disclosed for 2003, 2002, and 2001 may not be representative of the effects on pro forma results in future years.



See Note 13 for more information.



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.



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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.



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.



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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.



In December 2003, the FASB issued Interpretation No. 46 (FIN 46R) (revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 (ARB 51), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity though means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN 46), which was issued in January 2003. Before concluding that it is appropriate to apply ARB 51 voting interest consolidation model to an entity, an enterprise must
first determine that the entity is not a variable interest entity (VIE). As of the effective date of FIN 46R, an enterprise must evaluate its involvement with all entities or legal structures created before February 1, 2003, to determine
whether consolidation requirements of FIN 46R apply to those entities. There is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after January 31, 2003 and no later than the
end of the first reporting period that ends after March 15, 2004. The adoption of FIN 46 had no effect on TenFolds results of operations and financial position.



On December 18, 2003 the SEC issued Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), which
supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was superceded as a result of the issuance
of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. SAB 104 does not have a material impact on the TenFolds financial position or results of operations.



|4. | 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):



|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                          |  | Year ended December 31, |       
|                                                                          |  | 2003                    |        | 2002 |   |        | 2001 | 
|Numerator:                                                                |  |                         |        |      |   |        |      |  |   |         |  
|Net income (loss)                                                         |  | $                       | 13,747 |      | $ | (1,188 | )    |  | $ | (15,668 | )
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Numerator for diluted earnings (loss) per share                           |  | $                       | 13,747 |      | $ | (1,188 | )    |  | $ | (15,688 | )
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Denominator:                                                              |  |                         |        |      |   |        |      |  |   |         |  
|Denominator for basic earnings (loss) per share  weighted-average shares |  |                         | 40,634 |      |   | 37,249 |      |  |   | 35,623  |  
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Employee stock options                                                    |  |                         | 6,989  |      |   |       |      |  |   |        |  
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Denominator for diluted earnings (loss) per share                         |  |                         | 47,623 |      |   | 37,249 |      |  |   | 35,623  |  
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Earnings (loss) per common share:                                         |  |                         |        |      |   |        |      |  |   |         |  
|Basic earnings (loss) per common share                                    |  | $                       | 0.34   |      | $ | (0.03  | )    |  | $ | (0.44   | )
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  
|Diluted earnings (loss) per common share                                  |  | $                       | 0.29   |      | $ | (0.03  | )    |  | $ | (0.44   | )
|                                                                          |  |                         |        |      |   |        |      |  |   |         |  



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Employee stock options of 3,792,372 outstanding at December 31, 2003, that have a weighted average
exercise price of $5.99 per share, and that could potentially dilute basic earnings (loss) per share in the future, were not included in the computation of diluted earnings (loss) per share for the year ended December 31, 2003, because to do so
would have been anti-dilutive for the period.



Employee stock
options of 10,050,679 outstanding at December 31, 2002, that have a weighted average exercise price of $2.75 per share, and that could potentially dilute basic loss per share in the future, were not included in the computation of diluted loss per
share for the year ended December 31, 2002, because to do so would have been anti-dilutive for the period.



Employee stock options of 14,269,411 outstanding at December 31, 2001, that have a weighted average exercise price of $5.76 per share, and that could
potentially dilute basic loss per share in the future, were not included in the computation of diluted loss per share for the year ended December 31, 2001, because to do so would have been anti-dilutive for the period.



|5. | Acquisition and Disposition
|-- | ---------------------------



On October 19, 2002, TenFold sold the entire equity interest in its wholly owned subsidiary, TenFold Systems UK Limited, to the management of that
subsidiary. Accordingly, the operations of TenFold Systems UK Limited have been included in the accompanying consolidated statements of operations for TenFold for all periods presented through October 19, 2002. TenFold has previously distributed and
supported its products in the United Kingdom through TenFold Systems UK Limited. Under the terms of this transaction, youDevise Limited (formerly TenFold Systems UK Limited) will continue to distribute TenFold products in the United Kingdom and
provide local support to its customers. TenFold will provide support for EnterpriseTenFold to youDevise Limited and will share with youDevise Limited revenues from existing and future youDevise Limited customers.



The loss recognized on the sale of TenFold Systems UK Limited is summarized
as follows (in thousands):



|                                                     |  |   |      |   |        |   |      |  
|---------------------------------------------------- |  | - | ---- | - | ------ | - | ---- | -
|                                                     |  |   |      |   | Amount |  
|Total purchase price                                 |  |   |      |   |        | $ |     |  
|Cash and other assets retained                       |  |   |      |   |        |   | 238  |  
|Liabilities retained                                 |  |   |      |   |        |   | (269 | )
|                                                     |  |   |      |   |        |   |      |  
|Net proceeds from sale                               |  |   |      |   |        |   | (31  | )
|Net book value of subsidiary                         |  |   |      |   |        |   |      |  
|Current assets                                       |  | $ | (266 | ) |        |   |      |  
|Long-term assets                                     |  |   | (208 | ) |        |   |      |  
|Current liabilities                                  |  |   | 707  |   |        |   |      |  
|Long-term liabilities                                |  |   |     |   |        |   |      |  
|                                                     |  |   |      |   |        |   |      |  
|                                                     |  |   |      |   |        |   | 233  |  
|                                                     |  |   |      |   |        |   |      |  
|Initial gain on sale                                 |  |   |      |   |        | $ | 202  |  
|                                                     |  |   |      |   |        |   |      |  
|Accumulated foreign currency translation adjustments |  |   |      |   |        |   | (481 | )
|                                                     |  |   |      |   |        |   |      |  
|Loss on sale                                         |  |   |      |   |        | $ | (279 | )
|                                                     |  |   |      |   |        |   |      |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



In connection with the sale of LongView, TenFold deposited $2.9 million in an interest bearing escrow account to be used for
settlement of indemnified claims that might arise over the eighteen months following sale. During the quarter ended September 30, 2001, TenFold began negotiations of an agreement with Linedata, that was signed by the parties in October 2001, under
which the parties agreed to release each other from certain claims they had or may have had against each other, and Linedata agreed to immediately release to TenFold $1.8 million of the previously escrowed funds, with Linedata retaining the balance
of $1.2 million. As a result, TenFold reduced its gain on sale of LongView by $1.2 million during the quarter ended September 30, 2001. During October 2001, TenFold received the $1.8 million released from the escrow account and Linedata received
$1.2 million, as contemplated in the related agreement.



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



|                                                                      |  |   |         |   |        |   |         |  
|--------------------------------------------------------------------- |  | - | ------- | - | ------ | - | ------- | -
|                                                                      |  |   |         |   | Amount |  
|Total purchase price                                                  |  |   |         |   |        | $ | 29,000  |  
|Less costs associated with sale                                       |  |   |         |   |        |   | (885    | )
|                                                                      |  |   |         |   |        |   |         |  
|Net proceeds from sale                                                |  |   |         |   |        |   | 28,115  |  
|Net book value of subsidiary                                          |  |   |         |   |        |   |         |  
|Current assets                                                        |  | $ | (1,455  | ) |        |   |         |  
|Long-term assets                                                      |  |   | (19,042 | ) |        |   |         |  
|Current liabilities                                                   |  |   | 5,745   |   |        |   |         |  
|Long-term liabilities                                                 |  |   |        |   |        |   |         |  
|                                                                      |  |   |         |   |        |   |         |  
|                                                                      |  |   |         |   |        |   | (14,752 | )
|                                                                      |  |   |         |   |        |   |         |  
|Initial gain on sale (as of March 31, 2001)                           |  |   |         |   |        | $ | 13,363  |  
|                                                                      |  |   |         |   |        |   |         |  
|Proceeds for accounts receivable collection, less additional expenses |  |   |         |   |        |   | 177     |  
|Agreement to release escrowed funds to Linedata                       |  |   |         |   |        |   | (1,179  | )
|                                                                      |  |   |         |   |        |   |         |  
|Gain on sale                                                          |  |   |         |   |        | $ | 12,361  |  
|                                                                      |  |   |         |   |        |   |         |  



The loss on sale of
subsidiaries of $399,000 for the year ended December 31, 2002 is comprised of $279,000 for the loss on the sale of TenFold Systems UK Limited, and a $120,000 reimbursement of an office lease deposit related to the sale of LongView. The gain on sale
of subsidiaries of $12.4 million for the year ended December 31, 2001 is entirely related to the sale of LongView.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|6. | Property Plant & Equipment
|-- | --------------------------



Property and equipment consists of the following (in thousands):



|                                               |  |              |         |   |      |   |         |  
|---------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                               |  | December 31, |        
|                                               |  | 2003         |         |   | 2002 |  
|Computer equipment                             |  | $            | 6,860   |   |      | $ | 7,416   |  
|Leasehold improvements                         |  |              | 2,274   |   |      |   | 2,255   |  
|Software                                       |  |              | 1,672   |   |      |   | 1,672   |  
|Office equipment                               |  |              | 1,492   |   |      |   | 1,663   |  
|Furniture and fixtures                         |  |              | 927     |   |      |   | 2,052   |  
|Computer equipment under capital lease         |  |              |        |   |      |   | 5,425   |  
|                                               |  |              |         |   |      |   |         |  
|Total cost                                     |  |              | 13,225  |   |      |   | 20,483  |  
|Less accumulated depreciation and amortization |  |              | (12,370 | ) |      |   | (19,016 | )
|                                               |  |              |         |   |      |   |         |  
|                                               |  | $            | 855     |   |      | $ | 1,467   |  
|                                               |  |              |         |   |      |   |         |  



Accumulated
amortization under capital leases amounted to $0, $5.4 million, and $8.2 million at December 31, 2003, 2002, and 2001, respectively.



During the year ended December 31, 2003, TenFold executed agreements with its two major equipment leasing vendors to buy out and retire their equipment
lease debt at a substantial discount, and return substantially all the equipment. Net total other income for the year ended December 31, 2003 includes a gain of $2.2 million that TenFold recognized on the retirement of capital lease obligations.



During the year ended December 31, 2002, TenFold recognized
impairment charges on its fixed assets. The accumulated depreciation and amortization in the table above has been adjusted for the impairment charge. See Note 19 for more information.



During the year ended December 31, 2000, TenFold acquired two office buildings totaling 14,000 square feet and adjoining
property in San Rafael, California. TenFold did not occupy any of this space during the year ended December 31, 2001. TenFold sold these buildings in January 2002 for an amount equal to their net book value after previously recorded impairment
adjustments, of $2.0 million.



|7. | Accrued Liabilities
|-- | -------------------



Accrued liabilities consists of the following (in thousands):



|                             |  |              |       |      |   |      
|---------------------------- |  | ------------ | ----- | ---- | - | -----
|                             |  | December 31,
|                             |  | 2003         |       | 2002
|Due to Perot Systems         |  | $            | 2,673 |      | $ | 2,673
|Accrued restructuring costs  |  |              | 512   |      |   | 1,437
|Sales & other business taxes |  |              | 619   |      |   | 560  
|Accrued vacation             |  |              | 488   |      |   | 436  
|Accrued medical insurance    |  |              | 215   |      |   | 283  
|Accrued compensation         |  |              | 346   |      |   | 115  
|Legal and accounting fees    |  |              | 277   |      |   | 173  
|Other accrued expenses       |  |              | 286   |      |   | 759  
|                             |  |              |       |      |   |      
|Total accrued liabilities    |  | $            | 5,416 |      | $ | 6,436
|                             |  |              |       |      |   |      



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TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|8. | Notes Payable
|-- | -------------



TenFold previously had notes payable consisting of three-year notes collateralized by fixed assets with monthly payment terms, and a five-year term loan
collateralized by real property with monthly payments. In January 2002, TenFold sold the real property in San Rafael, California, and applied the proceeds from this sale to reduce the amount TenFold owed under the loan agreements. In March 2002,
TenFold also sold certain equipment and applied the proceeds from this sale to reduce the amount TenFold owed under the loan agreements.



In October 2002, TenFold executed an agreement with this lender under which TenFold paid a reduced amount to fully retire its remaining notes payable to
this lender. TenFold has recognized the difference between the amount paid to retire this debt and the carrying amount of the debt as a gain on retirement of debt of $2.4 million in the accompanying Consolidated Statements of Operations for the year
ended December 31, 2002.



|9. | Lease Commitments
|-- | -----------------



TenFold leases office space and equipment under non-cancelable lease agreements, which expire at various dates through 2007. These leases generally
require TenFold to pay all executory costs such as maintenance and insurance. Future minimum lease payments under non-cancelable operating lease obligations, in excess of one year and excluding obligations accrued as part of restructurings, as of
December 31, 2003 are as follows (in thousands):



|                             |  |       |      
|---------------------------- |  | ----- | -----
|                             |  | Total
|2004                         |  |       | 405  
|2005                         |  |       | 416  
|2006                         |  |       | 427  
|2007                         |  |       | 290  
|2008                         |  |       |     
|Thereafter                   |  |       |     
|                             |  |       |      
|Total minimum lease payments |  | $     | 1,538
|                             |  |       |      



Total rental expense
under operating leases, net of $0 sublease income in 2003, $0 sublease income in 2002, and $513,000 sublease income in 2001, was $431,000, $2.5 million, and $4.4 million for the years ended December 31, 2003, 2002, and 2001, respectively.



The table above of future minimum lease payments has not been
reduced by future minimum rentals due under subleases of $372,000 in 2004 and $128,000 in 2005. These future minimum rentals are offset against related lease obligations accrued as part of restructurings.



Operating lease commitments for properties that have been restructured are
included in accounts payable and accrued liabilities in the Consolidated Balance Sheet at December 31, 2003. See Notes 7 and 19 for more information.



TenFold previously had significant capital lease obligations from equipment leases it had entered into in prior years. During the year ended December 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 $2.2 million. At December 31, 2002, TenFold had leases payable to these lessors totaling $2.9 million.



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TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|10. | Legal Proceedings and Contingencies
|--- | -----------------------------------



SkyTel Lawsuit



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 demanded a refund of $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.
TenFold recognized revenue from the SkyTel Agreement of $0, $0, and $263,000 during the years ended December 31, 2003, 2002, and 2001 respectively.



The parties stayed discovery and attempted negotiations to settle the dispute. However, resolution was 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 authorized a settlement offer that was
communicated to SkyTel. At December 31, 2002 TenFold had 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 consolidated
balance sheet at December 31, 2002.



SkyTel did not respond to
the settlement offer and as a result the offer lapsed. 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. As a result, TenFold has removed the other current liability to SkyTel for the prior settlement offer, and the related other current asset of the same amount for the receivable from the insurance carrier, in the
accompanying consolidated balance sheet at December 31, 2003. The Court retains jurisdiction to reopen the action upon motion of the parties. If reopened, an unfavorable outcome in the matter may have a material adverse impact on TenFolds
business, results of operations, financial position, or liquidity.



Coufal
Lawsuit



On December 1, 2003, TenFold was served with a
complaint in the matter of Coufal v. Cedars Sinai Medical Center, et. al. The compliant was filed in the Superior Court of the State of California, County of Los Angeles by the parents of a deceased individual who died on December 15, 2002 while in
the care of Cedars Sinai Medical Center. The complaint lists a number of defendants including, Cedars Sinai Medical Center, Perot Systems Healthcare Services Group, Perot Systems Corporation, PCX Systems, LLC, TenFold Corporation, Steve Chen M.D.,
Charles Louy M.D., Steven Fowler M.D., Sunshine Aviva Weiss M.D., and Does 1-100, inclusive. The complaint generally alleges that plaintiffs daughter died following surgery as the result of an overdose of prescription medications. The
complaint alleges that the medications were prescribed, ordered and/or administered in excess of the levels acceptable to physicians acting within the standard of care of physicians in the community, and that the computerized physician order entry
system (PCX), initially developed by TenFold, failed to detect the overdose. The complaint acknowledges that in



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TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



April, 2001, and pursuant to separate agreements, which are described in reports that TenFold has filed with the SEC, responsibility for and ownership of PCX
was assumed by PCX Systems, LLC (a wholly owned subsidiary of Cedars Sinai Medical Center), and that in October, 2002 Cedars Sinai Medical Center installed PCX for hospital use. At this point, management does not believe that this lawsuit will have
a material adverse impact on TenFolds business, results of operations, financial position, or liquidity.



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 would 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 used a portion of this supplemental extended reporting insurance policy in defending the SkyTel dispute, until the case was dismissed on July 14, 2003 as described above.



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. TenFold believes its errors and
omissions and/or umbrella liability insurance coverage may cover the costs of legal defense and types of alleged damages claimed in the Coufal dispute noted above, subject to the policys total limit, and the insurance carriers standard
reservation of rights by the carrier regarding conditions or findings that might exclude coverage for a particular matter.



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.



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 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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 December 31, 2003.
As a result, TenFold has not recorded a liability for infringement costs as of December 31, 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 December 31, 2003.



|11. | Income Taxes
|--- | ------------



The components of the provision (benefit) for income taxes are presented below (in thousands):



|                                           |  |                         |    |      |   |      |      |  |   |      
|------------------------------------------ |  | ----------------------- | -- | ---- | - | ---- | ---- |  | - | -----
|                                           |  | Year ended December 31,
|                                           |  | 2003                    |    | 2002 |   |      | 2001
|Provision (benefit) for income taxes:      |  |                         |    |      |   |      |      |  |   |      
|Current:                                   |  |                         |    |      |   |      |      |  |   |      
|Federal                                    |  | $                       |   |      | $ | (536 | )    |  | $ | 536  
|State                                      |  |                         | 4  |      |   | 4    |      |  |   | 1,044
|Foreign.                                   |  |                         | 28 |      |   | 35   |      |  |   | 1,385
|                                           |  |                         |    |      |   |      |      |  |   |      
|Total current                              |  |                         | 32 |      |   | (497 | )    |  |   | 2,965
|Deferred:                                  |  |                         |    |      |   |      |      |  |   |      
|Federal                                    |  |                         |   |      |   |     |      |  |   |     
|State                                      |  |                         |   |      |   |     |      |  |   |     
|                                           |  |                         |    |      |   |      |      |  |   |      
|Total deferred                             |  |                         |   |      |   |     |      |  |   |     
|                                           |  |                         |    |      |   |      |      |  |   |      
|Total provision (benefit) for income taxes |  | $                       | 32 |      | $ | (497 | )    |  | $ | 2,965
|                                           |  |                         |    |      |   |      |      |  |   |      



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TENFOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The table below reconciles the expected U.S. federal statutory income tax rate to the recorded income
tax provision (benefit) (in thousands):



|                                                         |  |                         |        |   |      |   |      |      |  |   |        |  
|-------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                         |  | Year ended December 31, |       
|                                                         |  | 2003                    |        |   | 2002 |   |      | 2001 | 
|Tax expense (benefit) at U.S. statutory rates            |  | $                       | 4,685  |   |      | $ | (573 | )    |  | $ | (4,319 | )
|State tax (benefit), net of federal tax impact           |  |                         | 4      |   |      |   | 4    |      |  |   | 1,044  |  
|Meals & entertainment                                    |  |                         | 11     |   |      |   | 13   |      |  |   | 58     |  
|Purchased intangibles                                    |  |                         |       |   |      |   |     |      |  |   | 3,855  |  
|Foreign taxes                                            |  |                         | 28     |   |      |   | 35   |      |  |   | 129    |  
|Credits for research activities                          |  |                         |       |   |      |   |     |      |  |   | (153   | )
|Change in tax contingencies and other estimates          |  |                         | 25     |   |      |   | (742 | )    |  |   |       |  
|Change in valuation allowance attributable to operations |  |                         | (4,721 | ) |      |   | 766  |      |  |   | 2,351  |  
|                                                         |  |                         |        |   |      |   |      |      |  |   |        |  
|Provision (benefit) for income taxes                     |  | $                       | 32     |   |      | $ | (497 | )    |  | $ | 2,965  |  
|                                                         |  |                         |        |   |      |   |      |      |  |   |        |  



TenFolds
deferred tax assets are comprised of the following (in thousands):



|                                              |  |              |         |   |      |   |         |  
|--------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                              |  | December 31, |        
|                                              |  | 2003         |         |   | 2002 |  
|Deferred tax assets:                          |  |              |         |   |      |   |         |  
|Reserves and accruals                         |  | $            | 1,484   |   |      | $ | 1,769   |  
|Stock option compensation                     |  |              | 17      |   |      |   | 34      |  
|Credits for research activities               |  |              | 7,142   |   |      |   | 6,022   |  
|Differences in timing of revenue recognition  |  |              | 2,921   |   |      |   | 7,826   |  
|Loss carryovers                               |  |              | 25,141  |   |      |   | 24,684  |  
|Depreciation for book in excess of tax        |  |              | 1,274   |   |      |   | 2,365   |  
|                                              |  |              |         |   |      |   |         |  
|Total deferred tax assets                     |  |              | 37,979  |   |      |   | 42,700  |  
|Valuation allowance                           |  |              | (37,979 | ) |      |   | (42,700 | )
|                                              |  |              |         |   |      |   |         |  
|Deferred tax assets after valuation allowance |  | $            |        |   |      | $ |        |  
|                                              |  |              |         |   |      |   |         |  



Domestic and foreign
components of income (loss) before taxes are as follows (in thousands):



|                           |  |                         |        |      |   |        |      |  |   |         |  
|-------------------------- |  | ----------------------- | ------ | ---- | - | ------ | ---- |  | - | ------- | -
|                           |  | Year ended December 31, |       
|                           |  | 2003                    |        | 2002 |   |        | 2001 | 
|Domestic                   |  | $                       | 13,779 |      | $ | (1,755 | )    |  | $ | (13,098 | )
|Foreign                    |  |                         |       |      |   | 70     |      |  |   | 395     |  
|                           |  |                         |        |      |   |        |      |  |   |         |  
|Income (loss) before taxes |  | $                       | 13,779 |      | $ | (1,685 | )    |  | $ | (12,703 | )
|                           |  |                         |        |      |   |        |      |  |   |         |  



On March 9, 2002,
President Bush signed into law the Jobs Creation and Worker Assistance Act of 2002. Among other provisions, the Act provides for a temporary suspension of the alternative minimum tax net operating loss limitation for 2001 and 2002. SFAS No.
109, Accounting for Income Taxes, requires that the effect of changes in tax law be charged or credited to income in the period in which the law is enacted. Therefore, TenFold reversed in the 2002 tax provision $536,000 of federal alternative
minimum taxes that were accrued in the 2001 tax provision.



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As of December 31, 2003, TenFold had federal net operating loss carryforwards of approximately $66.7
million that begin to expire in 2020. As of December 31, 2002, TenFold had state net operating loss carryforwards of approximately $51.6 million, which are subject to various state carryover provisions that generally provide shorter carryover
periods than federal. In addition, as of December 31, 2003, TenFold had federal credit carryforwards for increasing research activities of approximately $4.1 million that begin to expire in 2014, TenFold also had $1.7 million of state credits for
increasing research activities that are subject to various state carryover provisions.



The ultimate realization of the deferred income tax assets is dependent, in part, upon the tax laws in effect, TenFolds future earnings, and other events. As of December 31, 2003, TenFold had recorded a
valuation allowance of $38.0 million. During the year ended December 31, 2003, the valuation allowance decreased approximately $4.8 million, and for the year ended December 31, 2002, the valuation allowance increased approximately $766,000. The
decrease for the year ended December 31, 2003 relates primarily to the income from operations. The increase for the year ended December 31, 2002 relates primarily to the loss from operations and other adjustments to tax contingencies and estimates.
The general valuation allowance has been established under the provisions of SFAS No. 109, Accounting for Income Taxes, which requires that a valuation allowance be established when it is more likely than not that the net deferred tax assets
will not be realized. The valuation allowance as of December 31, 2003 includes the benefit for stock option exercises that increased the size of the net operating loss carryovers. Future reductions to the valuation allowance will be allocated $28.7
million to operations and $9.3 million to paid-in capital.



|12. | Restricted Stock
|--- | ----------------



On December 22, 2003, TenFold completed a private placement of 5 million shares of restricted common stock, with no warrants, which it sold at $2.00 per
share (before related fees and expenses). Under the terms of the private placement, TenFold agreed to file a shelf registration statement to register such shares as soon as practicable following the closing date (but not later than 30 days), and to
use its best efforts to cause such shelf registration statement to become effective as soon as practicable following the filing thereof but not later than 90 days after the closing date (or 120 days under certain circumstances), and remain effective
until the earlier of (a) the second anniversary of the closing date and (b) the date on which holders of such securities may sell in a single transaction all securities then held on a registered securities exchange or the Over the Counter Bulletin
Board Exchange under an applicable exemption from the registration requirements provided by federal securities laws. In the event TenFold fails to have the shelf registration statement declared effective by the SEC by the deadline in the agreement
(except where the failure to meet such deadline is the result primarily of actions or omissions by the holders of the securities, or other events beyond TenFolds reasonable control), then TenFold is required to pay each holder of the
securities for each 30-day period that the shelf registration statement remains ineffective, an amount equal to 1% of the original purchase price attributable to those securities. TenFold filed a shelf registration statement to register these
securities on February 11, 2004 and it is under review by the SEC as of the date of this filing.



During February 2003, TenFold sold 3,888,889 shares of common stock to a member of its Board of Directors for a total purchase price of $700,000. These
shares are not registered and are therefore subject to certain holding period and other trading restrictions provided by federal securities laws.



|13. | Stock Option Plans
|--- | ------------------



1993 Flexible Stock Incentive Plan.TenFolds 1993 Flexible Stock Incentive Plan (the 1993 Stock Plan) was adopted by the
Board of Directors and approved by the TenFolds stockholders in February 1993. A total of 10,000,000 shares of common stock are reserved for issuance under the 1993 Stock Plan. The 1993 Stock Plan is administered by the Board of Directors and
the Board



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Compensation Committee, and with respect to option grants to purchase up to 10,000 shares to any one employee, option grants may be approved by a separate
committee of the board. The 1993 Stock Plan provides for the issuance of incentive stock options to employees, including officers and employee directors, and of nonqualified stock options, stock purchase rights, stock bonus awards, and stock
appreciation rights to employees, including officers and directors, consultants, and non-employee directors. The options generally vest over a five-year period and expire ten years from the date of grant. On January 1, 2003, the Plan terminated with
respect to the grant of incentive stock options. To date, TenFold has not issued any incentive stock options, stock purchase rights, stock bonus awards, or stock appreciation rights under the 1993 Stock Plan.



1999 Stock Plan.TenFolds 1999 Stock Plan was adopted by
the Board of Directors and approved by the stockholders in March 1999 and June 2002. A total of 6,500,000 shares of common stock were reserved for issuance under the 1999 Stock Plan, plus an automatic annual increase on the first day of 2000, 2001,
2002, 2003, and 2004. This automatic annual increase is equal to the lesser of 1,000,000 shares or 3 percent of TenFolds outstanding common stock on the last day of the immediately preceding year, or such lesser number of shares as the Board
of Directors determines. Under this provision, on each of January 1, 2003, January 1, 2002, January 1, 2001 and January 1, 2000 the number of shares reserved for issuance under the plan increased by 1,000,000 shares. At the 2003 Annual Meeting
TenFolds stockholders approved a plan amendment that increased the number of shares of common stock available for issuance by 5,000,000 shares, and increased the annual limit on the number of shares of common stock that may be granted to any
one employee by 1,000,000 shares to an annual maximum of 2,000,000 shares. The 1999 Stock Plan provides for the granting to employees, including officers and directors, of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees and consultants, including non-employee directors, of nonqualified stock options and stock purchase rights. TenFold has historically granted only nonqualified stock options. The
1999 Stock Plan is administered by the Board of Directors and the Board Compensation Committee, and with respect to option grants to purchase up to 10,000 shares to any one employee, option grants may be approved by a separate committee of the
board. The plan administrator determines the terms of options and stock purchase rights granted under the 1999 Stock Plan, including the number of shares subject to an option or purchase right, the exercise or purchase price, and the term and
exercisability of options. The options generally vest over a four or five year period and expire ten years from the date of grant. Unless terminated earlier, the 1999 Stock Plan will terminate in March 2009. Through December 31, 2003, TenFold has
not issued any stock purchase rights or stock appreciation rights under the 1999 stock plan; and has issued only one incentive stock option grant and one stock bonus award.



2000 Employee Stock Option Plan.TenFolds 2000 Stock Option Plan was adopted by the Board of Directors
in December 2000. A total of 7,000,000 shares of common stock have been reserved for issuance under the 2000 Stock Option Plan. The 2000 Stock Option Plan provides for the granting of nonstatutory rights of purchase of TenFolds common stock to
employees, excluding section 16 officers, directors, and non-employee directors. Nonstatutory options do not qualify as an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code of 1996, as amended. The 2000 Stock
Option Plan is administered by the Board of Directors. The plan administrator determines the terms of options and stock purchase rights granted under the 2000 Stock Option Plan, including the number of shares subject to an option or purchase right,
the exercise or purchase price, and the term and exercisability of options. The options generally vest over a four-year period and expire ten years from the date of grant. Twenty five percent of the options granted during December 2000 under the
2000 Stock Option Plan vested on the date of grant and have an accelerated vesting schedule. Unless terminated earlier, the 2000 Stock Plan will terminate in December 2010.



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Stock option activity under TenFolds 1993, 1999, and 2000 stock option plans is as follows:



|                                 |  |               |  |                                           |      
|-------------------------------- |  | ------------- |  | ----------------------------------------- | -----
|                                 |  | Option Shares |  | Weighted Average Exercise Price Per Share
|Outstanding at December 31, 2000 |  | 19,812,706    |  | $                                         | 10.29
|                                 |  |               |  |                                           |      
|Granted                          |  | 7,865,000     |  | $                                         | 0.63 
|Exercised                        |  | 1,041,680     |  | $                                         | 0.07 
|Canceled                         |  | 12,366,615    |  | $                                         | 10.23
|                                 |  |               |  |                                           |      
|Outstanding at December 31, 2001 |  | 14,269,411    |  | $                                         | 5.76 
|                                 |  |               |  |                                           |      
|Granted                          |  | 4,722,315     |  | $                                         | 0.38 
|Exercised                        |  | 74,315        |  | $                                         | 0.18 
|Canceled                         |  | 8,866,732     |  | $                                         | 5.45 
|                                 |  |               |  |                                           |      
|Outstanding at December 31, 2002 |  | 10,050,679    |  | $                                         | 2.75 
|                                 |  |               |  |                                           |      
|Granted                          |  | 8,869,000     |  | $                                         | 1.03 
|Exercised                        |  | 283,988       |  | $                                         | 0.61 
|Canceled                         |  | 1,771,702     |  | $                                         | 3.33 
|                                 |  |               |  |                                           |      
|Outstanding at December 31, 2003 |  | 16,863,989    |  | $                                         | 1.85 
|                                 |  |               |  |                                           |      



At December 31, 2003,
8,010,609 options were vested and exercisable as compared to 5,846,909 in 2002 and 4,909,196 in 2001, under the stock option plans. Included in the table above are options granted to consultants that were recorded at their estimated fair value. To
date, the number of options granted to consultants and the related fair value of such options has been insignificant.



The following table summarizes information about stock options under the plans outstanding at December 31, 2003:



|                        |  |                               |  |                                         |  |                              |       |                              |           |                                 |   |      
|----------------------- |  | ----------------------------- |  | --------------------------------------- |  | ---------------------------- | ----- | ---------------------------- | --------- | ------------------------------- | - | -----
|                        |  | Options Outstanding           |  | Options Exercisable                    
|Range ofExercise Prices |  | OptionsOutstandingat 12/31/03 |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |       | NumberExercisableat 12/31/03 |           | Weighted Average Exercise Price
|$   0.05 to $   0.25    |  | 4,116,500                     |  | 9.04 Years                              |  | $                            | 0.21  |                              | 1,348,156 |                                 | $ | 0.22 
|0.35 to      0.49       |  | 3,816,054                     |  | 8.02 Years                              |  |                              | 0.38  |                              | 2,921,617 |                                 |   | 0.38 
|0.60 to      0.89       |  | 1,259,063                     |  | 7.64 Years                              |  |                              | 0.76  |                              | 798,876   |                                 |   | 0.74 
|1.29 to      2.84       |  | 6,817,937                     |  | 8.89 Years                              |  |                              | 1.62  |                              | 2,386,125 |                                 |   | 1.60 
|4.49 to      9.81       |  | 453,935                       |  | 6.19 Years                              |  |                              | 8.51  |                              | 304,015   |                                 |   | 8.11 
|12.60 to    21.00       |  | 24,100                        |  | 5.94 Years                              |  |                              | 16.73 |                              | 16,160    |                                 |   | 16.30
|25.75 to    55.88       |  | 376,400                       |  | 6.15 Years                              |  |                              | 33.46 |                              | 235,660   |                                 |   | 33.32
|                        |  |                               |  |                                         |  |                              |       |                              |           |                                 |   |      
|$   0.05 to $ 55.88     |  | 16,863,989                    |  | 8.50 Years                              |  | $                            | 1.85  |                              | 8,010,609 |                                 | $ | 2.05 
|                        |  |                               |  |                                         |  |                              |       |                              |           |                                 |   |      



The number of
remaining options available to grant under the 1993, 1999, and 2000 plans is 10,582,276 as of December 31, 2003.



The weighted-average fair value of the options granted under the plans in 2003 is $0.90 as compared to $0.37 in 2002 and $0.60 in 2001. The fair value of
these options was estimated at the date of grant using the Black-Scholes model with the following weighted-average assumptions for 2003, 2002, and 2001: risk-free interest rate of 2.15 percent in 2003, 4.06 percent in 2002, and 4.22



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percent in 2001; a dividend yield of 0 percent; a volatility factor of 202.2 percent for 2003, 209.3 percent for 2002 and 161.0 percent in 2001; and an
expected life of 3.0 years in 2003, 5.3 years in 2002, and 3.5 years in 2001.



TenFold recorded deferred compensation pursuant to APB 25 of $72,000 in 2003, $0 in 2002; and $280,000 in 2001; relating to grants of restricted stock or options at exercise prices which were below the estimated fair
market values of the underlying common stock. TenFold recognized compensation expense of $109,000 in 2003, $164,000 in 2002, and $857,000 in 2001, related to the normal vesting of options with associated deferred compensation.



|14. | 1999 Employee Stock Purchase Plan
|--- | ---------------------------------



TenFolds 1999 Employee Stock Purchase Plan was adopted by the Board of Directors and approved by the stockholders in March 1999. A total of
1,000,000 shares of common stock have been reserved for issuance under the purchase plan. In addition, the number of shares reserved for issuance under the purchase plan automatically increases on the first day of each of TenFolds fiscal years
beginning in 2000, 2001, 2002, 2003, and 2004 equal to the lesser of 300,000 shares, 0.75 percent of TenFolds outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as the Board of
Directors shall determine. Under this provision, the number of shares reserved for issuance under the purchase plan has increased by 1,085,490 shares through December 31, 2003. The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, has two six-month offering periods each year, with new offering periods (other than the first offering period) commencing on February 1 and August 1 of each year. The first offering period commenced on the date of the initial
public offering and ended on January 31, 2000. TenFold issued 47,478, 39,817, and 261,429 shares under this plan during the years ended December 31, 2003, 2002, and 2001, respectively.



As of December 31, 2003, 1,470,094 shares were available for issuance under the 1999 Employee Stock Purchase Plan.



The purchase plan is administered by the Board of Directors or
by a committee appointed by the Board. Employees (including officers and employee directors) of TenFold, or of any majority-owned subsidiary designated by the Board, are eligible to participate in the purchase plan if they are employed by TenFold or
any such subsidiary for at least 20 hours per week and more than 5 months per year. The purchase plan permits eligible employees to purchase common stock through payroll deductions of up to 10 percent of an employees compensation, at a price
equal to 85 percent of the lower of the fair market value of the common stock at the beginning of the offering period or at the end of such period. No employee may purchase more than 3,000 shares of common stock under the purchase plan in any single
offering period. No employee may purchase shares in an offering period if the purchase would cause such employee to own stock or hold outstanding stock options equal to or in excess of 5 percent of the total voting power of all classes of TenFold
stock. In addition, no employee shall be granted an option under the purchase plan if the option would permit an employee to purchase stock under all employee stock purchase plans of TenFold at a rate that exceeds $25,000 of fair market value of the
stock for each calendar year in which the option is outstanding. An employee has the option of increasing or decreasing the percentage of payroll deductions once or of discontinuing the deduction during the offering period. TenFold has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) in accounting for its employee stock purchase plan. Under APB 25, the plan is considered non-compensatory.



The weighted-average fair value of employee stock purchase rights granted
under the employee stock purchase plan in 2003 was $1.17 as compared to $0.24 in 2002 and $1.16 in 2001. The fair value of the employee stock purchase rights was estimated using the Black-Scholes model with the



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following assumptions for 2003: a weighted-average risk-free interest rate of 1.08 percent, dividend yield of 0 percent, an expected life of 6 months, and a
volatility factor of 207.7 percent.



|15. | 401(k) Retirement Plan
|--- | ----------------------



TenFold established a 401(k) retirement savings plan for employees in January 1996. All employees age 21 and over are eligible to participate. Each
participant may elect to have amounts deducted from his or her compensation and contributed to the plan. Through January 15, 2002, TenFold matched 20 percent of the first 6 percent of the employees contributions, up to a maximum of $2,000 per
employee per year. On January 15, 2002, TenFold discontinued matching of employee contributions. Total TenFold matching contributions for 2003, 2002, and 2001 were $0, $5,000, and $196,000, respectively.



|16. | Prior Vertical Business Group Operations
|--- | ----------------------------------------



Strategy



During the year ended December 31, 2000, TenFold conducted its vertical business operations through subsidiaries in the communications, energy, financial
services, healthcare, insurance, and investment management industries. During the year ended December 31, 2001, TenFold consolidated its vertical business operations into one corporate organization to provide better focus for employees, to solidify
TenFolds core delivery and operational infrastructure, and to reduce costs; and merged its vertical subsidiaries into TenFold Corporation.



Subsidiary Stock Plans



During 1999, TenFold formed six subsidiaries in each of which TenFold held 20,000,000 issued and outstanding shares of common stock.



Each of the six subsidiaries formed during 1999, with approval of its
respective Board of Directors, adopted its own stock plan during 1999. The terms of the plans were similar to TenFolds 1999 Stock Plan. A total of 3,740,000 shares of common stock of each subsidiary were reserved under the Stock Plans for each
of the six subsidiaries.



During the year ended December 31,
2001, in connection with the mergers of these subsidiaries into TenFold Corporation noted above, optionees had a specified time to exercise their vested options, or they would terminate. No optionee chose to exercise their options. As a result, the
options terminated, no subsidiary options remain outstanding and TenFold has no minority interest holders.



TenFold Energy, Inc. Warrants



During 1999, TenFold Energy, Inc., a wholly owned subsidiary of TenFold, sold 1,181,600 warrants to Southern Company Energy Marketing (SCEM).
Each warrant entitled SCEM to purchase one share of Class A Common Stock at $2.12 per share in one of TenFolds prior subsidiaries, TenFold Energy, Inc. The proceeds of $189,000 were credited to stockholders equity.



These warrants were terminated during the year ended December 31, 2001 in
conjunction with the settlement of a dispute with SCEM.



|17. | Operating Segments
|--- | ------------------



TenFolds CEO reviews financial information on a consolidated basis, identical in format to the accompanying Consolidated Statements of Operations.
TenFold consolidates revenue and expense



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information for all other business groups for internal and external reporting and for decision-making purposes. TenFold operates in a single operating
segment, which is applications development products and services.



Revenues from operations outside of North America were 29 percent of total revenues for 2003, 17 percent of total revenues for 2002, and 28 percent of total revenues for 2001. Revenues from operations in the United Kingdom were 29 percent
of total revenues for 2003, 9 percent of total revenues for 2002, and 22 percent of total revenues for 2001. Revenues from operations in Argentina were 0.5 percent of total revenues for 2003, 8 percent of total revenues for 2002, and 6 percent of
total revenues for 2001. At December 31, 2003, all of TenFolds long-lived assets are deployed in the United States.



|18. | Additional Significant Risks and Uncertainties
|--- | ----------------------------------------------



TenFolds customers are represented by a small number of large companies in the communications, financial services, healthcare, insurance, and
investment management industries. As such, a significant portion of TenFolds revenue and billed and unbilled accounts receivable may relate to a single customer or a small number of customers. Although TenFold plans to expand and diversify its
customer base, currently the loss of any of TenFolds large customers, without their replacement by new customers, would likely have a material adverse effect on TenFolds revenue, and cash flow. The following table provides customer
revenue concentrations greater than 10% of annual revenues, for each of the three years ended December 31, 2003, 2002 and 2001. No other customer accounted for more than 10 percent of total annual revenues during any of these years.



|           |  |              |   |  |      |   |  |      |  
|---------- |  | ------------ | - |  | ---- | - |  | ---- | -
|           |  | December 31, |  
|           |  | 2003         |   |  | 2002 |   |  | 2001 |  
|Customer A |  | 41           | % |  | 63   | % |  | 11   | %
|Customer B |  | 25           | % |  | 12   | % |  |     |  
|Customer C |  | 23           | % |  |     |   |  |     |  
|Customer D |  |             |   |  |     |   |  | 27   | %
|Customer E |  |             |   |  |     |   |  | 16   | %



|19. | Special Charges
|--- | ---------------



Special charges for the year ended December 31, 2003 of $(673,000) include restructuring charge adjustments of $(578,000) and asset loss impairment
adjustments of ($95,000). Special charges for the year ended December 31, 2002 of $ 2.8 million include restructuring charges of $2.0 million and $851,000 of asset impairment charges. Special charges for the year ended December 31, 2001 of $18.9
million include $10.1 million of asset impairment charges, and $8.8 million of restructuring charges.



Asset Impairment Charges. During year ended December 31, 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 the return of previously leased equipment.



During year ended December 31, 2002, TenFold identified $851,000 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 $851,000 for the year ended December 31, 2002. This charge included the impairment of the leased equipment assets that TenFold returned to its two major equipment lessors pursuant to agreements
reached with these lessors subsequent to December 31, 2002, under which TenFold bought out and fully retired the related equipment lease debt and returned substantially all the related equipment.



During the year ended December 31, 2001, TenFold restructured its operations
to reduce operating expenses. As part of the restructuring, TenFold closed or planned to close excess facilities in Atlanta, Georgia; Chicago, Illinois; Foster City, California; Irving, Texas; New York, New York;



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Park Ridge, New Jersey; Raleigh, North Carolina; Richmond, UK; Salt Lake City, Utah; and San Francisco, California. TenFold had $7.7 million in computer
equipment, leasehold improvements, furniture and fixtures, and other assets in these offices that it determined had no future value to TenFold. TenFold also recorded an impairment charge on its fixed assets of $2.4 million to state them at their
estimated fair market value at December 31, 2001. Accordingly, TenFold recorded asset impairment charges of $10.1 million during the year ended December 31, 2001.



Restructuring Charges. During the year ended December 31, 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.



During the year ended December 31, 2002, TenFold incurred restructuring
charges of $2.0 million, including $1.1 million, related to termination of the unoccupied portions of TenFolds South Jordan Utah headquarters lease, and $836,000, related to adjustments made to prior restructuring estimates. The termination of
the unoccupied portions of the South Jordan lease reduced the square footage leased from 105,068 to 22,310 square feet, reduced the term from 11 years to 5 years, and reduced the rental rate per square foot. This reduced TenFolds total base
rent obligations (before operating expenses) under this lease by approximately $19 million over the term of the lease. As part of this transaction, TenFold released to the landlord $1.5 million previously held as restricted cash to support these
leases. The restructuring charge of $1.1 million is comprised of a charge of $1.5 million for release of the restricted cash, less the reversal of a prior rent accrual of $400,000 no longer needed under the terms of the restructured lease. The
adjustments to prior restructuring estimates primarily resulted from higher facilities lease termination payments, and lower revised estimates of future facilities sublease income payments (in part due to the default of one of TenFolds
subtenants), than previously estimated.



During the year ended
December 31, 2001, TenFold incurred restructuring charges of $8.8 million as part of its plans to improve operating results by reducing headcount, by closing duplicative facilities in Atlanta, Georgia; Chicago, Illinois; Foster City, California;
Irving, Texas; New York, New York; Park Ridge, New Jersey; Raleigh, North Carolina; Richmond, UK; Salt Lake City, Utah; and San Francisco, California; and by implementing other measures. The restructuring charges were comprised of $873,000 for a
headcount reduction of 173 staff, and $7.9 million for facilities related costs including penalties associated with the terminating leases and future lease payments.



TenFold determined its restructuring charges in accordance with Emerging Issues Task Force Issue No. 94-3 (EITF
94-3) and Staff Accounting Bulletin No. 100 (SAB 100). EITF 94-3 and SAB 100 require that we commit to an exit plan before we accrue employee termination costs and exit costs.



Restructuring reserves are included in accounts payable and accrued
liabilities at December 31, 2003. Detail of the restructuring charges as of and for the year ended December 31, 2003 are summarized below (in thousands):



|                       |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    
|---------------------- |  | -------------------------- | ----- | ---------- | - | ----------- |  | - | -------- | - |  | --------------------------- | ---- | - |  | - | ---
|Restructuring Charges: |  | Balance atDecember31, 2002 |       | NewCharges |   | Adjustments |  |   | Utilized |   |  | Balance at December31, 2003
|Employee related       |  | $                          |      |            | $ |            |  | $ |         |   |  | $                           |     |   |  | $ |   
|Facilities related     |  |                            | 1,565 |            |   |            |  |   | (578     | ) |  |                             | (456 | ) |  |   | 531
|                       |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    
|                       |  | $                          | 1,565 |            | $ |            |  | $ | (578     | ) |  | $                           | (456 | ) |  | $ | 531
|                       |  |                            |       |            |   |             |  |   |          |   |  |                             |      |   |  |   |    



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.



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Schedule II



TENFOLD CORPORATION

Valuation and Qualifying Accounts

For the Years Ended December 31, 2003, 2002, and 2001

(in thousands)



|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|----------------------------------------------------------------------------- |  | ---------------------------- | ------ | ------------------------------------ | - | ------ | ---------- |  | - | ---------------------- | -- |  | - | ------
|Allowances for Doubtful Accounts (Billed and Unbilled)                        |  | Balance atbeginningof period |        | Additionscharged tocosts andexpenses |   |        | Deductions |  |   | Balance atend ofperiod
|Year ended December 31, 2001                                                  |  | $                            | 10,287 |                                      | $ | (76    | )          |  | $ | (7,936                 | )* |  | $ | 2,275 
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2002                                                  |  | $                            | 2,275  |                                      | $ | (70    | )          |  | $ | (1,909                 | )* |  | $ | 296   
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2003                                                  |  | $                            | 296    |                                      | $ | 6      |            |  | $ | (302                   | )* |  | $ |      
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|                                                                              |  |                              |        |                                     
|*  Represents write-offs of accounts receivable                               |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|                                                                              |  |                              |        |                                     
|Allowances for Doubtful Stockholder Notes Receivable (Principal and Interest) |  | Balance atbeginningof period |        | Additionscharged tocosts andexpenses |   |        | Deductions |  |   | Balance atend ofperiod
|Year ended December 31, 2001                                                  |  | $                            | 2,782  |                                      | $ |       |            |  | $ | (1,014                 | )  |  | $ | 1,768 
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2002                                                  |  | $                            | 1,768  |                                      | $ | 146    |            |  | $ | (678                   | )  |  | $ | 1,236 
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2003                                                  |  | $                            | 1,236  |                                      | $ | (20    | )          |  | $ | (1,216                 | )  |  | $ |      
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|                                                                              |  |                              |        |                                     
|Deferred Tax Valuation Accounts                                               |  | Balance atbeginningof period |        | Additionscharged tocosts andexpenses |   |        | Deductions |  |   | Balance atend ofperiod
|Year ended December 31, 2001                                                  |  | $                            | 42,623 |                                      | $ | (689   | )          |  | $ |                       |    |  | $ | 41,934
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2002                                                  |  | $                            | 41,934 |                                      | $ |       |            |  | $ | 766                    |    |  | $ | 42,700
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       
|Year ended December 31, 2003                                                  |  | $                            | 42,700 |                                      | $ | (4,721 | )          |  | $ |                       |    |  | $ | 37,979
|                                                                              |  |                              |        |                                      |   |        |            |  |   |                        |    |  |   |       



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) 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, on March 22, 2004.



|                      |  |  |  |                                                                                                                                       
|--------------------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Nancy M. Harvey                                                                                                                   
|                      |  |  |  |                                                                                                                                       
|                      |  |  |  | Nancy M. Harvey, President, Chief Executive Officer, Chief Financial Officer, and Director (Principal Executive and Financial Officer)



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                      |  |  |  |                                                                                                                                       
|--------------------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Nancy M. Harvey                                                                                                                   
|                      |  |  |  |                                                                                                                                       
|                      |  |  |  | Nancy M. Harvey, President, Chief Executive Officer, Chief Financial Officer, and Director (Principal Executive and Financial Officer)



|                      |  |  |  |                                                                                                           
|--------------------- |  |  |  | ----------------------------------------------------------------------------------------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Robert P. Hughes                                                                                      
|                      |  |  |  |                                                                                                           
|                      |  |  |  | Robert P. Hughes Chief Accounting Officer and Senior Vice President Finance (Principal Accounting Officer)



|                      |  |  |  |                                                                                                              
|--------------------- |  |  |  | -------------------------------------------------------------------------------------------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Jeffrey L. Walker                                                                                        
|                      |  |  |  |                                                                                                              
|                      |  |  |  | Jeffrey L. Walker, Chairman of the Board of Directors, Executive Vice President, and Chief Technology Officer



|                      |  |  |  |                            
|--------------------- |  |  |  | ---------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Richard H. Bennett, Jr.
|                      |  |  |  |                            
|                      |  |  |  | Richard H. Bennett Director



|                      |  |  |  |                          
|--------------------- |  |  |  | -------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Robert W. Felton     
|                      |  |  |  |                          
|                      |  |  |  | Robert W. Felton Director



|                      |  |  |  |                             
|--------------------- |  |  |  | ----------------------------
|                      |  | 
|Dated: March 22, 2004 |  |  |  | /s/ Ralph W. Hardy, Jr.     
|                      |  |  |  |                             
|                      |  |  |  | Ralph W. Hardy, Jr. Director



82