Use these links to rapidly review the documentTABLE OF CONTENTS Part IV

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K(Mark One)

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

For the year ended December 31, 2001

OR

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

For the transition period from  to

Commission
file number 000-25661

---

---

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

Delaware

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

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


180 West Election Road
Draper, Utah 84020(Address of principal executive offices, including zip code) (801) 495-1010(Registrant's telephone number, including area code)

---

---

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

Yes /x/    No / /

Indicate
by check mark 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/

Market
value of shares of Common Stock held by non-affiliates of the registrant, based on the closing price of the Common Stock on NASDAQ on December 31, 2001 was
approximately $7,161,634. 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
December 31, 2001. This determination of affiliate status is not a conclusive determination for other purposes.

As
of December 31, 2001, there were 36,812,462 shares of the registrant's Common Stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the Registrant's 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

---



TENFOLD CORPORATION
2001 FORM 10-K AND ANNUAL REPORT

TABLE OF CONTENTS



|          |  |                                                                                      
|--------- |  | -------------------------------------------------------------------------------------
|          |  | Forward-Looking Statements                                                           
|PART I.   |  |                                                                                      
|Item 1.   |  | Business                                                                             
|Item 2.   |  | Properties                                                                           
|Item 3.   |  | Legal Proceedings                                                                    
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                  
|PART II.  |  |                                                                                      
|Item 5.   |  | Market for Registrant's Common Equity and Related Stockholder Matters                
|Item 6.   |  | Selected Financial Data                                                              
|Item 7.   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 8.   |  | Financial Statements and Supplementary Data                                          
|Item 9.   |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III. |  |                                                                                      
|Item 10.  |  | Directors and Executive Officers of the Registrant                                   
|Item 11.  |  | Executive Compensation                                                               
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management                       
|Item 13.  |  | Certain Relationships and Related Transactions                                       
|PART IV.  |  |                                                                                      
|Item 14.  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|          |  | Signatures                                                                           

2

---



FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties that may cause actual future events or
results to differ materially from those described in the forward-looking statements. Words such as "expects," "intends," "anticipates," "should," "believes," "will," "plans," "estimates," "may,"
variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a
result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These
factors include: ability to generate sufficient cash flow or secure additional sources of financing; collectibility of project payments; future customer revenue; increased employee and consultant
costs due to project delays; ability to achieve cost reductions; general economic conditions arising from the events of September 11, 2001; customer complaints concerning our products and
services, and the possibility of future additional complaints; shareholder complaints concerning alleged violation of securities laws, and the possibility of future additional complaints; possible
de-listing of our stock from Nasdaq; reduced comprehensive errors and omissions insurance coverage; attraction, training and retention of employees; variability of quarterly operating
results; dependence on a small number of customers; customer's fulfillment of various responsibilities; completion of fixed-time, fixed-price contracts; risks associated with the
functionality and timing of new product releases; longer than expected sales cycles; ability to accurately estimate resources required for new and existing projects; changes in industry accounting
guidance; competitive factors; the mix of revenues derived from license sales as compared to services; protection of intellectual property; retention of key project and management personnel; and
entering into, maintaining and ending strategic partnerships. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency exchange rate fluctuations and other factors. Additional information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained from time to time in documents filed by TenFold Corporation with the Securities and Exchange Commission, including but not limited
to, the most recent reports on Forms 10-Q and 10-K. Some of these factors are described under the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations  Factors That May Affect Future Results and Market Price of Stock."

3

---



PART I

Item 1. Business

Overview

TenFold is the provider of the Universal Application, a software applications platform that accelerates development and deployment and reduces costs
of maintaining complex enterprise applications. The Universal Application automates most of the things that applications programmers typically do, and thereby enables small teams of predominantly
non-technical business users to design, build, test, deploy, and maintain complex, transaction-intensive applications, with limited demand on scarce IT resources. Customers can get
Internet-ready applications deployed into production faster and at significantly lower cost than with other applications development technologies.

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

We
founded TenFold in 1993, and spent the first several years primarily engaged in developing our patented Universal Application technology. In 1996, we began using our Universal
Application to develop Universal Application-based applications. From 1997 through 2000, we derived the majority of our revenues from fixed-price, fixed-time applications development
projects in which we offered a conditional money-back guarantee. We also began reselling vertical applications products that we had previously developed for other customers. In 1999, we
completed our initial public offering. In 1999 and early 2000, we signed several large, fixed-price, build-for-hire contracts with customers and hired many new employees. We
also formed and began operation of eight subsidiary companies or divisions.

Beginning
in 2000, we experienced several difficult quarters. Our guaranteed, fixed-price business model and difficulties in delivering some projects by the guaranteed date led to
several customer disputes. These disputes made the sales environment increasingly difficult for us. Our poor financial performance further deteriorated our ability to sell our products and services.
These sales challenges occurred at a time when industry-wide technology spending began slowing, making it even more difficult for us to attract new customers. In addition to experiencing
lower sales, our decentralized operating structure created redundant overhead and increased our operating costs. 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.

During
2001, we refocused our business strategy back to being a technology company. We consolidated our operations into one corporate organization to reduce costs, provide better focus
to employees, 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 worked to improve customer satisfaction and to sell additional products and services to existing customers. We continued to serve 28 customers (excluding
customers of our prior subsidiary, The LongView Group, Inc.) with additional licenses, and applications development, support and training services. These customers include Abbey National Bank,
Allstate Insurance Company ("Allstate"), Ameritech, Barclays Global Investors, Bonneville Power Administration, Cedars-Sinai Medical Center ("Cedars-Sinai"), and JP Morgan Chase Bank. We more actively
promoted the Universal Application to customers desiring to use it to

4

---

build applications. One of our customers, Allstate, implemented an internet-enabled insurance policy rating application that it developed using the Universal Application. On November 16, 2001,
we entered into an expanded relationship with Allstate, which represents our first significant transaction under our new sales and business model.

We
have completed applications products for the communications, energy, financial services, healthcare and insurance markets. We intend during 2002 to enter into value added reseller
(VAR) and other distribution agreements with application companies that may take ownership of the intellectual property, and will provide direct support, maintenance and marketing of specific vertical
market applications products. VAR agreements should accelerate and broaden market distribution for us at a significantly lower cost than we could achieve on our own. VAR successes with applications
that we built with the Universal Application should also accelerate introduction of the Universal Application. During 2001, we began discussions to establish relationships with ASPs, VARs, systems
integrators, and software distributors in the U.S. and international markets. In February 2002, we entered into our first VAR agreement to resell a Universal Application-based communications
industry application worldwide. In April 2002, we entered into our first strategic alliance under our new business model, with a global systems integrator, Sapient Corporation.

We
have made significant progress reducing operating cash outflows during 2001. We reduced quarterly operating cash outflows by over 50% from the first to fourth quarter of 2001. We sold
our subsidiary, The LongView Group, Inc., for proceeds of $26.7 million. However, we have been operationally cash flow negative for the years ended December 31, 2001 and
2000. This ongoing
negative cash flow has continued to place a burden on us to obtain significant cash infusions beyond those generated from normal operations, in order for us to continue operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources" for more information.

Detailed
financial information with respect to TenFold may be found in the Company's audited financial statements in Part IV.

Industry Challenge

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

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

5

---

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

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

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

TenFold Technology and Products

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

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

The
Universal Application is a tightly integrated development and maintenance environment and a powerful, efficient, scalable rendering engine. This integrated development and
maintenance

6

---

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

We
believe that the Universal Application delivers these benefits:



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



7

---



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

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

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

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

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



TenFold
ComponentWare is a family of pre-written applications components that easily plug into the Universal Application to extend its functionality without programming. For
example, PowerBilling provides a robust suite of add-on billing services. PowerAccounting makes it easy to add accounting cycles to application descriptions.

8

---

TenFold Services

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



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



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



TenFold
Applications Services provides customers with new releases of the Universal Application, new releases of their TenFold applications, on-site support immediately
following project completion, additional support when their applications go into production, and applications consulting to help companies adapt their applications to meet changing requirements over
time.

TenFold Customers

Our customers are leaders in financial services, insurance, healthcare, and other vertical markets. Since we began operation in 1993, we have provided licenses,
and applications development, support and training services to over 50 customers (excluding customers of our prior subsidiary, The LongView Group, Inc.). During 2001, we provided licenses
and/or services to 28 customers. Several enterprise-scale, mission-critical applications are in production using Universal Application technology at companies such as Abbey National Bank, Allstate,
Ameritech, Barclays Global Investors, and iplan networks. We believe our customers are deriving significant benefits from their applications, including the ability to maintain business rules
on-the-fly. For example, one of our customers determined that it can introduce new multi-state insurance rate structures (i.e., business rules) in hours versus weeks.
Speed to application production and application maintainability  of both business rules and underlying hardware, operating system and databases  are the hallmarks of the
Universal Application.

On
November 16, 2001, we entered into a new substantial relationship with Allstate Corporation. This new relationship represents the first significant transaction under our new
sales and business model. Allstate significantly expanded its Universal Application and policy

9

---



administration application license rights from one subsidiary to the entire corporation. Allstate is receiving software products, products to be introduced by TenFold, updates, and support, training,
and time-and-materials services from TenFold to enhance Allstate's ability to independently use Universal Application for applications development within Allstate. In addition,
Allstate staff have joined the TenFold development team and are receiving training on core Universal Application technology to provide Allstate with the ability to maintain the Universal Application
internally, should it so desire.

During
2001, we earned revenues from 28 customers (excluding customers of our prior subsidiary, The LongView Group, Inc.). Some of our customers accounted for more than
10 percent of our annual revenues. 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. SkyTel Communications accounted for 16 percent, and Allstate accounted for 15 percent of our revenues for the year ended
December 31, 2000. Allstate accounted for 18 percent, and Abbey National accounted for 10 percent of our revenues for the year ended December 31, 1999.

Sales and Marketing

Historically, we primarily sold TenFold products and services through our direct sales force. Going forward we intend to establish alliance relationships with
ASPs, VARs, systems integrators, and software distributors in the U.S. and international markets. These third-party relationships should broaden and accelerate distribution of TenFold Universal
Application and applications products and increase software license revenues.

In
2001, we generated a substantial portion of our revenues by completing or making progress on existing applications development projects, selling additional
time-and-material services to existing customers, and renewing support service arrangements. We focused our sales and marketing efforts on increased penetration into existing
accounts and succeeded in selling substantial additional services in several accounts. Like many businesses, we experienced the ripple effect of the events of September 11, 2001. In several
cases, existing customers decided to scale-back or cancel project commitments or to delay project expansions and prospective customers decided to postpone entering into new contracts.
These decisions significantly reduced our revenue and cash flow for the latter part of 2001 from what we previously expected.

During
2001, we began to execute to our new business model of selling Universal Application licenses to customers desiring to use it build their own Universal Application-based
applications,
and entered into time-and-materials services and new customer pilot projects, allowing customers to explore using the Universal Application to address their applications
development needs.

To
build demand for TenFold products, we identify, educate, and qualify high-potential sales prospects through a variety of corporate marketing activities, including
attendance at targeted conferences and trade shows, mailings to senior business and information technology executives, advertising, public relations, and seminars that demonstrate our unique
capabilities. In November 2001, we launched a new corporate Web site, www.10fold.com, to overview the company and its products and services and to provide detailed information about the
Universal Application. New customer prospects have begun to investigate our technology through our Web site, training classes, seminars, and meetings with our sales staff.

VAR
agreements should accelerate and broaden market distribution for us at a significantly lower cost than we could achieve on our own. VAR successes with applications that we built with

10

---

the Universal Application should also accelerate introduction of the Universal Application. In February 2002, we entered into our first VAR agreement to resell a Universal Application-based
communications industry application worldwide. In April 2002, we entered into our first strategic alliance under our new business model, with a global systems integrator, Sapient Corporation.

Competition

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



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

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



Many
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 blended solutions are expensive, slow to implement, and suffer from poor integration. We believe that the Universal
Application generally enhances our customers' ERP solutions, rather than competing directly with them.

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



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

Programming
languages such as COBOL, C, and C++ perform well and scale well, but require extraordinarily large project teams to spend multiple years to complete projects. Such
projects are

11

---

generally the source of statistics that report high failure rates among applications development projects. Visual Basic, SmallTalk, and other personal computer technologies support rapid applications
development and slightly improved productivity for smaller projects, but do not scale to support large numbers of users. Further, they are not more efficient in coding and testing of very complex
applications than existing technologies that do scale.

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

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

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 relates to the Universal Application. The second relates to TenFold
AutoTest, our automated testing technology. The third patent relates to our computer-assisted testing of software application components. We have additional pending patent applications in other
countries. Our trademark portfolio contains 9 U.S. trademark registrations, 14 trademarks registered in other countries and 29 pending applications in the U.S. and other countries. These trademark
registrations and applications in the U.S. and their counterparts in various foreign jurisdictions provide protection for our proprietary marks including our distinctive TenFold name and logo.

In
addition, as part of our confidentiality procedures, we generally 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 the Universal Application, TenFold ComponentWare, and the Universal Application
Integrator. We generally retain ownership of the applications products that we develop for customers; however, we have allowed a small number of customers to own rights to the applications we are
developing 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  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."

12

---

Research and Development

Our technology 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, rigorously 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.

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.

Research
and development expenses were approximately $12.5 million for the year ended December 31, 2001; $25.3 million in 2000; and $18.1 million in 1999. As
of December 31, 2001, we had 41 research and development staff. We intend to continue to make investments in research and development to maintain and enhance the Universal Application,
Universal Application Integrator, TenFold ComponentWare, and our applications products.

Employees

As of December 31, 2001, we had 179 employees, including 104 in applications development, training and support, 41 in research and development, 10 in sales
and marketing, and 24 in finance, administrative, and information technology support functions. None of our employees is represented by a labor union or a collective bargaining agreement and most are
at-will employees.

During
the year ended December 31, 2001, our average headcount was 321. In March 2001, we reduced the workforce by 38 employees, and we closed offices in Atlanta, Georgia;
Foster City, California; Irving, Texas; and Raleigh, North Carolina. In June 2001, we reduced the workforce by 70 employees and undertook facilities restructurings in Chicago, Illinois; Park
Ridge, New Jersey; and Salt Lake City, Utah. In December 2001, we reduced the workforce by 65 employees, and undertook facilities restructurings in Chicago, Illinois; Richmond, UK; and San
Francisco, California.

Acquisition and Sale of The LongView Group

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.

In
connection with the sale of LongView, we 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. In October 2001, we signed an agreement with Linedata under which the parties agreed to release each other from certain claims they had or may have had
against each other, and Linedata paid us $1.8 million of the escrowed funds, with Linedata retaining the balance of $1.2 million. As a result, we reduced our gain on sale of LongView by
$1.2 million.

13

---

During the quarter ended September 30, 2001 we also received an additional $177,000 from collection of LongView accounts receivable, less additional closing costs.

Executive Officers

The executive officers of the Company are as follows:

|Name                    |  | Age |  | Position(s)                                                                           
|----------------------- |  | --- |  | --------------------------------------------------------------------------------------
|Nancy M. Harvey         |  | 48  |  | President, Chief Executive Officer, and Director                                      
|Jonathan E. Johnson III |  | 36  |  | Executive Vice President and Chief Financial Officer                                  
|Michelle A. Moratti     |  | 36  |  | Senior Vice President, Operations                                                     
|Steve M. Salomon        |  | 41  |  | Vice President, Sales                                                                 
|Jeffrey L. Walker       |  | 59  |  | Chairman of the Board of Directors, Executive Vice President, Chief Technology Officer

Nancy M. Harveyjoined TenFold in July 2000, and has served as President and Chief Executive Officer since
January 2001. From July 2000 to December 2000, Ms. Harvey served as TenFold's Chief Operating Officer. Prior to joining TenFold, Ms. 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, Ms. Harvey was a Senior Manager with Ernst & Young, a public accounting firm. In
addition, Ms. Harvey held executive positions with MacNeal Health Services Corporation, a regional health delivery system. Ms. 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.

Jonathan E. Johnson IIIjoined TenFold in May 1999 as Assistant General Counsel. From August 2000 to
December 2001, Mr. Johnson served as TenFold's Senior Vice President and General Counsel. Since December 2001, Mr. Johnson has served as Executive Vice President. In
February 2002, he began serving as Chief Financial Officer and stopped serving as General Counsel. Prior to TenFold, from 1997 to 1999, Mr. Johnson practiced law in the Los Angeles
office of the New York-based law firm of Milbank, Tweed, Hadley & McCloy where he focused on mergers and acquisitions, securities offerings, international transactions and general
corporate work. From 1994 to 1997 he practiced law with Graham & James in Los Angeles and was a judicial clerk at the Utah Supreme Court. He received a bachelor's degree in Japanese from
Brigham Young University, studied for a year at Osaka University of Foreign Studies in Japan, and received his law degree from the J. Reuben Clark, Jr. Law School at Brigham Young University.

Michelle A. Morattijoined TenFold in August 2001 as Senior Vice President, Operations. Prior to joining
TenFold, from 2000 to 2001, Ms. Moratti was Vice President of Provider Services at Neoforma, an Internet company that builds private marketplaces for healthcare providers and suppliers. From
1997 to 2000, Ms. Moratti was the Chief Operating Officer and Chief Financial Officer for Payor Applications at Computer Sciences Corporation, a large-scale applications development,
outsourcing and consulting company. In this role, she was responsible for product

14

---

development, customer support and implementation services and had oversight for engagements including project management, software development and application consulting services. From 1992 to 1997,
Ms. Moratti served as a Senior Consultant at CSC and managed large-scale consulting and information technology engagements. Ms. Moratti began her career at Coopers and Lybrand, a public
accounting firm. She received a bachelor's degree from SUNY Binghamton and a master's degree from Columbia University.

Steve M. Salomonjoined TenFold in July of 2001 as Vice President, Sales. From 1993 to 2001, he served as
the Western Regional Vice President of Sales at Informix Software, Inc., a database software company. From 1987 to 1993, Mr. Salomon was an Account Executive at Anasazi, Inc., a
financial software company, where he sold early generation high-volume, transaction processing solutions using relational databases on Unix. From 1983 to 1987 he was a Regional Sales
Specialist for NCR Corporation, a large computer hardware and software company. Mr. Salomon received his bachelor's degree in computer science, with a minor in mathematics, from California
State University at Chico.

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.

15

---

Item 2. Properties

TenFold currently owns no real property. Below is a description of our leased property and the status of each facility at December 31, 2001:

|Location           |  | Sq. Feet |  | Lease expires  |  | Use                                                                                                                                                                                                                                                                                          
|------------------ |  | -------- |  | -------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|San Francisco, CA  |  | 77,430   |  | August 2008    |  | Executive and administrative activities, sales, research and development, and applications development. We sublease 33,441 sq. feet of this space. As of the date of this filing, we are in the process of finalizing
negotiations for disposition of the majority of space under this lease.
|Salt Lake City, UT |  | 25,530   |  | March 2002     |  | Corporate headquarters, executive and administrative activities, sales, research and development, applications development. Subsequent to December 31, 2001, we extended this lease to May 12, 2002.                                                                                         
|Irving, TX         |  | 23,386   |  | April 2005     |  | We sublease 15,401 sq. feet of this space. As of the date of this filing, we are in the process of marketing the remaining space for sublet.                                                                                                                                                 
|Chicago, IL        |  | 21,897   |  | September 2008 |  | Executive and administrative activities, sales, research and development, and applications development. As of the date of this filing, we are in negotiations for disposition of this lease.                                                                                                 
|Foster City, CA    |  | 18,905   |  | January 2003   |  | As of the date of this filing, we are marketing this space for sublet or disposition.                                                                                                                                                                                                        
|Salt Lake City, UT |  | 12,834   |  | December 2002  |  | As of the date of this filing, we are in the process of marketing this space for sublet or disposition.                                                                                                                                                                                      
|Dallas, TX         |  | 11,679   |  | January 2004   |  | In February 2001, we subleased this office space for the remaining term.                                                                                                                                                                                                                     
|Chicago, IL        |  | 11,544   |  | June 2002      |  | In February 2001, we subleased this office space for the remaining term.                                                                                                                                                                                                                     
|Richmond, UK       |  | 9,361    |  | December 2008  |  | Administrative activities, sales, research and development, and applications development. As of the date of this filing, we are marketing this space for sublet.                                                                                                                             
|Raleigh, NC        |  | 4,561    |  | May 2003       |  | As of the date of this filing, we are marketing this space for sublet or disposition.                                                                                                                                                                                                        

16

---



Utilization of these leased facilities at December 31, 2001 is as follows:

Utilization

Sq. Feet

PercentOccupied

66,607

31 percentSubleased

72,065

33 percentVacant

78,455

36 percentTotal

217,127


Our
principal executive offices are located near Salt Lake City, Utah where we lease approximately 25,000 square feet under a lease that expires in May 2002 which coincides with
our planned move to the new South Jordan, Utah facility.

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

We
closed offices in Dallas, Texas; and Chicago, Illinois during the three months ended December 31, 2000, and subsequently subleased these offices.

In
March 2001, we commenced plans to close additional offices in Atlanta, Georgia; Foster City, California; Irving, Texas; and Raleigh, North Carolina totaling approximately
61,000 square feet. We subsequently terminated the Atlanta, Georgia lease, and subsequently subleased approximately 15,401 sq. feet of the lease in Irving, Texas.

During
the three months ended June 30, 2001, we canceled an expansion requirement in Chicago, Illinois for an additional 43,777 sq. feet that would have commenced on
October 1, 2001.

During
the three months ending September 30, 2001, we closed offices and canceled leases in Park Ridge, New Jersey and New York, New York.

During
the three months ending December 31, 2001, we became actively engaged in lease negotiations in Chicago, Illinois; Richmond, UK; and San Francisco, California; to
reduce lease costs and eliminate non-utilized space.

In
May 2000, we signed a 10-year lease for 168,000 square feet of office space in South Jordan, Utah. This lease is part of a development project. The lease, without
any modification to the development project, commences upon completion of construction and our subsequent occupancy of the office space, which is estimated to occur in early 2002 to approximately
coincide with the expiration of the lease for our current Salt Lake City headquarters. It is expected that this lease will be an operating lease. In November 2000, we negotiated with the
developer of the project to reduce our commitments under this lease obligation by 65,431 square feet. In April 2002, we negotiated with the developer to extend the term of the lease to
eleven years and to further reduce our monthly payment obligations. As of the date of this filing, we are pursuing options to reduce this commitment further, including the possible sublease of
a significant portion of this space.

17

---

Item 3. Legal Proceedings

Resolved Customer Disputes

Since March 2001, we have settled eight customer disputes, six of which were filed against us before 2001. In none of these settlement agreements did any
party admit liability. Our errors and omissions insurance carrier paid the entire amount of the compromised and confidential settlement sums above the self-insurance retention we paid to
cover legal defense costs. In one case, the customer paid us for services we had provided.



On
September 17, 1999, Ohio Farmers Insurance Company doing business as Westfield Companies ("Westfield"), filed a complaint in the United States District Court for the District
of Ohio. On November 4, 1999, we filed an Answer and Counterclaim. Effective April 26, 2001, TenFold and Westfield entered a Settlement Agreement and Mutual Release that settled and
resolved all claims between the two companies.



On
June 14, 2000, Nielsen Media Research, Inc. ("Nielsen"), filed a complaint in the Circuit Court of Cook County, Illinois. On August 30, 2000, we filed an Answer
and Counterclaim. Effective May 30, 2001, TenFold and Nielsen entered a Settlement Agreement and Mutual Release that settled and resolved all claims between the two companies.



On
August 18, 2000, Trumbull Services, L.L.C. ("Trumbull"), filed a demand for arbitration with the American Arbitration Association. On September 13, 2000, we filed an
Answer and Counterclaim. On May 10, 2001, TenFold and Trumbull entered a Settlement Agreement and Mutual Release that settled and resolved all claims between the two companies.



On
October 4, 2000, Unitrin Services Company, Inc. ("Unitrin") sent us a notice of dispute letter requesting non-binding mediation. On March 8, 2001,
TenFold and Unitrin entered a Confidential Settlement Agreement and Release that settled and resolved all of Unitrin's claims.



On
November 22, 2000, Southern Company Energy Marketing L.P. ("SCEM") filed a demand for arbitration with the American Arbitration Association. We filed detailed Counterclaims. On
August 27, 2001, TenFold and SCEM entered a Confidential Settlement Agreement and Release that settled and resolved all claims between the two companies.



On
January 3, 2001, Utica Mutual Insurance Company ("Utica") filed a complaint against us in the Federal District Court of Utah. On January 23, 2001, we filed an Answer. On
August 16, 2001, TenFold and Utica entered a Confidential Settlement Agreement and Release that settled and resolved all claims asserted by Utica.

18

---



On
April 4, 2001, we received a letter from another customer alleging that we had materially breached our contract with that customer. On May 2, 2001, we entered a
Termination and Settlement Agreement with this customer under which the customer agreed to pay TenFold a compromised and confidential settlement amount for services we had provided to this customer.



On
December 14, 2000, Crawford & Company ("Crawford") sent a letter to us alleging breach under the terms of our Master Software License and Services Agreement with
Crawford (the "Crawford Agreement"). On September 4, 2001, Crawford filed a demand for arbitration with the American Arbitration Association. On March 8, 2002, TenFold and Crawford
entered a Confidential Settlement Agreement and Release that settled and resolved all claims between the two companies.

Unresolved Customer Disputes

We have two unresolved customer disputes and a dispute with Perot Systems.



In
March 2001, SkyTel Communications, Inc. ("SkyTel") orally informed us of its intent to terminate the Master Software License and Services Agreement between SkyTel and us
(the "SkyTel Agreement"). On May 15, 2001, SkyTel sent us a letter purporting to terminate the SkyTel Agreement based on our alleged material breach of the SkyTel Agreement. SkyTel's letter
also demands a refund of approximately $11 million paid by SkyTel. On September 24, 2001, SkyTel filed a complaint against us in the First Circuit Court of the First Judicial District of
Hinds County, Mississippi. SkyTel seeks monetary damages of at least $17.5 million, plus other damages it may prove at trial, together with pre- and post-judgment
interest, attorneys' fees and expenses and costs. On November 13, 2001, we filed an answer denying the material allegations of the complaint. We also filed a counterclaim for unpaid fees and
SkyTel's disclosure of confidential information. Our counterclaim seeks damages of at least $7 million and punitive damages of at least $10 million. The parties have currently stayed
discovery. This claim may be covered by the supplemental extended reporting period policy we maintain on one of our prior errors and omissions liability policies. The total contract value involved in
this customer dispute is approximately $17.6 million, of which $11.4 million has been received by us to date. An unfavorable outcome of this matter may have a material adverse impact on
our business, results of operations, financial position, or liquidity. For the three months ended December 31, 2001, we recognized no revenue from the SkyTel Agreement and recognized
$130,000 from SkyTel during the same period in 2000. During the twelve months ended December 31, 2001, we recognized revenues of $263,000 from SkyTel as compared to $9.8 million
in 2000.



On
November 14, 2001, we received a letter from a customer alleging that we have materially breached our contract with that customer. The letter requests that we engage in an
executive dispute resolution procedure required by the contract. We do not believe that we have materially breached the contract, and we have continued to perform under the contract. We are currently
in discussion with the customer regarding the alleged breach and a mutually beneficial restructuring of the relationship. Should the customer continue to assert that we have materially breached the
contract, we will vigorously assert our rights under the contract and defend ourselves against any

19

---

claims the customer may assert. An unfavorable outcome of this matter may have a material adverse impact on our business, results of operations, financial position, or liquidity.



On
November 19, 2001, we received a demand for arbitration from Perot Systems Corporation ("Perot") alleging that we have materially breached agreements with Perot. The demand
requests relief of $3.1 million. We are currently in discussions with Perot regarding the alleged breach and a mutually beneficial restructuring of the relationship. If these discussions do not
lead to a mutually agreeable settlement, we intend to vigorously assert our rights under the contract and defend ourselves against the claims Perot has asserted. An unfavorable outcome of this matter
may have a material adverse impact on our business, results of operations, financial position, or liquidity. We have $2.0 million in accrued liabilities and $673,000 in accounts payable in the
Consolidated Balance Sheet at December 31, 2001, that we previously accrued related to our agreements with Perot.

Summary and Insurance

As a result of the legal proceedings and contingencies noted above, we have provided an allowance for doubtful accounts of $818,000 related to billed accounts
receivable and $1.3 million related to unbilled accounts receivable at December 31, 2001.

We
maintained errors and omissions and umbrella liability insurance coverage to protect ourselves 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. We do not believe that the dispute with SkyTel will be covered
by our original errors and omissions and umbrella liability insurance coverage. However, we also maintain a $2 million supplemental extended reporting period policy on one of our prior errors
and omissions liability policies. We believe that this supplementary extended reporting insurance policy may cover some of the types of alleged damages (but not unpaid or unbilled accounts receivable)
claimed in the SkyTel dispute noted above, to the extent that they occurred during the policy periods. We also believe that this supplementary extended reporting insurance policy may cover the costs
of legal defense of the SkyTel dispute, subject to the policies' total limit, and any stated reservation of rights by the carrier regarding conditions or findings that might exclude coverage for a
particular matter. We do not believe that this insurance or any other insurance that we maintain will cover the disputes with the unnamed customer or Perot. We have reserved against certain of the
billed and unbilled accounts receivable related to these disputed amounts for which a loss is considered probable and estimable. An unfavorable outcome of any of these matters may have a material
adverse impact on our business, results of operations, financial position, or liquidity.

On
November 18, 2000, our excess errors and omissions policy expired. On March 1, 2001, our primary errors and omissions policy expired. On March 1, 2001, we secured
a new, industry standard, errors and omissions policy that covers claims made after March 1, 2001. We renewed this policy on March 1, 2002. Our 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. We believe this policy provides adequate coverage for potential
damages related to errors and omissions in our delivered software.

Stockholder Matters

On or after August 12, 2000, six complaints were filed in the United States District Court of Utah alleging that we and certain of our officers violated
certain federal securities laws. All six

20

---

complaints were virtually identical and allege that 1) we improperly recognized revenues on some of our projects; 2) we failed to maintain sufficient accounting reserves to cover the
risk of contract disputes or cancellations; 3) we issued falsely optimistic statements that did not disclose these accounting issues; and 4) TenFold insiders sold stock in early calendar
year 2000 while knowing about these issues.

On
October 30, 2000, our motion to consolidate the six complaints into one class action complaint was granted. On March 7, 2001, the court appointed lead plaintiffs and
lead class counsel. On May 1, 2001, the plaintiffs filed an amended consolidated complaint. TenFold filed a motion to dismiss the amended complaint on June 19, 2001. On March 19,
2002, the court granted our motion to dismiss the amended complaint, but allowed the plaintiffs leave to make a motion to amend their complaint. We have stipulated with the plaintiffs that they have
until May 20, 2002 to file such a motion.

On
November 6, 2001, a class action complaint alleging violations of the federal securities laws was filed in the United States District Court for the Southern District of New
York naming TenFold, certain of its officers and directors, and certain underwriters of TenFold's initial public offering as defendants. The complaint alleges, among other things, that the
underwriters of our initial public offering violated the securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock stabilization
practices) in the offering's registration statement. TenFold and certain of its officers and directors are named in the complaint pursuant to Sections 11 and 15 of the Securities Act of 1933.
Similar complaints have been filed against over 180 other issuers that have had initial public offerings since 1998. TenFold intends to defend this action vigorously. Although no assurance can be
given that this matter will be resolved in TenFold's favor, we believe that the resolution of this lawsuit will not have a material adverse effect on our financial position, results of operations or
cash flows. An unfavorable outcome of this matter may have a material adverse impact on our business, results of operations, financial position, or liquidity.

SEC Inquiry

On May 26, 2000, the United States Securities and Exchange Commission ("SEC") issued a Formal Order Directing Private Investigation. The Order contains no
specific factual allegations. We understand, however, that the SEC is conducting a non-public fact-finding inquiry into our revenue recognition decisions on approximately 15
contracts. We have received several document subpoenas from the SEC and we have complied with all of them. We have learned that the SEC has issued subpoenas to our independent auditors and to several
of our current and former customers. Since
February 2001, the SEC has taken testimony from several of our current and former executives and staff.

On
March 20, 2002, TenFold and five of its current and former officers and employees received notices from the SEC's Denver regional office indicating that the staff intends to
recommend that the SEC commence fraud and non-fraud (books and records) enforcement proceedings against TenFold and these individuals. The SEC's potential remedies under such enforcement
proceedings include various forms of injunctive relief, monetary penalties, and orders barring individuals from future employment in public companies. It is too early in the inquiry to say which of
these remedies, if any, the SEC might seek against TenFold and the individuals. Management and outside legal counsel believe that we have meritorious defenses to any allegations the SEC may make and
intend to continue to cooperate fully with the SEC. At this time, our outside legal counsel is not able to provide an opinion on the probable outcome of the inquiry. An unfavorable outcome of this
matter may have a material adverse impact on our business, results of operations, financial position, or liquidity.

21

---

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

We held a special meeting of stockholders on October 9, 2001, in Sandy, Utah. The special meeting was held to address approval of a reverse split of our
common stock in order to maintain the listing of our common stock on the Nasdaq SmallCap Market or on an alternate stock exchange. Because the Nasdaq implemented a moratorium on the minimum bid price
requirement for continued listing of stock on the Nasdaq SmallCap Market on September 27, 2001, our shareholders passed a motion at the special meeting to defer consideration of a reverse split
of our common stock until such time, if any, when we are not in compliance with the minimum bid price requirement of the Nasdaq SmallCap Market. See Item 5 for a discussion of our current status of
listing on the Nasdaq SmallCap Market.

A
total of 19,039,202 shares (approximately 51.5% of all shares entitled to vote at the special meeting) were represented at the special meeting by proxy or ballot. All 19,039,202 shares
were voted in favor of deferring consideration of a reverse split of our common stock, with no shares voted against, and no votes abstaining. No broker non-votes were cast. No other
matters were voted upon or brought before the shareholders at the special meeting.

22

---



PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Our common stock trades on the Nasdaq SmallCap Market under the trading symbol "TENF." Our high and low closing prices by quarter during 2001, 2000 and 1999 are
presented as follows:

2001HIGH

LOWFirst Quarter

$
3.38

$
0.31Second Quarter

$
0.69

$
0.22Third Quarter

$
1.69

$
0.34Fourth Quarter

$
1.05

$
0.51


2000HIGH

LOWFirst Quarter

$
70.00

$
39.88Second Quarter

$
56.63

$
16.25Third Quarter

$
17.88

$
4.06Fourth Quarter

$
5.25

$
1.06


1999HIGH

LOWFirst Quarter





Second Quarter

$
31.75

$
22.25Third Quarter

$
38.72

$
24.63Fourth Quarter

$
43.00

$
18.38


On
December 31, 2001, we had approximately 215 stockholders of record of our common stock and 36,812,462 shares of our common stock were issued and 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.

On
or about August 20, 2001, our stock listing was changed from the Nasdaq National Market System to the Nasdaq SmallCap Market.

On
February 14, 2002, we received a notice from the Nasdaq Stock Market Inc. ("Nasdaq") that we fail to meet the minimum $1.00 per share closing bid price requirement.
Nasdaq has informed us that so long as we continue to the meet Nasdaq's other continued listing requirements we have until August 13, 2002 to regain compliance with the closing bid price
requirement. However, we currently fail to meet other continued listing requirements and accordingly, we expect to receive a notice of de-listing from Nasdaq. We intend to present a plan
to Nasdaq that will show a means to regain compliance with the continued listing requirements and seek a temporary stay from de-listing based upon that plan. However, we have no assurance
that Nasdaq will accept our plan to stay or delay de-listing. If we are not able to obtain an exception to the continued listing requirements or meet the continued listing requirements and
our stock is de-listed from the Nasdaq SmallCap Market, there would likely be a substantial reduction in the liquidity of any investment in our common stock.

23

---

Item 6. Selected Financial Data

The selected consolidated statement of operations data for the years ended December 31, 2001, 2000, 1999, 1998, and 1997, and the selected
consolidated balance sheet data as of December 31, 2001, 2000, 1999, 1998, and 1997, 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,  |        
|---------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------ | -------
|
|
|Consolidated Statement of Operations Data:                                         |                                                   |                          |        
|Revenues:                                                                          |                                                   |                          |        
|                                                                                   | License                                           |                          | $      
|                                                                                   | Subscription                                      |                          |        
|                                                                                   | Services                                          |                          |        
|                                                                                   |                                                   |                          |        
|                                                                                   |                                                   | Total revenues           |        
|Operating expenses:                                                                |                                                   |                          |        
|                                                                                   | Cost of revenues                                  |                          |        
|                                                                                   | Sales and marketing                               |                          |        
|                                                                                   | Research and development                          |                          |        
|                                                                                   | General and administrative                        |                          |        
|                                                                                   | Amortization of goodwill and acquired intangibles |                          |        
|                                                                                   | Amortization of deferred compensation             |                          |        
|                                                                                   | In process research and development               |                          |        
|                                                                                   | Special charges                                   |                          |        
|                                                                                   |                                                   |                          |        
|                                                                                   |                                                   | Total operating expenses |        
|                                                                                   |                                                   |                          |        
|Income (loss) from operations                                                      |                                                   |                          | (25,256
|                                                                                   |                                                   |                          |        
|Total other income, net                                                            |                                                   |                          | 12,553 
|                                                                                   |                                                   |                          |        
|Income (loss) before income taxes                                                  |                                                   |                          | (12,703
|Provision (benefit) for income taxes                                               |                                                   |                          | 2,965  
|                                                                                   |                                                   |                          |        
|Net income (loss)                                                                  |                                                   | $                        | (15,668
|                                                                                   |                                                   |                          |        
|Accretion of Series A and B redeemable preferred stock                             |                                                   |                          |       
|                                                                                   |                                                   |                          |        
|Net income (loss) applicable to common stockholders                                |                                                   | $                        | (15,668
|                                                                                   |                                                   |                          |        
|Basic earnings (loss) per common share                                             |                                                   | $                        | (0.44  
|                                                                                   |                                                   |                          |        
|Diluted earnings (loss) per common share                                           |                                                   | $                        | (0.44  
|                                                                                   |                                                   |                          |        
|Weighted average shares  basic (1)                                                |                                                   |                          | 35,623 
|                                                                                   |                                                   |                          |        
|Weighted average shares  diluted (1)                                              |                                                   |                          | 35,623 
|                                                                                   |                                                   |                          |        
|Consolidated Balance Sheet Data (at period end):                                   |                                                   |                          |        
|Cash and cash equivalents                                                          |                                                   | $                        | 10,969 
|Total current assets                                                               |                                                   |                          | 16,604 
|Total assets                                                                       |                                                   |                          | 27,476 
|Total current liabilities                                                          |                                                   |                          | 50,942 
|Long-term obligations, redeemable preferred and common stock, less current portion |                                                   |                          | 1,878  
|Stockholders' equity (deficit)                                                     |                                                   |                          | (25,344
|Working capital (deficit)                                                          |                                                   |                          | (34,338

24

---

Supplementary Financial Information

The following tables set forth certain unaudited quarterly results of operations of TenFold for 2001 and 2000. 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            |      
|------------------------------------------------------- | ------------------------------------------------- | ------------------------ | -----
|
|
|Revenues:                                               |                                                   |                          |      
|                                                        | License                                           |                          | $    
|                                                        | Subscription                                      |                          |      
|                                                        | Services                                          |                          |      
|                                                        |                                                   |                          |      
|                                                        |                                                   | Total revenues (1)       |      
|                                                        |                                                   |                          |      
|Operating expenses:                                     |                                                   |                          |      
|                                                        | Cost of revenues                                  |                          |      
|                                                        | Sales and marketing                               |                          |      
|                                                        | Research and development                          |                          |      
|                                                        | General and administrative                        |                          |      
|                                                        | Amortization of goodwill and acquired intangibles |                          |      
|                                                        | Amortization of deferred compensation             |                          |      
|                                                        | Special charges                                   |                          |      
|                                                        |                                                   |                          |      
|                                                        |                                                   | Total operating expenses |      
|                                                        |                                                   |                          |      
|Income (loss) from operations                           |                                                   |                          | 3,323
|                                                        |                                                   |                          |      
|Total other income, net (2)                             |                                                   |                          | 508  
|                                                        |                                                   |                          |      
|Income (loss) before income taxes and minority interest |                                                   |                          | 3,831
|Provision (benefit) for income taxes (2)                |                                                   |                          | 1,686
|                                                        |                                                   |                          |      
|Net income before minority interest                     |                                                   |                          | 2,145
|                                                        |                                                   |                          |      
|Minority interest                                       |                                                   |                          | 8    
|                                                        |                                                   |                          |      
|Net income (loss)                                       |                                                   | $                        | 2,137
|                                                        |                                                   |                          |      
|Basic earnings (loss) per common share                  |                                                   | $                        | 0.06 
|                                                        |                                                   |                          |      
|Diluted earnings (loss) per common share                |                                                   | $                        | 0.05 
|                                                        |                                                   |                          |      

25

---



26

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

TenFold is the provider of the Universal Application, a software applications platform that accelerates development and deployment and reduces costs
of maintaining complex enterprise applications. The Universal Application automates most of the things that applications programmers typically do, and thereby enables small teams of predominantly
non-technical business users to design, build, test, deploy, and maintain complex, transaction-intensive applications, with limited demand on scarce IT resources. Customers can get
Internet-ready applications deployed into production faster and at significantly lower cost than with other applications development technologies.

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

Our
customers are leaders in financial services, insurance, healthcare, and other vertical markets. Since we began operation in 1993, we have provided licenses, and applications
development, support and training services to over 50 customers (excluding customers of our prior subsidiary, The LongView Group, Inc.). During 2001, we provided licenses and/or services to 28
customers. Several enterprise-scale, mission-critical applications are in production using Universal Application technology at companies such as Abbey National Bank, Allstate, Ameritech, Barclays
Global Investors, and iplan networks. Our customers are deriving significant benefits from their applications, including the ability to maintain business rules on-the-fly. For
example, one of our customers determined that it can introduce new multi-state insurance rate structures (i.e., business rules) in hours versus weeks. Speed to application production and
application maintainability  of both business rules and underlying hardware, operating system and databases  are the hallmarks of the Universal Application.

We
believe that our Universal Application platform makes building complex applications three to ten times cheaper, easier, and faster than traditional application development
methodologies because the Universal Application automates most of the things that applications programmers typically do. TenFold customers have proven that primarily non-technical business
people can use the Universal Application to build better applications than IT consultants or traditional programmers due to the business people's detailed understanding of their business requirements.
Consequently, we have focused our business away from building applications for customers and toward providing the Universal Application, and our assistance through time and materials consulting and
training, to customers who use their own their business teams build applications.

We
will continue to market the Universal Application and support future customers using this model. On November 16, 2001, we entered into an expanded relationship with an existing
customer, Allstate, which exemplifies this new business model. Through this relationship, Allstate significantly expanded its Universal Application and policy administration application license rights
from one division to the entire corporation. Allstate is receiving software products, products to be introduced by TenFold, updates, and support, training, and
time-and-materials services from TenFold to

27

---

enhance Allstate's ability to independently use Universal Application for applications development within Allstate. In addition, Allstate staff have joined the TenFold development team and are
receiving training on core Universal Application technology to provide Allstate with the ability to maintain Universal Application internally, should it so desire.

Business History

We founded TenFold in 1993, and spent the first several years primarily engaged in developing our patented Universal Application technology. In 1996, we
began using our Universal Application to develop Universal Application-based applications. From 1997 through 2000, we derived the majority of our revenues from fixed-price, fixed-time
applications development projects in which we offered a money-back guarantee. We also began reselling vertical applications products that we had previously developed for other customers.
In 1999, we completed our initial public offering. In 1999 and early
2000, we signed several large, fixed-price, build-for-hire contracts with customers and hired many new employees. We also formed and began operation of eight subsidiary
companies or divisions.

In
2000, we experienced several difficult quarters. Our guaranteed, fixed-price business model and difficulties in delivering some projects by the guaranteed date led to several customer
disputes. These disputes caused material erosion in our financial performance and made the sales environment increasingly difficult for us. Our poor financial performance further deteriorated our
ability to sell our products and services. These sales challenges occurred at a time when industry-wide technology spending began slowing, making it even more difficult for us to attract
new customers. In addition to experiencing lower sales, our decentralized operating structure created redundant overhead and increased our operating costs. 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.



We
took dramatic and disciplined steps to address the significant financial, legal, and operating issues we had experienced. During 2001, we:



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



During
2001, we evaluated strategic alternatives for exploiting the substantial value inherent in our technology, selected a new strategic direction, and changed our business model. We
have recently begun to realize the potential value of our vertical applications portfolio.

Evaluated Strategic Alternatives -We evaluated three potential, alternative, strategic options for TenFold: technology platform company;
vertical applications product company; or systems integration services company. We have refocused TenFold back to its roots as a technology platform company.

28

---

Changed Business Model -Beginning in the fourth quarter of 2000, we no longer offer the TenFold Guarantee, a conditional
money-back guarantee for large-scale software applications, and we provide new applications development and implementation services on a time-and-materials basis,
rather than on a guaranteed, fixed-price, fixed-time basis.

Launched Universal Application Sales -During the first quarter of 2001 we began to more actively promote the Universal Application to
customers desiring to use it to build their own Universal Application-based applications. During 2001, one of our customers demonstrated the feasibility of this model by implementing in eighteen
states an internet-enabled insurance policy rating application that it developed using the Universal Application.

Realizing the Value of Our Vertical Applications Portfolio We have completed applications products for the communications,
energy, financial services, healthcare and insurance markets. We intend during 2002 to pursue value added reseller ("VAR") and other distribution agreements with application companies that may take
ownership of the intellectual property, and will provide direct support, maintenance and marketing of specific vertical market applications products. VAR agreements should accelerate and broaden
market distribution for us at a significantly lower cost than we could achieve on our own. VAR successes with applications that we built with the Universal Application should also accelerate
introduction of the Universal Application. We also continue to pursue the sale of vertical application product assets to interested parties, such as software distribution companies. In
February 2002, we entered into our first VAR agreement to resell a Universal Application-based communications industry application worldwide. In April 2002, we entered into our first
strategic alliance under our new business model, with a global systems integrator, Sapient Corporation.

From
time to time, we expect to continue to identify unmet vertical applications market needs, enter into time-and-materials
build-for-hire arrangements, build applications using the Universal Application and exploit the value of the applications products as described above. We expect these projects
to provide opportunities for us to showcase our technology, to maintain Universal Application-based applications development expertise, and to generate cash from service and license revenue and/or
from the sale of vertical applications product assets.



During
2001, we believe we have strengthened our delivery capabilities, and improved customer relationships and commenced Universal Application sales initiatives.

Strengthened Delivery Capabilities We improved delivery performance during 2001 as we leveraged our experienced personnel
for each of our customer projects, improved project management controls, and provided centralized oversight of all on-going projects. The improvements in our applications delivery process
led to a significant improvement in our ability to estimate project man-days remaining.

During
the first quarter of 2001, we centralized management of our delivery organization. We completed some significant product delivery milestones including implementing TenFold Wealth
Manager in production at a major mortgage lender, and passing a major scalability performance benchmark for a large customer relationship management outsourcing company that included demonstrating
2,400 concurrent end-user performance against a 3 terabyte database.

In
the second quarter of 2001, we achieved significant project delivery milestones for a large property and casualty insurance company, delivered a billing and settlement application to
a major

29

---

energy and transmission supplier, and implemented customer management and product and order processing application modules for a communications company.

During
the third quarter of 2001, we completed the production implementation of Enterprise Relationship Manager, an end-to-end business infrastructure platform
designed exclusively for next-generation Internet and communications service providers, for a communications company; and completed delivery of an integrated insurance policy rating and
administration application for production testing to a major property and casualty insurance provider. Working with a major property and casualty insurer and a hardware provider, at a scalability
benchmarking center, we demonstrated that the Universal Application scales vertically by supporting 5,000+ simultaneous users on one computer, scales horizontally by doubling capacity to 10,000+
simultaneous users on two computers, and effectively parallelizes batch processes by renewing 30,000 policies, in 60 batches of 500 each, in 39 minutes total.

During
the fourth quarter of 2001, we successfully transitioned one of our then three remaining fixed-price contracts to a time-and-materials relationship. We met
important build milestones in another fixed-price relationship. During 2001, we provided a subsidiary of Allstate Corporation with consulting, support and training services that helped them
roll-out an internet-enabled insurance policy rating application to their operations in eighteen states. On November 16, 2001, we entered into a new substantial relationship with
Allstate Corporation. This new relationship represents the first significant transaction under our new sales and business model. Allstate significantly expanded its Universal Application and policy
administration application license rights from one subsidiary to the entire corporation. Allstate is receiving software products, products to be introduced by TenFold, updates, and support, training,
and time-and-materials services from TenFold to enhance Allstate's ability to independently use Universal Application for applications development within Allstate.

Improving Customer Relationships Strengthened account management and delivery capabilities have enabled improvement in our
customer relationships. Our customers' affirmation of their commitment to TenFold's technology and our ability to deliver their business applications has, in some instances, resulted in our
applications moving (or being scheduled to move) into production, formal acceptance of TenFold's completion of existing fixed-price contracts, expansion of license scope and entering into new
time-and-materials based services contracts.

Commenced Sales Initiatives During 2001, we took two important actions to begin to rebuild momentum for new sales of our
Universal Application technology and related products and services. First, we launched a Universal Application direct sales channel that resulted in a small number of paid prototype projects with
potential customers in insurance, retail software, and financial services sectors. In support of the direct sales channel, we hired a technology sales executive to lead our direct sales initiatives of
the Universal Application and our vertical applications products. We hired additional technical and industry-specific sales talent during 2001 to execute against our business model. Second, we
initiated negotiations around varied distribution alliances. We are in discussions to establish relationships with ASPs, VARs, systems integrators, and software distributors in the U.S. and
international markets. VAR agreements should accelerate and broaden market distribution for us at a significantly lower cost than we could achieve on our own. VAR successes with applications that we
built with the Universal Application should also accelerate introduction of the Universal Application. In February 2002, we entered into our first VAR agreement to resell a Universal
Application-based communications industry application worldwide, with 3Genesis. In April 2002, we entered into our first strategic alliance under our new business model, with a global systems
integrator, Sapient Corporation. Under this new relationship Sapient is licensed to: serve as a Universal Application reseller globally; provide Universal Application-based applications development
services to customers in the U.S. and internationally; receive advanced

30

---

Universal Application maintenance training for a team of Sapient technologists; and collaborate with TenFold to penetrate new and existing accounts.

In
addition, we began developing marketing initiatives around the Universal Application, including focused print advertising and rebuilding of our Web site. We built the new Web site
(www.10Fold.com) using TenFold's Universal Application technology with the objective of providing a real-time demonstration of the power of the Universal Application. The new site provides
visitors
with a Universal Application experience including application overviews and real-time product demonstrations.

On
November 16, 2001, we entered into a new substantial relationship with Allstate Corporation. This new relationship represents the first significant transaction under our new
sales and business model. Allstate significantly expanded its Universal Application and policy administration application license rights from one subsidiary to the entire corporation. Allstate is
receiving software products, products to be introduced by TenFold, updates, and support, training, and time-and-materials services from TenFold to enhance Allstate's ability to
independently use Universal Application for applications development within Allstate. In addition, Allstate staff have joined the TenFold development team and are receiving training on core Universal
Application technology to provide Allstate with the ability to maintain Universal Application internally, should it so desire.

Began to Execute Our New Business Model Over the course of 2001, we improved our ability to execute to our new business
model with significant time-and-materials services, more accurate project estimates, and new customer pilots. We also hired more experienced sales and delivery staff. However,
like most businesses, we have experienced the ripple effect of the events of September 11, 2001. In several cases, existing customers decided to cancel or scale-back project
commitments or delay project expansions and prospective customers decided to postpone entering into new contracts. These decisions significantly reduced our revenue and cash flow for the latter part
of 2001 from what we previously expected.



During
2001, we resolved many of the issues which arose in 2000. We consolidated operations, restructured the business, resolved several customer disputes and progressed in other legal
matters.

Consolidated Operations In January 2001, we consolidated our operations into one corporate organization to reduce
costs, provide better focus for employees and to solidify our core delivery and operational infrastructure.

Restructured Business From November 2000 to December 31, 2001, we reduced our headcount from approximately 744
to 179, reduced the number of principal operating offices from 13 to 4, renegotiated facilities and equipment leases, marketed unused properties for sale, and tightened operational expense management.

We
commenced a restructuring of our business in November 2000 through a reduction in force of 159 employees and the closure of redundant offices in Chicago, Illinois; Dallas,
Texas; and San Francisco, California. In March 2001, we reduced the workforce by 38 employees, and we closed offices in Atlanta, Georgia; Foster City, California; Irving, Texas; and Raleigh,
North Carolina. In June 2001, we reduced the workforce by 70 employees and undertook facilities restructurings in Chicago, Illinois; New York, New York; Park Ridge, New Jersey; and Salt Lake
City, Utah. In December 2001, we reduced the workforce by 65 employees, and undertook facilities restructurings

31

---

in Chicago, Illinois; Richmond, UK; and San Francisco, California. In January 2002, we sold two buildings we had owned in San Rafael, California, for an amount equal to their net book value.

We
anticipate the impact of the four restructurings to reduce annualized operating costs by approximately $64 million. In addition to headcount reductions and office closures, we
have taken other aggressive steps to lower operating costs. In March 2001, we issued a revised travel policy to significantly reduce travel expenses, which for the year ended
December 31, 2001, were approximately 5% of operating expenses, compared to 12% for the year ended December 31, 2000. We performed a comprehensive review of our network costs and
initiated significant reductions. We are continuing to re-negotiate service and support contracts and review operating expenses for telecommunications, employee benefits, contractors,
facility leases and all other expenses with the objective of minimizing expenses in 2002.

During
2001, we terminated or subleased 105,000 square feet of excess office space, resulting in monthly operating cost savings of $259,000 with total lease term savings exceeding
$13 million.

During
the second half of 2001, we restructured our financial obligations with three equipment lessors. The payment restructuring reduced our payments by approximately $497,000 per
quarter from the fourth quarter of 2001 through the first quarter of 2002. Beginning in April 2002, we are required to resume paying pre-restructuring lease payment amounts through
September 30, 2002. After September 30, 2002, we are required to pay pre-restructuring lease payment amounts plus approximately one twelfth of the deferred amount until paid
in full. Effective January 1, 2002 we also restructured our notes payable obligations to our primary lender. See "Liquidity and Capital Resources" for more information.

Resolving Customer Disputes Since March 2001, we have favorably resolved eight customer disputes as follows:



32

---



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 judgement and estimation due to the uncertainty involved in measuring, at a specific point in time,
events which are continuous in nature.



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

We
use the completion percentage assumptions to determine if a contract is in a loss position. Variances between management's estimates and actual results may result in larger teams and
longer delivery schedules, which impacts the profitability of the project. These variances result in adjustments to our results of operations and financial position due to the change in a project's
profit or loss projections. We also use these estimates to determine if the project end-date schedule is within the timeline of the project guarantee. Variances between management's
judgement and actual results may result in a significant adjustments having to be made to our results of operations and financial position, including potentially having to refund fees previously paid
to us for a project.

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

33

---

We
continue to review projects each quarter to reassess the status of each project and to verify the related completion percentage and project profit or loss projections. Although we
believe that we have made all appropriate adjustments to properly reflect the completion percentage and status of contracts in process at December 31, 2001, we cannot be certain that future
adjustments will not be required. See "Revenue Recognition" below for more information.



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. These losses may be significant and if a significant loss is incurred, we would be required to pursue one or a combination of the following remedies; seek additional sources of financing,
further reduce operation expenses, sell part or all of our assets, terminate business operations, and re-evaluate the TenFold business model.



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

Revenue Recognition

We derive our revenues from license fees, subscription fees, application development and implementation services, support, and training services. License revenues
consist of fees for licensing the Universal Application as a tool or as a developed application, and license fees for the applications that we develop for our customers. We also derive license
revenues from the resale of our vertical applications products. Subscription revenue consists of fees for licensing the Universal Application, along with rights to new product releases of TenFold
ComponentWare during a subscription period, and providing related time-and-material consulting, training, and support services. Service revenues consist of fees for application
development and implementation, support and training.

In
October 1997, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 97-2,Software Revenue
Recognition, which supersedes SOP 91-1,Software Revenue Recognition. Additionally, in 1998, the AICPA issued SOP
98-9,Modification of SOP 97-2 with Respect to Certain Transactions. Effective January 1, 1998, we adopted the provisions
of SOP 97-2, as modified by SOP 98-9.

We
generally enter into software arrangements that involve multiple elements, such as software products, enhancements, post-contract customer support ("PCS"), installation
and training. We allocate a portion of the arrangement fee to each undelivered element based on the relative fair values of the elements. The fair values of the elements are based on vendor specific
objective

34

---

evidence ("VSOE"). We establish VSOE based on the price charged when the same element is sold separately. VSOE for services is based on standard rates for the individuals providing services. These
rates are the same rates charged when the services are sold separately under time-and-materials contracts. We base VSOE for training on standard rates charged for each
particular training course. These rates are the rates charged when the training is sold separately for supplemental training courses. For PCS, VSOE is determined by reference to the renewal rate that
we charge the customer in future periods. The fee allocated to the delivered software product is based upon the residual method described in SOP 98-9.

For
time-and-material contracts, we generally estimate a profit range and recognize the related revenue using the lowest probable level of profit estimated in the
range, which represents our best estimate of the profit to be achieved. 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.

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

For
certain contracts including a subscription to future 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 arrangements that include a service element for which sufficient VSOE does not exist to allocate revenue to the various elements of the
arrangement, and the arrangement 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.

We
recognize license revenues from vertical application product sales and Universal Application development licenses that do not include services or where the related services are not
considered essential to the functionality of the software, when the following criteria are met: we have signed a noncancellable license agreement with nonrefundable fees; we have shipped the software
product; there are no uncertainties surrounding product acceptance; the fees are fixed and determinable; and collection is considered probable. This policy applies both when the vertical application
license or the Universal Application development licenses are sold separately or when a Universal Application development license is sold with an application development project. License fees
recognized upon achieving these criteria for the year ended December 31, 2001 were $0 as compared to $4.4 million for the year ended December 31, 2000 and $31.3 million for
the year ended December 31, 1999. Services relating to the Universal Application development licenses only include post contract customer support services. Services for vertical application
product licenses do not add significant functionality, or 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.

35

---

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

Year ended December 31,2001

2000

1999Products:Universal Application development license revenue

$


$


$
25,617Vertical application product license revenue





4,375


5,683Solutions:Percentage-of-completion license revenue


8,532


8,041


15,788Total license revenues

$
8,532

$
12,416

$
47,088Subscription revenue

$
689

$


$
Percentage-of-completion service revenue

$
24,483

$
41,295

$
40,472Time-and-materials service revenue


13,535


3,521


1,439Maintenance revenue


4,002


3,849


2,331Training revenue


1,324


1,725


1,099Total services revenues

$
43,344

$
50,390

$
45,341Total revenues

$
52,565

$
62,806

$
92,429


For
software arrangements that include a service element that is considered essential to the functionality of the software, we recognize license fees related to the application, and the
application development service fees, over time as we perform the services, using the percentage-of-completion method of accounting and following the guidance in Statement of
Position ("SOP") 81-1,Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We
determined our proposed fixed-price for a project using a formal estimation process that takes into account the project's timetable, complexity, technical environment, risks, and other available
information. Members of our senior management team approved each proposal. We make adjustments, if necessary, to the estimates used in the percentage-of-completion method of
accounting as work progresses under the contract and as we gain experience. We review significant projects each quarter to reassess the status of each project and to verify the related completion
percentage and project profit or loss projections. Although we believe that we made all appropriate adjustments to properly reflect the completion percentage and status of contracts in process at
December 31, 2001, we cannot be certain that future adjustments will not be required.

For
certain projects, we limit revenue recognition in the period to the amount of project costs incurred in the same period, and postpone recognition of profits until results can be
estimated more precisely. Beginning with the three months ended June 30, 2000, we applied this "zero profit" methodology to two existing projects. We added two additional existing
projects and one new project to the "zero profit" methodology during the three months ended September 30, 2000. At December 31, 2000, we applied this "zero profit" methodology to
all fixed-price projects except those relating to our Revenue Manager and LongView applications. We have two fixed-time, fixed-price application development and implementation contracts
remaining at December 31, 2001 that we account for using this "zero profit" methodology. The total project values for these contracts is approximately $16.8 million. Revenue recognized
from projects accounted for under the "zero profit" methodology during the year ended December 31, 2001, was $5.2 million, as compared to $9.1 million during the year ended
December 31, 2000, and $4.6 million during the year ended December 31, 1999.

36

---

In
mid-1998, we began offering the TenFold Guarantee, a money-back guarantee for large-scale software applications. As a result, in some of our contracts, we have
guaranteed that we will complete our projects within a fixed time period or we will refund the fees paid. This guarantee also requires the customer to fulfill various responsibilities within a
specified time period, including reviewing and approving requirements, providing timely feedback, and providing adequate staffing, or the guarantee is voided. Accordingly, we treat this guarantee as a
conditional guarantee. We recognize revenue under contracts with performance guarantees using the percentage-of-completion method of accounting. If necessary, we make
provisions for estimated refunds or losses on uncompleted contracts on a contract-by-contract basis and recognize the refunds or losses in the period in which the refunds or
losses become probable and we can reasonably estimate them. Beginning in the fourth quarter of 2000, we no longer offer a performance guarantee as a standard part of our contracts.

We
are currently in a loss position on one of our on-going fixed-price contracts. At December 31, 2001, we had accrued $1.7 million for estimated losses we
expect to incur while completing the project.

We
have two customers with guarantees in their fixed-price contracts at December 31, 2001. We believe that the application and required deliveries under the contracts will comply
with the contractual terms of our customer agreements; however, these guarantees represent a risk to us. Missing any of the deliveries for the two customers may have a material adverse impact on our
business, results of operations, financial position, or liquidity.

37

---

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, |   
|------------------------------------ | ------------------------------------------------- | ------------------------ | --
|
|Revenues:                            |                                                   |                          |   
|                                     | License                                           |                          | 16
|                                     | Subscription                                      |                          | 1 
|                                     | Services                                          |                          | 83
|                                     |                                                   |                          |   
|                                     |                                                   | Total revenues           |   
|Operating expenses:                  |                                                   |                          |   
|                                     | Cost of revenues                                  |                          | 54
|                                     | Sales and marketing                               |                          | 10
|                                     | Research and development                          |                          | 24
|                                     | General and administrative                        |                          | 20
|                                     | Amortization of goodwill and acquired intangibles |                          | 2 
|                                     | Amortization of deferred compensation             |                          | 2 
|                                     | In process research and development               |                          |  
|                                     | Special charges                                   |                          | 36
|                                     |                                                   |                          |   
|                                     |                                                   | Total operating expenses |   
|                                     |                                                   |                          |   
|Income (loss) from operations        |                                                   | (48                      | %)
|Total other income, net              |                                                   | 24                       | % 
|                                     |                                                   |                          |   
|Income (loss) before income taxes    |                                                   | (24                      | %)
|Provision (benefit) for income taxes |                                                   | 6                        | % 
|                                     |                                                   |                          |   
|                                     |                                                   | Net income (loss)        |   
|                                     |                                                   |                          |   

2001 as Compared to 2000



Total
revenues decreased $10.2 million, or 16 percent, to $52.6 million for the year ended December 31, 2001, as compared to $62.8 million for the year
ended December 31, 2000. The decrease in revenues is primarily due to lower than anticipated sales and project terminations including both fixed-price and
time-and-material contracts.

License
revenues decreased $3.9 million, or 31 percent, to $8.5 million for the year ended December 31, 2001 as compared to $12.4 million for the same
period in 2000. License revenues represented 16 percent of total revenues during the year ended December 31, 2001 as compared to 20 percent in 2000. License sales for these
products were lower for the year ended December 31, 2001 than in the
previous year due to our focus on existing account performance and incremental time-and-material services. Our conversion to a new technology sales model is still immature.

Subscription
revenues were $689,000 for the year ended December 31, 2001 as compared to $0 for the same period in 2000. Subscription revenues represent revenue from arrangements
including a subscription to new product releases on a when and if available basis. We did not have a subscription contract prior to 2001.

38

---

Service
revenues decreased $7.0 million, or 14 percent, to $43.3 million for the year ended December 31, 2001 as compared to $50.4 million for 2000.
Service revenues decreased due primarily to lower than anticipated sales and project terminations including both fixed-price and time-and-material contracts.

During
the three months ended December 31, 2000, we limited revenue on all significant fixed-price projects to project costs incurred. The impact on net loss from this
change to limit revenue recognized to costs incurred resulted in an $11.9 million increase in net loss and an increase of ($0.34) per share to the net loss per share for the three months
ended December 31, 2000.

We
recognized revenue of $21.2 million during 2001 from projects that were terminated during 2001 prior to completion of the projects.

Revenues
from international customers were approximately 28 percent of total revenues for the year ended December 31, 2001 as compared to 11 percent in 2000. The
2001 and 2000 international revenue was attributable to four customers.

Three
customers accounted for 27 percent, 16 percent and 11 percent of our total revenues for the year ended December 31, 2001, compared to two customers
accounting for 16 percent and 15 percent of our total revenues for 2000. No other single customer accounted for more than 10 percent of our total revenues for the year ended
December 31, 2001 or 2000.

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



Cost of Revenues.Cost of revenues consists primarily of compensation and other related costs of personnel to provide application
development and implementation, support, and training services. Cost of revenues decreased $33.6 million, or 54 percent, to $28.4 million for the year ended December 31,
2001 compared to $62.0 million for 2000. Cost of revenues as a percentage of total revenues was 54 percent for the year ended December 31, 2001 as compared to 99 percent
for 2000. The decrease in absolute dollars and as a percentage of revenues between periods was primarily due to a decrease in compensation and other related costs associated with fewer projects and a
smaller number of employees working on customer projects, and support and training activities. Cost of revenues as a percentage of total revenues also decreased in 2001 compared to 2000 because the
percentage of revenues was unusually high in 2000. During 2000 estimated project costs increased thus resulting in downward revenue adjustments to the previously calculated
percentage-of-completion and as certain projects were placed on a "zero-profit" margin methodology.

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 $16.8 million, or 75 percent, to $5.5 million for the year ended
December 31, 2001 as compared to $22.3 million in 2000. Sales and marketing expenses as a percentage of total revenues were 10 percent for the year ended December 31, 2001
as compared to 35 percent in 2000. The decrease in 2001 in sales and marketing expenses in absolute dollars and as a percentage of total revenues was primarily due to our allocation of
resources towards completion of more complex application development projects rather than to marketing activities.

39

---

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 $12.8 million, or 51 percent, to $12.5 million for the year ended December 31,
2001, as compared to $25.3 million in 2000. Research and development expenses as a percentage of total revenues were 24 percent for the year ended December 31, 2001 as compared to
40 percent in 2000. Research and development expenses decreased in absolute dollars and as a percentage of total revenues due primarily to having fewer personnel and consultants involved in
development efforts.

General and Administrative.General and administrative expenses consist primarily of allowances for doubtful accounts and notes
receivable, the costs of executive management, finance and administrative staff, recruiting, business insurance, and professional fees. General and administrative expenses decreased
$14.8 million, or 58 percent, to $10.8 million for the year ended December 31, 2001 as compared to $25.5 million in 2000. General and administrative expenses as a
percentage of total revenues were 20 percent for the year ended December 31, 2001 as compared to 41 percent in 2000. The decrease in absolute dollars and as a percentage of total
revenues during the year ended December 31, 2001 was primarily the result of lower provisions for doubtful accounts and notes receivable and unbilled accounts receivable, and fewer staff
involved in general and administrative activities.

Amortization of Goodwill and Acquired Intangibles.We recorded amortization expense of goodwill and acquired intangibles of $962,000 for
the year ended December 31, 2001, as compared to $4.6 million in 2000. Since we completed the sale of LongView on March 15, 2001, the decrease in absolute dollars from 2000 to
2001 is due to recording a partial year of amortization in 2001 as compared to a full year during 2000.

Amortization of Deferred Compensation.Deferred compensation, along with the associated amortization, results primarily from the granting
of stock options when there is a difference between the exercise price of certain stock option grants and the deemed fair value of the common stock at the time of such grants. Certain grants during
1997, 1998, and 1999 were issued at a price that was less than the deemed fair value at the grant date. We are amortizing these amounts over the vesting periods of the applicable options. During 2001,
we made a restricted stock grant that had deferred compensation of $280,000 associated with it that we amortized over the one-year vesting period ended December 31, 2001. We
incurred amortization expense of $857,000 for the year ended December 31, 2001 as compared to $1.2 million in 2000. When employees who were granted these options leave TenFold, we reduce
the associated deferred compensation. The decrease in amortization expense in 2001 as compared to 2000 is primarily due to employees leaving TenFold during the year ended December 31, 2001.

Special 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 the year ended December 31, 2001, we further 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.

40

---

Restructuring Charges.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 Company 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.

Restructuring
reserves are included in accrued liabilities at December 31, 2001. Detail of the restructuring charges as of and for the year ended December 31, 2001 are
summarized below (in thousands):

|Restructuring Charges: |  | Balance at
December 31,
2000 |     | New
Charges |   | Adjustments |  | Utilized |       | Balance at
December 31,
2001
|---------------------- |  | ---------------------------- | --- | ----------- | - | ----------- |  | -------- | ----- | ----------------------------
|Employee related       |  | $                            | 141 |             | $ | 873         |  | $        |      |                             
|Facilities related     |  |                              | 321 |             |   | 6,632       |  |          | 1,289 |                             
|                       |  |                              |     |             |   |             |  |          |       |                             
|                       |  | $                            | 462 |             | $ | 7,505       |  | $        | 1,289 |                             
|                       |  |                              |     |             |   |             |  |          |       |                             

|Balance Sheet Components: |  | Balance at
December 31,
2000 |     | New
Charges |   | Adjustments |  | Utilized |       | Balance at
December 31,
2001
|------------------------- |  | ---------------------------- | --- | ----------- | - | ----------- |  | -------- | ----- | ----------------------------
|Accrued liabilities       |  | $                            | 321 |             | $ | 7,489       |  | $        | 1,289 |                             
|Accounts payable          |  |                              | 141 |             |   | 16          |  |          |      |                             
|                          |  |                              |     |             |   |             |  |          |       |                             
|                          |  | $                            | 462 |             | $ | 7,505       |  | $        | 1,289 |                             
|                          |  |                              |     |             |   |             |  |          |       |                             



Net
total other income increased $10.4 million to $12.6 million for the year ended December 31, 2001 compared to $2.2 million in 2000. The increase was
primarily due to a gain of approximately $12.4 million on the sale of The LongView Group, Inc. to Linedata Services on March 15, 2001. Interest income decreased for the year ended
December 31, 2001 compared to 2000 due to lower cash and cash equivalent balances and lower interest rates in 2001.



The
provision for income taxes was $3.0 million for the year ended December 31, 2001 as compared to a benefit of $619,000 for 2000. The net income tax provision for the
year ended December 31, 2001, is primarily attributed to foreign income and withholding taxes, state franchise taxes and federal alternative minimum taxes. The net income tax benefit for the
year ended December 31, 2000, is primarily attributed to federal and state tax refunds from net operating loss carrybacks and other reductions to the income tax payable accounts.

2000 as Compared to 1999



Total
revenues decreased $29.6 million, or 32 percent, to $62.8 million for the year ended December 31, 2000, as compared to $92.4 million for the year
ended December 31, 1999. The

41

---

decrease in revenues is primarily due to lower than anticipated sales, project delays and disputes on certain projects, adjustments on certain fixed-price projects to limit revenue recognized to
costs incurred, and adjustments required to properly account for events associated with converting certain fixed-price contracts to time-and-materials-based contracts.

Quantifiable
revenue impacts during the three months ended December 31, 2000 were: a) reduction in revenue of $11.9 million, due to a change in estimates on
certain fixed-price projects to limit revenue recognized to costs incurred, b) reduction in revenue of $7.0 million, resulting from costs to convert certain fixed-price contracts to
time-and-materials-based contracts, and c) reduction in revenue of $7.2 million, due to disputes on certain projects.

License
revenues decreased $34.7 million, or 74 percent, to $12.4 million for the year ended December 31, 2000 as compared to $47.1 million for the
same period in 1999. License revenues represented 20 percent of total revenues during the year ended December 31, 2000 as compared to 51 percent in 1999. Due primarily to the
reasons for lower overall revenues described above, license sales for these products were lower for the year ended December 31, 2000 than in the previous year.

Service
revenues increased $5.0 million, or 11 percent, to $50.4 million for the year ended December 31, 2000 as compared to $45.3 million for 1999.
Service revenues increased for the year ended December 31, 2000 compared to 1999 due to an increase in the number and size of our customer projects and as a result of the backlog created from
our 1999 sales efforts.

Revenues
from international customers were approximately 11 percent of total revenues for the year ended December 31, 2000 as compared to 10 percent in 1999. The
2000 international revenue was attributable to four customers while the 1999 revenue was attributable to one customer.

Two
customers accounted for 16 percent and 15 percent of our total revenues for the year ended December 31, 2000, compared to two customers accounting for
18 percent and 10 percent of our total
revenues for 1999. No other single customer accounted for more than 10 percent of our total revenues for the year ended December 31, 2000 or 1999.

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



Cost of Revenues.Cost of revenues consists primarily of compensation and other related costs of personnel to provide application
development and implementation, support, and training services. Cost of revenues increased $31.5 million, or 104 percent, to $62.0 million for the year ended December 31,
2000 compared to $30.5 million for 1999. Cost of revenues as a percentage of total revenues was 99 percent for the year ended December 31, 2000 as compared to 33 percent
for 1999. The increase in absolute dollars between periods was mainly due to an increase in compensation and other related costs associated with the number of employees hired to complete customer
projects and in anticipation of future growth. Cost of revenues as a percentage of total revenues increased primarily because we increased employment levels and our use of outside consultants under
our Perot Services agreement to assist in the completion of certain fixed-price projects and in anticipation of future sales. The percentage also increased as estimated project costs increased thus
resulting in downward revenue adjustments to the previously calculated percentage-of-completion and as certain projects were placed on a "zero-profit" margin
methodology. Additionally, cost of revenues as a percentage of total revenues increased for the year ended December 31, 2000

42

---

compared to 1999 as service revenues comprised a higher percentage of total revenues for 2000 compared to 1999.

Sales and Marketing.Sales and marketing expenses consist primarily of compensation, travel, and other related expenses for sales and
marketing personnel, as well as advertising and other marketing expenses. Sales and marketing expenses decreased $2.3 million, or 9 percent, to $22.3 million for the year ended
December 31, 2000 as compared to $24.5 million in 1999. Sales and marketing expenses as a percentage of total revenues were 35 percent for the year ended December 31, 2000
as compared to 27 percent in 1999. The decrease in 2000 in sales and marketing expenses in absolute dollars was primarily due to our allocation of resources towards completion of more complex
application development projects rather than to marketing activities. The increase in expenses as a percentage of total revenues for the year ended December 31, 2000 was due to lower than
expected revenues in 2000.

Research and Development.Research and development expenses consist primarily of compensation and other related costs of personnel
dedicated to research and development activities. Research and development expenses increased $7.2 million, or 40 percent, to $25.3 million for the year ended December 31,
2000, as compared to $18.1 million in 1999. Research and development expenses as a percentage of total revenues were 40 percent for the year ended December 31, 2000 as compared to
20 percent in 1999. Research and development expenses grew in absolute dollars due primarily to the addition of personnel and consultants to support expanded development efforts and to
facilitate product delivery to customers. Research and development expenses increased as a percentage of total revenues due to lower than expected revenues in 2000.

General and Administrative.General and administrative expenses consist primarily of allowances for doubtful accounts and notes
receivable, the costs of executive management, finance and administrative staff, recruiting, business insurance, and professional fees. General and administrative expenses increased
$20.3 million, or 388 percent, to $25.5 million for the year ended December 31, 2000 as compared to $5.2 million in 1999. General and administrative expenses as a
percentage of total revenues were 41 percent for the year ended December 31, 2000 as compared to 6 percent in 1999. The increase in absolute dollars and percentage of total
revenues during the year ended December 31, 2000 was primarily the result of providing allowances for doubtful accounts receivable and unbilled accounts receivable of approximately
$12.0 million and additional legal and accounting fees associated with the increase in customer disputes and legal proceedings. The increase was also due to establishing an allowance for
doubtful notes receivable from stockholders. Although we intend to pursue collection of these notes, during the three months ended December 31, 2000, we established an allowance against
these notes of $2.8 million. We also incurred additional general and administrative expenses as a result of hiring additional finance and administrative personnel to manage and support the
increased complexity and scale of our operations.

Amortization of Goodwill and Acquired Intangibles.Amortization of goodwill and acquired intangibles resulted from the acquisition of The
LongView Group, Inc. ("LongView"). The remaining intangible assets, after the write-off of in process research and development, totaled $24.6 million and were amortized over
the expected lives of the goodwill and intangibles (see Note 5 of "Notes to Consolidated Financial Statements"). These lives ranged from five to seven years. We recorded amortization
expense of goodwill and acquired intangibles of $4.6 million for the year ended December 31, 2000, as compared to $1.1 million in 1999. Since we completed the acquisition of
LongView on October 7, 1999, the increase in absolute dollars from 1999 to 2000 is due to recording a full year of amortization during 2000 as compared to a partial year in 1999.

43

---

Amortization of Deferred Compensation.Deferred compensation, along with the associated amortization, results from the granting of stock
options when there is a difference between the exercise price of certain stock option grants and the deemed fair value of the common stock at the time of such grants. Certain grants during 1997, 1998,
and 1999 were issued at a price that was less than the deemed fair value at the grant date. We are amortizing these amounts over the vesting periods of the applicable options, resulting in
amortization expense of $1.2 million for the year ended December 31, 2000 as compared to $1.4 million in 1999. When employees who were granted
these options leave TenFold, we reduce the associated deferred compensation. The decrease in amortization expense is due to employees leaving TenFold during the year ended December 31, 2000.

In Process Research and Development.In process research and development resulted from the acquisition of LongView which we completed on
October 7, 1999. At the acquisition date, LongView was in the process of conducting research and development on two products, 1) LongView 2000 and 2) TradeXpress. In connection
with the acquisition, we recorded a write-off of $2.0 million for acquired in process research and development related to these two products during the three months ended
December 31, 1999. The fair value assigned to purchased in process research and development was determined by estimating the costs to develop the purchased in process research and development
into commercially viable products and discounting the resulting net cash flows related to these projects. At the date of the acquisition, the acquired in process research and development had not yet
reached technological feasibility and had no alternative future uses. Since we did not complete any acquisitions during the year ended December 31, 2000, we did not incur any such charges in
2000.

Special Charges.Special charges for the year ended December 31, 2000 include a $2.9 million asset impairment charge, and a
$1.9 million restructuring charge.

Asset Impairment Charge.During the three months ended December 31, 2000, we restructured our operations to reduce operating
expenses. As part of the restructuring, we closed facilities in Chicago, Illinois; Dallas, Texas; Salt Lake City, Utah; and San Francisco, California during November and December of
2000. We had $840,000 in leasehold improvements, furniture and fixtures, and other assets in these offices that we determined had no future value to us. In addition we determined that
$2.1 million of computer equipment was also impaired as a result of the restructuring. Accordingly, we recorded a total asset impairment charge of $2.9 million.

Restructuring Charge.During the three months ended December 31, 2000, we incurred a restructuring charge of
$1.9 million as part of a plan to improve our operating results by reducing headcount, by closing duplicative Company facilities in Chicago, Illinois; Dallas, Texas; Salt Lake City, Utah; and
San Francisco, California, and by implementing other measures. The restructuring charge was comprised of $1.1 million for headcount reductions, and $861,000 for facilities related costs
including penalties associated with the reduction of lease commitments and future lease payments. As of December 31, 2000, $1.5 million had been paid out on the restructuring charge.

We
determined our restructuring charge 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. On November 14, 2000, our senior
management prepared a detailed exit plan that included the termination of 159 employees and closure of certain facilities.

In
connection with the restructuring actions, we terminated the employment of 159 employees, consisting primarily of applications development employees, technical and other support
employees,

44

---

and administrative employees in all of our locations. In addition, we did not replace approximately 40 employees who resigned voluntarily during October and November 2000. At
December 31, 2000, we had terminated all employees associated with these restructuring actions. At December 31, 2000, we had exited a portion of our facility in Salt Lake City, Utah and
closed duplicative offices in Chicago, Illinois; San Francisco, California; and Dallas, Texas. We have entered into sublease arrangements for our Dallas, Texas and our Chicago, Illinois office space.

We
also reached an agreement to decrease our lease commitment for new office space currently under construction in South Jordan, Utah.

Restructuring
reserves are included in accrued liabilities and accounts payable at December 31, 2000. Detail of the restructuring charges as of and for the three months
ended December 31, 2000 are summarized below (in thousands):

|Fourth Quarter 2000 Restructuring Actions: |  | Original
Charge |       | Reversals |   | Utilized |  | Balance at
December 31, 2000
|------------------------------------------ |  | --------------- | ----- | --------- | - | -------- |  | ----------------------------
|Employee related                           |  | $               | 1,057 |           | $ |         |  | $                           
|Facilities related                         |  |                 | 861   |           |   |         |  |                             
|                                           |  |                 |       |           |   |          |  |                             
|                                           |  | $               | 1,918 |           | $ |         |  | $                           
|                                           |  |                 |       |           |   |          |  |                             

|Balance Sheet Components: |  | Original
Charge |       | Reversals |   | Utilized |  | Balance at
December 31, 2000
|------------------------- |  | --------------- | ----- | --------- | - | -------- |  | ----------------------------
|Accrued liabilities       |  | $               | 1,777 |           | $ |         |  | $                           
|Accounts payable          |  |                 | 141   |           |   |         |  |                             
|                          |  |                 |       |           |   |          |  |                             
|                          |  | $               | 1,918 |           | $ |         |  | $                           
|                          |  |                 |       |           |   |          |  |                             



Net
total other income increased $1.2 million, or 119 percent, to $2.2 million for the year ended December 31, 2000 compared to $981,000 in 1999. The increase
was due to an increase in interest and other income resulting from higher cash and cash equivalent balances during the first six months of 2000 as compared to the same period in 1999. These
balances mainly increased due to invested proceeds from our initial public offering in May 1999. In addition, we recognized $540,000 of other income from a fee paid to us by Perot Systems
during the three months ended June 30, 2000. Under their alliance agreement with us, Perot Systems was obligated to provide us with opportunities to contract for revenue of at least
$15.0 million for the fiscal year ended April 30, 2000 or pay us 20 percent of the shortfall. This $540,000 payment fulfilled their remaining obligation to us for the year ended
April 30, 2000. This arrangement was cancelled and we do not expect to receive similar payments in the future. We also recognized $300,000 of other income from the sublease of portions of our
San Francisco and San Rafael, California offices. Interest income in both years was partially offset by interest expense resulting from notes payable and capital lease obligations.



The
benefit for income taxes was $619,000 for the year ended December 31, 2000 as compared to a provision of $4.7 million for 1999. Net income tax benefit for the
twelve months ended December 31, 2000, is primarily attributed to expected federal and state tax refunds from net operating loss carrybacks and other reductions to the income tax payable
accounts.

45

---

At
December 31, 2000, we had established a valuation allowance of $42.6 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 current operating losses, that 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 the year ended December 31, 2001, we sought to improve our cash flow though a variety of means. We carefully managed our accounts receivable and
generated additional cash inflows wherever possible from our existing customer base. We sold our subsidiary, The LongView Group, Inc., for proceeds of $27.1 million. We took aggressive
steps to restructure our operations through work force reductions, terminating leases or subleasing facilities, restructuring lease obligations, renegotiating telecom agreements and IT support
contracts and other operational cost-saving measures. As a result, we reduced quarterly operating cash outflows by over 50% from the first to fourth quarter of 2001.

Net
cash used in operating activities was $21.7 million for the year ended December 31, 2001 as compared to $20.6 million in 2000. The increase in cash flows used in
operating activities was due to lower cash inflows from lower new sales and revenues during the year ended December 31, 2001.

Net
cash provided by investing activities was $23.5 million for the year ended December 31, 2001 as compared to net cash used in investing activities of
$18.5 million in 2000. During the year ended
December 31, 2001 we received $27.1 million in proceeds from our sale of The LongView Group, Inc. We used $3.6 million to fund increases to restricted cash for the year
ended December 31, 2001 to provide collateral for our notes payable and letter of credit obligations with our primarily lender. During the year ended December 31, 2000, we paid
$16.0 million for additional office space, including the purchase of two office buildings in San Rafael, California, as well as for equipment and furniture for additional office space in San
Francisco, California; Chicago, Illinois; and Irving, Texas, all of which are currently being marketed for disposition. We used $2.5 million to fund additions to restricted cash for the year
ended December 31, 2000, for deposits on real property held in escrow to secure a lease on office space in South Jordan, Utah; and to secure letters of credit used to secure leases on office
space in Atlanta, Georgia and Dallas, Texas.

Net
cash used in financing activities was $4.1 million for the year ended December 31, 2001 as compared to $4.4 million in 2000. Net cash used by financing
activities for the year ended December 31, 2001 resulted primarily from payments on notes and capital leases. Net cash used by financing activities for the year ended December 31, 2000
resulted from payments on notes and capital leases of $16.0 million which was partially offset by $1.5 million of proceeds from exercise of stock options, proceeds of $3.3 million
from the issuance of shares under the employee stock purchase plan and $6.8 million of proceeds from the issuance of notes payable.

As
of December 31, 2001, we owed our primary lender $6.0 million under certain credit facilities and loan agreements (the "Loan Agreements") relating to equipment that we
leased through this lender and relating to our prior purchase of real property in San Rafael, California. Our obligations under the Loan Agreements are secured by a blanket first priority security
interest in our assets. As of December 31, 2001, we were in default of the Loan Agreements for non-timely payment of principal and interest, but that situation has since been
remedied.

46

---

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

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

As
of December 31, 2001, the lender had issued two letters of credit totaling approximately $3.5 million to secure our obligations under office leases in Chicago and San
Francisco. Pursuant to the Loan Agreements, we had provided the lender with $3.5 million in restricted cash as collateral for these letters of credit. In March 2002, a new lender issued
substitute letters of credit for the same amount and with the same expiration dates to replace the letters of credit issued by the prior lender. As a result, we transferred the $3.5 million of
restricted cash from the prior lender to this new lender to collateralize the substitute letters of credit.

During
the quarter ended September 30, 2001, we were temporarily in default to other equipment lessors for late payment of lease payments. We have negotiated restructured payment
arrangements with these lessors and are no longer in default with these lessors. As of December 31, 2001, we had leases payable to these lessors totaling approximately $4.7 million.

While
our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors' report on our December 31, 2001
financial statements, prepared by KPMG LLP, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern, based upon our historical operating
performance, our financial position at December 31, 2001, our historical sales results, and our involvement in significant legal proceedings.

We
have made significant progress reducing operating cash outflows during 2001. We reduced quarterly operating cash outflows by over 50% from the first to fourth quarter of 2001.
However, we have been operationally cash flow negative for the years ended December 31, 2001 and 2000. This ongoing negative cash flow has continued to place a burden on us to obtain
cash infusions beyond those generated from normal operations.

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

We
continue to seek additional sources of financing such as new sales to existing and new customers, asset sales, or equity financing, to sustain our operations. In February 2002,
we entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC ("Fusion Capital"), in connection with a private equity line financing transaction
pursuant to which we will offer and sell to Fusion Capital up to $10,000,000 of our Common Stock, over a

47

---

period of up to 40 months. As a condition to Fusion Capital's obligation to make purchases under the Purchase Agreement, the Common Stock to be offered and sold to Fusion Capital must be
registered in an effective registration statement with the Securities and Exchange Commission. Once the registration statement is effective, we may make draws under the equity line, and can elect to
draw up to $250,000 per month so long as our stock price exceeds $0.25 (below which we may not make draws). However, we have not yet filed the registration statement, which the Purchase Agreement
required to be filed by March 31, 2002. We have kept Fusion Capital informed of our plans to file the registration statement as soon as practical. We continue to seek additional sources of
financing such as new customer sales, asset sales, and additional equity financing. There can be no assurance that we will be successful in our efforts to generate sufficient cash flow to continue
operations in the near term.

Disclosure about Contractual Obligations and Commercial Commitments

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

|                                   |  | As of December 31, 2001
|---------------------------------- |  | -----------------------
|
|Notes Payable                      |  | $                      
|Capital Lease Obligations          |  |                        
|Real Estate Operating Leases       |  |                        
|Other Long Term Obligations        |  |                        
|                                   |  |                        
|Total Contractual Cash Obligations |  | $                      
|                                   |  |                        



The
real estate operating leases above include $5.4 million of restructured real estate lease obligations that have not been reduced by $5.0 million of sublease income due
from sublease tenants. In the Consolidated Balance Sheet at December 31, 2001, these obligations are included in accrued liabilities, net of the related sublease income. See Note 7 of
Notes to Consolidated Financial Statements for more information.

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



During
the year ended December 31, 2000, we obtained stand-by letters of credit from our primary lender as security for our Chicago, Illinois and San Francisco,
California office leases in the amount of $3.5 million. We maintain $3.5 million of restricted cash that collateralizes these letters of credit. These letters of credit will terminate on
June 30, 2008. During 1999, we obtained stand-by letters of credit of $165,000, which will terminate by December 31, 2003. These letters of credit have not been drawn upon at
December 31, 2001.

48

---



As
of December 31, 2001, we have two remaining guaranteed fixed-price contracts. We have received cash payments from these contracts totaling $13.7 million through
December 31, 2001, that are subject to potential refund under the related guarantees. See "Revenue Recognition" above for more information.

Recent Accounting Pronouncements

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

In
June 2001, the FASB issued SFAS No. 143Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. We are required to adopt the provisions of SFAS No. 143 on January 1, 2003.

In
August 2001, the FASB issued SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. We are required to adopt
the provisions of SFAS No. 144 on January 1, 2002.

We
are currently evaluating these statements but do not expect that they will have a material effect on our business, results of operations, financial position, or liquidity.

Factors that May Affect Future Results and Market Price of Stock

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



While
our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors' report on our December 31, 2001
financial statements, prepared by KPMG LLP, included an explanatory paragraph relating to their substantial doubt as to our ability to continue as a going concern, based upon our historical operating
performance, our financial position at December 31, 2001, our historical sales results, and our involvement in significant legal proceedings. Our business model relies upon generating new sales
to existing and new customers and receiving payments from existing customers. If we do not generate sufficient new sales and receive payments from existing customers, we will be required to pursue one
or a

49

---

combination of the following remedies: seek additional sources of financing, further reduce operating expenses, sell part or all of our assets, or terminate operations. We were unable to raise
additional capital during the year ended December 31, 2001. We will continue to seek additional capital to finance our operations through 2002. However, there can be no assurance that these
efforts will prove successful.



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



We
believe that if we fail to complete our delivery commitments on our existing contracts, our customers may withhold their final payments. In most cases, the amounts associated with
final delivery are significant. If we do not receive payments on existing contracts, our operations, financial condition, liquidity, and prospects could 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.



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



While
we maintain errors and omissions insurance coverage to cover claims related to customer disputes that arise directly from our customer contracts and fall within the coverage scope
and term, given the nature and complexity of the factors affecting the estimated liabilities, the actual

50

---

liabilities may exceed or be outside the scope of our current errors and omissions coverage. We can give no assurance that our insurance carrier will extend coverage to any of the current claims. In
addition, no assurance can be given that we will not be subject to material additional liabilities and significant additional litigation relating to errors and omissions for existing claims and future
claims. In the event that liabilities from such claims exceed our errors and omissions coverage, our business, results of operations, financial position, or liquidity could be materially and adversely
affected.



The
errors and omissions insurance policy that we secured on March 1, 2001, and renewed on March 1, 2002, is in the form of an industry standard software errors and
omissions policy. As such, the policy excludes contractual related disputes such as cost and time related guarantees, and only covers software errors and omissions that occur after the delivery of
software. We have previously had these types of contractual disputes related to our guarantees. No assurance can be given that we will not be subject to these types of claims in the future, which
would not be covered by our current errors and omissions insurance policy, and could therefore have a material effect on our business, results of operations, financial position, or liquidity.



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

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



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

51

---



Perot
Systems claims that we owe it payments that have not been made. We continue to be in active discussions with Perot Systems to consider the scope of our future relationship.
Therefore, we have not yet made these payments. On November 19, 2001, we received a demand for arbitration from Perot Systems demanding payment under these documents. Our failure to make these
payments in a timely manner to Perot Systems and our dispute over the validity of these documents has potentially made effective a provision in the original strategic alliance agreement which
prohibits us from licensing our technology or selling an equity interest in TenFold or any of our affiliates to certain Perot Systems competitors. Our inability to license our technology or sell an
equity interest in TenFold or any of our affiliates to certain potential customers or investors due to this provision may inhibit our ability to generate or raise capital necessary to continue
operations. An unfavorable outcome in the arbitration may have a material adverse impact on our results of operations, financial position or liquidity. See "Legal Proceedings" for more information.



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



Recently
and in the past, the software industry has experienced significant downturns. This occurs particularly when general economic conditions decline and spending on management
information systems decreases. Our business, financial condition, and operating results may continue to fluctuate substantially as a consequence of general economic conditions in the software
industry. In addition, our revenues and operating results may continue to vary significantly from quarter-to-quarter due to a number of factors that affect our business and the
software industry, including:



52

---



Due
to these factors, some of which are discussed in more detail elsewhere in this section, we believe that quarter-to-quarter comparisons of our operating
results may not be a good indication of our future performance. In the future, our operating results may continue to be below the expectations of securities market analysts and investors. In this
event, the price of our common stock will likely fall.



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



We
have experienced delays on some of our fixed-price customer projects. In an effort to complete these projects, we have added additional employee and consulting personnel to the
projects. Each of these resources creates an increased cost on the project. To the extent that the cost of such
additions in personnel is not contemplated in the contract price, the profit, if any, for the projects would be adversely affected. There is no assurance that we will complete these fixed-price
customer contracts or that the projects will not require additional personnel. If we cannot complete these customer projects or if these customer projects continue to require additional personnel, our
business, results of operations, financial condition and liquidity would be materially affected.



As
of December 31, 2001, we have two remaining guaranteed fixed-price contracts. Our failure to accurately estimate the resources required for a fixed-price project or our failure
to complete our contractual fixed-price obligations in a manner consistent with the project plan would likely cause us to have lower margins or to suffer a loss on the project, which would negatively
impact our operating results. Our revenue recognition policy requires us to make periodic adjustments to our project estimates used in the percentage-of-completion method of
accounting (which includes the "zero profit" methodology) as work progresses under the contract and as we gain experience. Although we believe that we made all appropriate adjustments to properly
reflect the completion percentage and status of contracts in process, we cannot be certain that future adjustments will not be required. See "Legal Proceedings" for information about litigation and
disputes related to some of our projects.



Our
operating expenses are largely based on anticipated revenue trends and a high percentage of our operating expenses, particularly personnel and rent, are relatively fixed in advance
of any particular quarter. As a result, unanticipated variations in the number, or progress toward completion, of our projects or in employee utilization rates did and may continue to cause
significant variations in operating results in any particular quarter and could result in quarterly losses. An unanticipated termination of a major project, the delay of a project, or the completion
during a quarter of several major projects has in the past and may continue to result in under-

53

---

utilized employees and could, therefore, cause us to suffer quarterly losses or adverse results of operations.



Prior
to 2001, an important element of our strategy was to enter into fixed-price, fixed-time contracts, rather than time-and-materials contracts.
These contracts involved risk because in certain instances they required us to absorb possible cost overruns and, if we failed to meet our performance obligations, may have required us to satisfy our
performance guarantee. Historically, we offered the "TenFold Guarantee" by which we guaranteed that we would complete our projects within a fixed time or the customer had the option to return the
software and receive a refund of any fees paid under the contract. For fixed-price contracts, we recognized license fees related to the application and the application development service fees over
time as we performed the services, using the percentage-of-completion method of accounting. Our failure to accurately estimate the resources required for a project or our
failure to complete our contractual obligations in a manner consistent with the project plan has caused us to have lower margins or to suffer a loss on some projects, which has negatively impacted our
operating results. In specific circumstances, we were required to commit unanticipated additional resources to complete projects. We will likely experience similar situations in the future. Beginning
in the fourth quarter of 2000, we no longer offer the TenFold Guarantee as a standard part of our contracts. As of December 31, 2001, we have two remaining guaranteed fixed-price contracts. We
have received cash payments from these contracts totaling $13.7 million through December 31, 2001, that are subject to potential refund under the related guarantees.



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



As
a result of our limited operating history, we have derived, and over the near term we expect to continue to derive, a significant portion of our revenues from a limited number of
large customers. The loss of any of these large customers, without their replacement by new large

54

---

customers, has had and may continue to have an adverse effect on our revenues. We lost several customers during the years ended December 31, 2001 and 2000. As noted under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and "Business," we have lost customers recently. In the future, revenues from a single customer or a few large customers may
constitute a significant portion of our total revenues and cash inflows in a particular quarter. The volume of work performed for specific customers is likely to vary from year to year, and a major
customer in one year may not purchase licenses or services from us in a subsequent year. In addition, if a customer is involved in a corporate reorganization or business combination, that fact may
delay a decision to hire us or cause the customer to choose not to purchase licenses or services in a given year. Replacing the loss of a large customer is unpredictable, as we have not signed a
significant contract with a new customer in over a year. Fifty-six percent of our 2001 revenues were derived from three customers; the largest of the three customers in 2001 is not
expected to produce significant revenue or cash flow during 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" generally for more information concerning
our customers and revenues.



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



An
element of our prior strategy was to enter into fixed-price, fixed-time contracts, and to provide the TenFold Guarantee as a standard part of our contracts. Beginning in
the fourth quarter of 2000, we no longer offer fixed-price, fixed-time contracts or the TenFold Guarantee. We now offer our services on a time-and-materials basis.
Although we believe that our prior guaranteed fixed-price offering was only one element of what motivated customers to work with us, we do not yet have much experience marketing our services on a
time-and-materials basis. If we are unsuccessful marketing our services on a time-and-materials basis, or are forced to reduce our rates for such
services, or are required to provide significant concessions to convert existing fixed-price projects to time-and-materials based projects, it may have a material adverse
impact on our business, results of operations, financial position, or liquidity.



An
element of our business strategy includes divesting vertical applications lines of business. Our ability to divest such assets in accordance with management's plans is critical to
providing us with additional liquidity as we complete our restructuring to a Universal Application technology led enterprise. If we are unable to successfully implement this strategy or within the
time frames anticipated, our revenues, growth, and operating results will suffer. Unfortunately, the events of

55

---

September 11, 2001 directly impacted companies in the securities and insurance industries, which are the most likely to have an interest in acquiring rights to our vertical applications. If
companies in
these industries continue to preserve cash and slow their business expansion plans, our divestiture strategy could be adversely affected.



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



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



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

56

---





While
it is no longer our primary business strategy, the success of our business is dependent, in part, upon our ability to develop software applications for customers that we can resell
to other customers or resellers in the same industry without significant modification. If we are unable to develop and license these applications successfully or within the time frames anticipated,
our revenues, growth, and operating results will suffer. Some customers have prohibited us from marketing the applications developed for them generally or for specified periods of time or to specified
third parties, or have required that we pay them a royalty on licenses of the application to third parties. Customers may continue to make similar demands in the future. Furthermore, there can be no
assurance that we will be able to develop software applications that can be marketed generally within a particular industry without the need for significant modification.



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

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

57

---



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.

We
believe that our ability to compete also depends in part on a number of competitive factors outside our control, including the ability of our competitors to hire, retain, and motivate
project managers and other senior technical staff, the development by others of software and services that are competitive with our products and services, and the extent of our responsiveness to
customer needs. There can be no assurance that we will be able to compete successfully with our competitors.



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

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



The
executive officers, directors, and entities affiliated with them, in the aggregate, beneficially own approximately 62 percent of our outstanding common stock. Jeffrey L.
Walker, Chairman, Executive Vice President and Chief Technology Officer, and the Walker Children's Trust, in the aggregate, currently beneficially own approximately 48 percent of our
outstanding common stock. Mr. Walker, acting with others, would be able to decide or significantly influence all matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination transactions. This concentration of ownership may have the effect of delaying or preventing a merger or other business combination
transaction, even if the transaction would be beneficial to our other stockholders.



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

58

---

Item 7A. Quantitative and Qualitative Disclosures about Market Risk



As
of December 31, 2001, we had cash and cash equivalents of approximately $11.0 million. 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, 2001 rates would cause the fair value of these cash investments to change by an
insignificant amount. Risk is mitigated through limits regarding investment concentration in particular securities and institutions, and investments in varying maturities. We do not invest in any
financial derivatives or any other complex financial instruments. TenFold does not own any equity investments. Therefore, we do not currently have any direct equity price risk.



A
portion of our operations consists of applications development and sales activities in the United Kingdom. These transactions are primarily denominated in British pounds. As a result,
our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and the British pound, or by weak economic conditions in the United
Kingdom. When the U.S. dollar strengthens against the British pound, the value of revenues in the United
Kingdom decreases. When the U.S. dollar weakens against the British pound, the value of revenues in the United Kingdom increases. The monetary assets and liabilities in our foreign subsidiary which
are impacted by foreign currency fluctuations are cash, accounts receivable, accounts payable, and certain accrued liabilities. A hypothetical 10 percent increase or decrease in the exchange
rate between the U.S. dollar and the British pound from the December 31, 2001 rate would cause the fair value of such monetary assets and liabilities in the United Kingdom to change by
approximately $39,000. We are not currently engaged in any foreign currency hedging activities.

59

---

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. See Item 14.

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

None

60

---

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



The
information required by this Item is incorporated by reference to the section entitled "Executive Officers" in Part I of this Form 10-K.



The
information required by this Item is incorporated by reference to the section entitled "Election of Directors" in the Proxy Statement.

Disclosure
of Delinquent Filers Pursuant to Item 405 of Regulation S-K



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 "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.

61

---



Part IV

Item 14. 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



Report of Independent AuditorsConsolidated Balance Sheets as of December 31, 2001 and 2000Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2001Consolidated Statements of Changes in Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for each of the years in the three year period ended December 31,
2001Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2001Notes to Consolidated Financial Statements


|(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, 2001, 2000, and 1999                                           
|    |  | All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
|(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

Description3.2**

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)


62

---

10.1**

Office Lease at 180 W. Election Road, Draper, Utah dated November 12, 1996 between TenFold and Draper Park North. (2)10.5**

Form of Indemnification Agreement between TenFold and an executive officer and its directors. (1)10.6**#

1993 Flexible Stock Incentive Plan, as amended. (2)10.7#

1999 Stock Plan, as amended.10.8#

1999 Employee Stock Purchase Plan, as amended.10.9**#

2000 Employee Stock Option Plan. (7)10.10**

Restructuring Agreement effective December 8, 2000 between Perot Systems Corporation and TenFold. (7)10.12**

Lease Agreement effective April 28, 2000 between Boyer Jordan Valley 1, L.C. and TenFold. (4)10.13**

Office Lease at 200 South Wacker Drive Chicago, Illinois effective June 6, 2000 between 200 South Wacker Drive, L.L.C. and TenFold. (5)10.14**

First Amendment to Lease Agreement effective November 30, 2000 between Boyer Jordan Valley 1, L.C. and TenFold. (7)10.15**

Office Lease at 150 California Street in San Francisco, California between EOP-150 California Street, L.L.C. and TenFold Corporation. (4)10.16**

LongView Purchase Agreement. (6)10.17**

Exhibit D to LongView Purchase Agreement  Deposit Account, Escrow and Control Agreement. (6)10.18**

Exhibit E to LongView Purchase Agreement  Pledge and Assignment Agreement. (6)10.19**#

Employment Agreement between TenFold Corporation and Nancy M. Harvey. (8)10.20#

Amendment to Employment Agreement between TenFold Corporation and Nancy M. Harvey.10.21**#

Restricted Stock Bonus Agreement Between TenFold Corporation and Nancy M. Harvey. (9)10.22**#

Resignation Agreement between TenFold Corporation and Gary D. Kennedy. (10)10.23**#

Resignation Agreement between TenFold Corporation and Donald R. Jefferis. (10)10.24**#

Employment Agreement between TenFold Corporation and Michelle Moratti. (10)10.25#

Amendment to Employment Agreement between TenFold Corporation and Michelle Moratti.10.26#

Retention Bonus Letter Agreement between TenFold Corporation and Wynn Clayton.10.27#

Employment Agreement between TenFold Corporation and Jonathan E. Johnson III.10.28#

Separation Agreement between TenFold Corporation and Sameer Shalaby.10.29**

First Amendment dated June 15, 2001 between EOP-150 California Street, L.L.C. and TenFold Corporation. (10)10.30**

First Lease Amendment dated June 27, 2001 between 200 South Wacker Drive, L.L.C. and TenFold Corporation. (10)10.31

Termination and Settlement Agreement, dated October 18, 2001, among TenFold Corporation, Argenesis Corporation, and Linedata Services.


63

---

10.32

First Amendment to Commercial Lease at 180 West Election Road, Draper, UT 84020, dated December 12, 2001, between TenFold Corporation and CarrAmerica Realty, L.P.10.33

Purchase Agreement for property located at 171 and 181 San Carlos Drive, San Rafael County, CA, between TenFold Corporation and San Francisco Development.10.34

Restructuring Agreement and Amended and Restated Master Lease Agreement, effective January 1, 2002, among TenFold Corporation, Bank One, NA, and Banc One Leasing Corporation.11*

Computation of Shares used in Computing Basic and Diluted Net Income (Loss) Per Share.21

List of subsidiaries.23.1

Consent of KPMG LLP.




None.

64

---

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
        TenFold Corporation:

We
have audited the consolidated financial statements of TenFold Corporation and subsidiaries as listed in Item 14a of the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14a 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period 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, 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.

KPMG
LLP

Salt
Lake City, Utah
        April 4, 2002

65

---



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

|                                     |                                                                                                           | December 31,                                                                                                     |                                            
|------------------------------------ | --------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | -------------------------------------------
|
|Assets                               |                                                                                                           |                                                                                                                  |                                            
|Current assets:                      |                                                                                                           |                                                                                                                  |                                            
|                                     | Cash and cash equivalents                                                                                 |                                                                                                                  | $                                          
|                                     | Accounts receivable, (net of allowances for doubtful accounts of $955 and $7,338 respectively)            |                                                                                                                  |                                            
|                                     | Unbilled accounts receivable, (net of allowances for doubtful accounts of $1,320 and $2,949 respectively) |                                                                                                                  |                                            
|                                     | Prepaid expenses and other assets                                                                         |                                                                                                                  |                                            
|                                     | Deferred income taxes                                                                                     |                                                                                                                  |                                            
|                                     | Income taxes receivable                                                                                   |                                                                                                                  |                                            
|                                     | Assets held for sale                                                                                      |                                                                                                                  |                                            
|                                     | Other assets, (net of allowances of $182, and $236 respectively)                                          |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total current assets                       
|                                     | Restricted cash                                                                                           |                                                                                                                  |                                            
|                                     | Property and equipment, net                                                                               |                                                                                                                  |                                            
|                                     | Assets held for sale                                                                                      |                                                                                                                  |                                            
|                                     | Due from stockholders, (net of allowances of $800, and $860 respectively)                                 |                                                                                                                  |                                            
|                                     | Other assets                                                                                              |                                                                                                                  |                                            
|                                     | Goodwill and other intangibles, net                                                                       |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total assets                               
|                                     |                                                                                                           |                                                                                                                  |                                            
|Liabilities and Stockholders' Equity |                                                                                                           |                                                                                                                  |                                            
|Current liabilities:                 |                                                                                                           |                                                                                                                  |                                            
|                                     | Accounts payable                                                                                          |                                                                                                                  | $                                          
|                                     | Income taxes payable                                                                                      |                                                                                                                  |                                            
|                                     | Accrued liabilities                                                                                       |                                                                                                                  |                                            
|                                     | Deferred revenue                                                                                          |                                                                                                                  |                                            
|                                     | Current installments of obligations under capital leases                                                  |                                                                                                                  |                                            
|                                     | Current installments of notes payable                                                                     |                                                                                                                  |                                            
|                                     | Other current liabilities                                                                                 |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total current liabilities                  
|                                     |                                                                                                           |                                                                                                                  |                                            
|Long-term liabilities:               |                                                                                                           |                                                                                                                  |                                            
|                                     | Deferred income taxes                                                                                     |                                                                                                                  |                                            
|                                     | Obligations under capital leases, excluding current installments                                          |                                                                                                                  |                                            
|                                     | Notes payable, excluding current installments                                                             |                                                                                                                  |                                            
|                                     | Other long-term liabilities                                                                               |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total long-term liabilities                
|                                     |                                                                                                           |                                                                                                                  |                                            
|Contingencies (Note 10)              |                                                                                                           |                                                                                                                  |                                            
|Stockholders' deficit:               |                                                                                                           |                                                                                                                  |                                            
|                                     | Common stock, $0.001 par value:                                                                           |                                                                                                                  |                                            
|                                     | Authorized: 120,000,000 shares                                                                            |                                                                                                                  |                                            
|                                     |                                                                                                           | Issued and outstanding shares: 36,812,462 shares at December 31, 2001 and 35,735,858 shares at December 31, 2000 |                                            
|                                     | Additional paid-in capital                                                                                |                                                                                                                  |                                            
|                                     | Notes receivable from stockholders, (net of allowances of $786, and $1,686 respectively)                  |                                                                                                                  |                                            
|                                     | Deferred compensation                                                                                     |                                                                                                                  |                                            
|                                     | Accumulated deficit                                                                                       |                                                                                                                  |                                            
|                                     | Accumulated other comprehensive income (loss)                                                             |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total stockholders' deficit                
|                                     |                                                                                                           |                                                                                                                  |                                            
|                                     |                                                                                                           |                                                                                                                  | Total liabilities and stockholders' deficit
|                                     |                                                                                                           |                                                                                                                  |                                            

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

66

---

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

|                                                                                                  |                                                                                                      | Year Ended December 31,  |        
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------ | -------
|
|Revenues:                                                                                         |                                                                                                      |                          |        
|                                                                                                  | License                                                                                              |                          | $      
|                                                                                                  | Subscription                                                                                         |                          |        
|                                                                                                  | Services                                                                                             |                          |        
|                                                                                                  |                                                                                                      |                          |        
|                                                                                                  |                                                                                                      | Total revenues           |        
|                                                                                                  |                                                                                                      |                          |        
|Operating expenses:                                                                               |                                                                                                      |                          |        
|                                                                                                  | Cost of revenues (exclusive of non-cash compensation of $254, $430, and $584 respectively)           |                          |        
|                                                                                                  | Sales and marketing (exclusive of non-cash compensation of $66, $279, and $382 respectively)         |                          |        
|                                                                                                  | Research and development (exclusive of non-cash compensation of $216, $363, and $351 respectively)   |                          |        
|                                                                                                  | General and administrative (exclusive of non-cash compensation of $321, $116, and $110 respectively) |                          |        
|                                                                                                  | Amortization of goodwill and acquired intangibles                                                    |                          |        
|                                                                                                  | Amortization of deferred compensation                                                                |                          |        
|                                                                                                  | In process research and development                                                                  |                          |        
|                                                                                                  | Special charges                                                                                      |                          |        
|                                                                                                  |                                                                                                      |                          |        
|                                                                                                  |                                                                                                      | Total operating expenses |        
|                                                                                                  |                                                                                                      |                          |        
|Income (loss) from operations                                                                     |                                                                                                      |                          | (25,256
|                                                                                                  |                                                                                                      |                          |        
|Other income (expense):                                                                           |                                                                                                      |                          |        
|                                                                                                  | Interest income                                                                                      |                          |        
|                                                                                                  | Interest expense                                                                                     |                          |        
|                                                                                                  | Other income (expense)                                                                               |                          |        
|                                                                                                  | Gain on sale of The LongView Group, Inc.                                                             |                          |        
|                                                                                                  |                                                                                                      |                          |        
|                                                                                                  |                                                                                                      | Total other income, net  |        
|                                                                                                  |                                                                                                      |                          |        
|Income (loss) before income taxes                                                                 |                                                                                                      |                          | (12,703
|Provision (benefit) for income taxes                                                              |                                                                                                      |                          | 2,965  
|                                                                                                  |                                                                                                      |                          |        
|Net income (loss)                                                                                 |                                                                                                      | $                        | (15,668
|                                                                                                  |                                                                                                      |                          |        
|Accretion of Series A and B redeemable preferred stock                                            |                                                                                                      |                          |       
|                                                                                                  |                                                                                                      |                          |        
|Net income (loss) applicable to common stockholders                                               |                                                                                                      | $                        | (15,668
|                                                                                                  |                                                                                                      |                          |        
|Basic earnings (loss) per common share                                                            |                                                                                                      | $                        | (0.44  
|                                                                                                  |                                                                                                      |                          |        
|Diluted earnings (loss) per common share                                                          |                                                                                                      | $                        | (0.44  
|                                                                                                  |                                                                                                      |                          |        
|Weighted average common and common equivalent shares used to calculate earnings (loss) per share: |                                                                                                      |                          |        
|                                                                                                  | Basic                                                                                                |                          |        
|                                                                                                  |                                                                                                      |                          |        
|                                                                                                  | Diluted                                                                                              |                          |        
|                                                                                                  |                                                                                                      |                          |        

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

67

---



TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data)

|                                                                                |  | Common Stock |   |   |    | Notes
Receivable
From
Stockholders |   |        |   | Retained
Earnings
(Accumulated
Deficit) |        |   |   | Accumulated
Other
Comprehensive
Income (Loss) |   |   |        
|------------------------------------------------------------------------------- |  | ------------ | - | - | -- | ---------------------------------- | - | ------ | - | --------------------------------------- | ------ | - | - | --------------------------------------------- | - | - | -------
|
|
|Balance at December 31, 1998                                                    |  | 25,074,404   |   | $ | 25 |                                    | $ | 5,906  |   | $                                       | (329   | ) | $ | (2,258                                        | ) | $ | 396    
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Common stock issued upon exercise of options                                    |  | 986,868      |   |   | 1  |                                    |   | 1,184  |   |                                         |       |   |   |                                              |   |   |       
|Common stock issued upon IPO, net of issuance costs of $4,668                   |  | 2,284,201    |   |   | 3  |                                    |   | 34,349 |   |                                         |       |   |   |                                              |   |   |       
|Conversion of preferred stock                                                   |  | 6,261,129    |   |   | 6  |                                    |   | 9,940  |   |                                         |       |   |   |                                              |   |   |       
|Conversion of redeemable common stock                                           |  | 200,000      |   |   |   |                                    |   | 1,976  |   |                                         |       |   |   |                                              |   |   |       
|Notes receivable from stockholders                                              |  |             |   |   |   |                                    |   |       |   |                                         | (826   | ) |   |                                              |   |   |       
|Deferred compensation related to grants of stock options                        |  |             |   |   |   |                                    |   | 5,915  |   |                                         |       |   |   | (5,915                                        | ) |   |       
|Amortization of deferred compensation                                           |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   | 1,427                                         |   |   |       
|Cancellation of stock options                                                   |  |             |   |   |   |                                    |   | (1,135 | ) |                                         |       |   |   | 1,135                                         |   |   |       
|Accretion of redeemable convertible preferred stock                             |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   | (391   
|Tax benefit from exercise of stock options                                      |  |             |   |   |   |                                    |   | 4,537  |   |                                         |       |   |   |                                              |   |   |       
|Net income                                                                      |  |              |   |   |    |                                    |   |        |   |                                         |       |   |   |                                              |   |   | 5,867  
|Currency translation                                                            |  |             |   |   |    |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Comprehensive income                                                            |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Balance at December 31, 1999                                                    |  | 34,806,602   |   |   | 35 |                                    |   | 62,672 |   |                                         | (1,155 | ) |   | (5,611                                        | ) |   | 5,872  
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Common stock issued upon exercise of options                                    |  | 662,584      |   |   | 1  |                                    |   | 1,504  |   |                                         |       |   |   |                                              |   |   |       
|Common stock issued for ESPP                                                    |  | 266,672      |   |   |   |                                    |   | 3,287  |   |                                         |       |   |   |                                              |   |   |       
|Amortization of deferred compensation                                           |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   | 1,188                                         |   |   |       
|Cancellation of stock options                                                   |  |             |   |   |   |                                    |   | (2,291 | ) |                                         |       |   |   | 2,291                                         |   |   |       
|Allowance for notes receivable from stockholders                                |  |             |   |   |   |                                    |   |       |   |                                         | 1,686  |   |   |                                              |   |   |       
|Notes receivable from stockholder in subsidiary                                 |  |             |   |   |   |                                    |   |       |   |                                         | (960   | ) |   |                                              |   |   |       
|Exercise of stock option in a subsidiary                                        |  |             |   |   |   |                                    |   | 960    |   |                                         |       |   |   |                                              |   |   |       
|Compensation expense associated with extension of stock option exercise periods |  |             |   |   |   |                                    |   | 38     |   |                                         |       |   |   |                                              |   |   |       
|Net loss                                                                        |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   | (80,142
|Currency translation                                                            |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Comprehensive loss                                                              |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Balance at December 31, 2000                                                    |  | 35,735,858   |   |   | 36 |                                    |   | 66,170 |   |                                         | (429   | ) |   | (2,132                                        | ) |   | (74,270
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Common stock issued upon exercise of options                                    |  | 241,680      |   |   |   |                                    |   | 65     |   |                                         |       |   |   |                                              |   |   |       
|Common stock issued for ESPP                                                    |  | 261,429      |   |   |   |                                    |   | 533    |   |                                         |       |   |   |                                              |   |   |       
|Restricted stock grant                                                          |  | 800,000      |   |   | 1  |                                    |   | 279    |   |                                         |       |   |   | (280                                          | ) |   |       
|Restricted stock repurchase                                                     |  | (226,505     | ) |   |   |                                    |   | (2     | ) |                                         |       |   |   |                                              |   |   |       
|Amortization of deferred compensation                                           |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   | 857                                           |   |   |       
|Cancellation of stock options                                                   |  |             |   |   |   |                                    |   | (976   | ) |                                         |       |   |   | 976                                           |   |   |       
|Note receivable from stockholder                                                |  |             |   |   |   |                                    |   |       |   |                                         | (140   | ) |   |                                              |   |   |       
|Changes in and payments of notes receivable, net                                |  |             |   |   |   |                                    |   |       |   |                                         | 192    |   |   |                                              |   |   |       
|Compensation expense associated with extension of stock option exercise periods |  |             |   |   |   |                                    |   | 43     |   |                                         |       |   |   |                                              |   |   |       
|Net loss                                                                        |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   | (15,668
|Currency translation                                                            |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Comprehensive loss                                                              |  |             |   |   |   |                                    |   |       |   |                                         |       |   |   |                                              |   |   |       
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        
|Balance at December 31, 2001                                                    |  | 36,812,462   |   | $ | 37 |                                    | $ | 66,112 |   | $                                       | (377   | ) | $ | (579                                          | ) | $ | (89,938
|                                                                                |  |              |   |   |    |                                    |   |        |   |                                         |        |   |   |                                               |   |   |        

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

68

---

TENFOLD CORPORATION  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)

|                                                     |                                                                                                    | Year Ended December 31,                                   |                                                    
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                |                                                                                                    |                                                           |                                                    
|                                                     | Net income (loss)                                                                                  |                                                           | $                                                  
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                           |                                                    
|                                                     |                                                                                                    | Tax benefit from exercise of stock options                |                                                    
|                                                     |                                                                                                    | Deferred income tax benefit                               |                                                    
|                                                     |                                                                                                    | Amortization of goodwill and acquired intangibles         |                                                    
|                                                     |                                                                                                    | Depreciation and amortization                             |                                                    
|                                                     |                                                                                                    | Provision for bad debts                                   |                                                    
|                                                     |                                                                                                    | Amortization of deferred compensation                     |                                                    
|                                                     |                                                                                                    | Impaired assets charge                                    |                                                    
|                                                     |                                                                                                    | Provision for stockholder notes receivable                |                                                    
|                                                     |                                                                                                    | Compensation expense from stockholder notes receivable    |                                                    
|                                                     |                                                                                                    | Compensation expense related to stock options             |                                                    
|                                                     |                                                                                                    | Write-off of acquired in process research and development |                                                    
|                                                     |                                                                                                    | Gain on sale of The LongView Group, Inc.                  |                                                    
|                                                     | Changes in operating assets and liabilities:                                                       |                                                           |                                                    
|                                                     |                                                                                                    | Accounts receivable                                       |                                                    
|                                                     |                                                                                                    | Unbilled accounts receivable                              |                                                    
|                                                     |                                                                                                    | Prepaid expenses and other assets                         |                                                    
|                                                     |                                                                                                    | Accounts payable                                          |                                                    
|                                                     |                                                                                                    | Income taxes payable, net                                 |                                                    
|                                                     |                                                                                                    | Accrued liabilities                                       |                                                    
|                                                     |                                                                                                    | Deferred revenue                                          |                                                    
|                                                     |                                                                                                    | Other current and long-term liabilities                   |                                                    
|                                                     |                                                                                                    |                                                           |                                                    
|                                                     |                                                                                                    |                                                           | Net cash (used in) provided by operating activities
|                                                     |                                                                                                    |                                                           |                                                    
|Cash flows from investing activities:                |                                                                                                    |                                                           |                                                    
|                                                     | Additions to property and equipment and assets held for sale                                       |                                                           |                                                    
|                                                     | Restricted cash                                                                                    |                                                           |                                                    
|                                                     | Proceeds from sale of The LongView Group, Inc                                                      |                                                           |                                                    
|                                                     | Purchase of LongView (net of cash acquired)                                                        |                                                           |                                                    
|                                                     |                                                                                                    |                                                           |                                                    
|                                                     |                                                                                                    |                                                           | Net cash provided by (used in) investing activities
|                                                     |                                                                                                    |                                                           |                                                    
|Cash flows from financing activities:                |                                                                                                    |                                                           |                                                    
|                                                     | Proceeds from issuance of notes payable                                                            |                                                           |                                                    
|                                                     | Proceeds from employee stock purchase plan stock issuance                                          |                                                           |                                                    
|                                                     | Exercise of common stock options                                                                   |                                                           |                                                    
|                                                     | Principal payments on obligations under capital lease                                              |                                                           |                                                    
|                                                     | Principal payments on notes payable                                                                |                                                           |                                                    
|                                                     | Proceeds from issuance of common stock                                                             |                                                           |                                                    
|                                                     | Repurchase of restricted stock                                                                     |                                                           |                                                    
|                                                     | Receipt of amounts due from stockholders                                                           |                                                           |                                                    
|                                                     | Notes receivable from stockholders                                                                 |                                                           |                                                    
|                                                     | Due from stockholders                                                                              |                                                           |                                                    
|                                                     |                                                                                                    |                                                           |                                                    
|                                                     |                                                                                                    |                                                           | Net cash (used in) provided by financing activities
|                                                     |                                                                                                    |                                                           |                                                    
|Effect of exchange rate changes                      |                                                                                                    |                                                           | (599                                               
|                                                     |                                                                                                    |                                                           |                                                    
|Net increase (decrease) in cash and cash equivalents |                                                                                                    |                                                           | (2,885                                             
|Cash and cash equivalents at beginning of year       |                                                                                                    |                                                           | 13,854                                             
|                                                     |                                                                                                    |                                                           |                                                    
|Cash and cash equivalents at end of year             |                                                                                                    | $                                                         | 10,969                                             
|                                                     |                                                                                                    |                                                           |                                                    
|Supplemental disclosure of cash flow information:    |                                                                                                    |                                                           |                                                    
|                                                     | Cash paid for income taxes                                                                         |                                                           | $                                                  
|                                                     | Cash paid for interest                                                                             |                                                           | $                                                  
|Non cash investing and financing activities:         |                                                                                                    |                                                           |                                                    
|                                                     | Issuance of common stock in exchange for receivable due from stockholder                           |                                                           | $                                                  
|                                                     | Deferred compensation related to grants of stock or stock options                                  |                                                           |                                                    
|                                                     | Equipment purchased with capital lease                                                             |                                                           |                                                    

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

69

---



TENFOLD CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Nature of Operations

TenFold Corporation (the "Company") is the provider of the Universal Application, a software applications platform that accelerates development and
deployment and reduces costs of maintaining complex enterprise applications. The Universal Application automates the work that a programmer would otherwise do, and thereby enables small teams of
predominantly non-technical business users to design, build, test, deploy, and maintain complex, transaction-intensive applications, with limited demand on scarce IT resources. The Company
also offers services for implementing applications, training, and customer and technical support.

The
Company 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.

The
Company was incorporated in the state of Delaware in February 1993.

2.    Going Concern Consideration

The Company's financial statements have been prepared under the assumption that the Company will continue as a going concern. During 2001, the Company experienced
several challenging quarters as the Company continued its transition from a vertical applications business to an applications platform company, and as a result of the tragedy of September 11.
The events of September 11 caused a worldwide deterioration of demand for IT services and for application software across many industries. It is uncertain when market demand will fully recover.
Prior to 2001, delivery challenges prevented the Company from collecting payments on certain projects and led to several customer disputes. As the Company disclosed the customer disputes in its
quarterly filings, the sales environment became increasingly difficult. In order to improve cash flow, the Company has taken aggressive steps to restructure its operations through work force
reductions, terminating leases or subleasing facilities, restructuring lease obligations, renegotiating telecom
agreements and IT support contracts and other operational cost-saving measures. The Company has made significant progress reducing operating cash outflows during 2001. It reduced quarterly
operating cash outflows by over 50% from the first to fourth quarter of 2001. However, the Company has been operationally cash flow negative for the years ended December 31, 2001 and
2000. This ongoing negative cash flow has continued to place a burden on the Company to obtain cash infusions beyond those generated from normal operations. The Company continues to seek additional
sources of financing such as a new sales to existing and new customers, asset sales, or equity financing, to sustain its operations. There can be no assurance that the Company will be successful in
its efforts to generate sufficient cash flow to continue operations in the near term.

3.    Significant Accounting Policies



The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications
have been made in the prior years' consolidated financial statements and notes to consolidated financial statements to conform to the current year's presentation.

70

---



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

The
Company currently has two fixed-price applications development contracts. The Company accounts for these contracts under the percentage-of-completion
methodology. Changes in estimates to complete or in contract terms and conditions impact revenue recognition and the estimated profit or loss on these projects. To the extent the Company estimates
losses on contracts, the Company recognizes the loss in the period the loss is estimable. Actual results have, and future results could, differ significantly from estimates due to inherent risks in
developing and managing large fixed-price software development projects.

In
early July 2000, as a result of receiving customer correspondence that raised concerns about the status of a project, the Company initiated a supplemental review of its
significant projects in process to reassess the status of each project and to verify the related completion percentage. Upon completion of this review, the Company reduced revenues on certain projects
in process and increased the allowance for doubtful accounts related to unbilled accounts receivable. The Company continues to review significant projects each quarter to reassess the status of each
project and to verify the related completion percentage and project profit or loss projections. Although the Company believes that it made all appropriate adjustments to properly reflect the
completion percentage and status of contracts in process at December 31, 2001, it cannot be certain that future adjustments will not be required.

Estimates
for allowances for doubtful accounts receivable require management to make assumptions regarding the current status of each project based on all available information. Changes
to the status of a project, including disputes or litigation, have had, and may continue to have, a significant impact on the eventual collectibility of outstanding accounts receivable balances.

In
mid-1998, the Company began offering the TenFold Guarantee, a money-back guarantee for large-scale software applications. As a result, in some contracts, the
Company has guaranteed that it will complete certain projects within a fixed time period or it will refund the fees paid. This guarantee also requires the customer to fulfill various responsibilities
within a specified time period, including reviewing and approving requirements, providing timely feedback, and providing adequate staffing, or the guarantee is voided. Accordingly, the Company treats
this guarantee as a conditional guarantee. The Company recognizes revenue under contracts with performance guarantees using the percentage-of-completion method of accounting.
If necessary, it makes provisions for estimated refunds or losses on uncompleted contracts on a contract-by-contract basis and recognizes the refunds or losses in the period in
which the refunds or losses become probable and estimable. Beginning in the fourth quarter of 2000, the Company no longer offers a performance guarantee as a standard part of its contracts. At
December 31, 2001, two customers have guarantees in their fixed-price contracts.

71

---



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

The
Company follows the provisions of Statement of Position ("SOP") 97-2,Software Revenue Recognition, as modified by SOP
98-9,Modification of SOP 97-2 with Respect to Certain Transactions, in recognizing revenue.

The
Company generally enters into software arrangements that involve multiple elements, such as software products, enhancements, post-contract customer support ("PCS"),
installation and training. The Company allocates a portion of the arrangement fee to each undelivered element based on the relative fair values of the elements. The fair values of an element must be
based on vendor specific objective evidence ("VSOE"). The Company 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. The Company 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 the Company charges the customer in future periods. The fee allocated to the delivered software product is based upon the residual method.

For
time-and-material contracts, the Company 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.

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

For
certain contracts including a subscription to future software products when and if they become available, the Company recognizes the fees for the software products ratably over the
subscription term beginning with delivery of the first software product. For arrangements that include a service element for which sufficient VSOE does not exist to allocate revenue to the various
elements of the arrangement, and the arrangement includes a subscription to new product releases on a when and if available basis, the Company recognizes the entire contract fee ratably over the
subscription period as subscription revenue.

The
Company recognizes license revenues from vertical application product sales and Universal Application development licenses that do not include services or where the related services
are not

72

---

considered essential to the functionality of the software, when the following criteria are met: the Company has signed a noncancellable license agreement with nonrefundable fees; the Company 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
vertical application license or the Universal Application development licenses are sold separately or when a Universal Application development license is sold with an application development project.
Services relating to the Universal Application development licenses only include post contract customer support services. Services for vertical application product licenses do not add significant
functionality, features, or significantly alter the software. In addition, similar services are available from other vendors; there are no milestones or customer specific acceptance criteria which
affect the realizability of the software license fee; and the software license fee is non-cancelable and non-refundable.

For
software arrangements that include a service element that is considered essential to the functionality of the software, the Company recognizes license fees related to the
application, and the application development service fees, over time as the Company 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. The Company makes adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses
under the contract and as the Company gains experience. Fixed-price project revenues are split between license and service based upon the relative fair value of the components.

For
certain projects, the Company limits revenue recognition in the period to the amount of project costs incurred in the same period, and postpones recognition of profits until results
can be estimated more precisely. At December 31, 2000, the Company applied this "zero profit" methodology to all fixed-price projects except those relating to its Revenue Manager and LongView
applications. The Company has one fixed-time, fixed-price application development and implementation contracts remaining at December 31, 2001 that it accounts for using this "zero
profit" methodology.

In
December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101,Revenue
Recognition("SAB No. 101") to provide guidance on the recognition, presentation, and disclosure of revenue in financial statements. The Company adopted SAB
No. 101 during the fourth quarter of 2000. SAB No. 101 did not have a material effect on the Company's business, results of operations, financial position, or liquidity.

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

73

---



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, commercial paper, auction rate money market preferred stock investments, and taxable and non-taxable municipal
bonds and notes.



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. At December 31, 2001, the Company estimates that the carrying value of notes payable is approximately $293,000
higher than fair value due to increases in interest rates applicable to the Company since these notes were originally
signed. The Company used an interest rate of approximately 9% that was based upon recent similar transactions to determine the fair value of notes payable at December 31, 2001.



Restricted
cash relates to $3.6 million held in escrow as part of the collateral for the Company's notes payable and letter of credit obligations with its primarily lender;
$2.2 million held in escrow to secure a lease on office space in South Jordan, Utah; $165,000 held in the Company's cash accounts to secure letters of credit used to secure leases on office
space in Dallas, Texas; and $100,000 held in a deposit account related to an employment agreement.



Property
and equipment, including leasehold improvements, are stated at cost, as adjusted for impairment charges. See Note 20 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.



There
are amounts in other assets, due from stockholders, and notes receivable from stockholders in the consolidated balance sheets at December 31, 2001 and 2000 that represent
personal loans to certain current and prior members of management, secured by stock in the Company and generally the personal assets of these employees. During the three months ended
December 31, 2000, the Company established an allowance against these notes of $2.8 million, and recorded a corresponding charge of $2.8 million to general and administrative
expenses. During the

74

---

year ended December 31, 2001, the Company wrote-off notes receivable of $1.0 million against the allowance.



The
Company 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.



Goodwill
and other purchased intangibles represent the excess of the purchase price over the fair value of the assets acquired in connection with the acquisition of The LongView
Group, Inc. ("LongView") on October 7, 1999. Goodwill and other intangibles were amortized on a straight-line basis over lives ranging from five to seven years. As of
December 31, 2000, accumulated amortization of goodwill and other intangibles was $5.7 million. See Note 5 for information regarding the Company's sale of LongView on
March 15, 2001.



Cost
of revenues consists primarily of compensation and other related cost of services personnel. Costs of license revenues, including product packaging, documentation, and reproduction
have not been significant.



Advertising
costs are expensed as incurred. Advertising costs amounted to $0 in 2001, $1.1 million in 2000, and $864,000 in 1999.



Research
and development expenses consist primarily of costs for development and enhancement of the Universal Application, TenFold ComponentWare, and Universal Application Integrator. 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. The Company achieves technological feasibility through a working model. The Company has charged its software development
costs to research and development expense in the accompanying Consolidated Statements of Operations.

75

---





The
Company has entered into agreements with certain of its customers requiring the Company to make royalty payments ranging from 1.9 percent to 15 percent of specified
future revenues. These royalties will become payable by the Company if and when applications products developed for these customers are subsequently re-sold to other customers, generally
with the assistance of the original customer. The Company incurred royalty expense of $0, $206,000, and $13,000 during the years ended December 31, 2001, 2000, and 1999, respectively.



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



The
Company 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.



The
functional currency of the Company's foreign operations is the applicable local foreign currency. As such, the Company did not recognize any transaction gains or losses during the
year ended December 31, 2001. The translation of the functional currencies into U.S. dollars is 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 the Company's foreign operations are
included in accumulated other comprehensive income as a component of stockholders' equity.



The
Company 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. 25issued 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, the Company 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.

76

---



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

In
June 2001, the FASB issued SFAS No. 143Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. The Company is required to adopt the provisions of SFAS No. 143 on January 1, 2003.

In
August 2001, the FASB issued SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company is required to
adopt the provisions of SFAS No. 144 on January 1, 2002.

The
Company is currently evaluating these statements but does not expect that they will have a material effect on the Company's business, results of operations, financial position, or
liquidity.

77

---

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, |  
|--------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------- | -
|
|Numerator:                        |                                                                                                    |                         |  
|                                  | Net income (loss)                                                                                  |                         | $
|                                  | Accretion of Series A and B preferred stock                                                        |                         |  
|                                  |                                                                                                    |                         |  
|                                  | Numerator for basic earnings (loss) per share  net income (loss) available to common stockholders |                         | $
|                                  |                                                                                                    |                         |  
|                                  | Numerator for diluted earnings (loss) per share                                                    |                         | $
|                                  |                                                                                                    |                         |  
|Denominator:                      |                                                                                                    |                         |  
|                                  | Denominator for basic earnings (loss) per share  weighted-average shares                          |                         |  
|                                  |                                                                                                    |                         |  
|                                  | Employee stock options                                                                             |                         |  
|                                  |                                                                                                    |                         |  
|                                  | Denominator for diluted earnings (loss) per share                                                  |                         |  
|                                  |                                                                                                    |                         |  
|Earnings (loss) per common share: |                                                                                                    |                         |  
|                                  | Basic earnings (loss) per common share                                                             |                         | $
|                                  |                                                                                                    |                         |  
|                                  | Diluted earnings (loss) per common share                                                           |                         | $
|                                  |                                                                                                    |                         |  

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
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, 2001, because to do so would have been
anti-dilutive for the period.

Employee
stock options of 19,812,706 outstanding at December 31, 2000, that have a weighted average exercise price of $10.29 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, 2000 because to do so would have been
anti-dilutive for the period. Warrants to purchase 1,181,600 shares of common stock in a wholly owned subsidiary outstanding at December 31, 2000, that could potentially dilute
basic earnings per share were not included in the computation of diluted earnings per share for the year ended December 31, 2000, because to do so would have been anti-dilutive.

The
computation of diluted earnings per common share for the year ended December 31, 1999, excludes the assumed conversion of 6,261,000 shares of Series A and B convertible
preferred stock prior to its conversion to common stock on May 21, 1999, because the impact of the conversion, including the assumed elimination of the accretion on such preferred stock, would
be anti-dilutive. Warrants to purchase 1,181,600 shares of common stock in a wholly owned subsidiary outstanding

78

---

at December 31, 1999, that could potentially dilute basic earnings per share were not included in the computation of diluted earnings per share for the year ended December 31, 1999,
because to do so would have been anti-dilutive.

5.    Acquisition and Disposition

On September 30, 1999, the Company entered into a Stock Purchase Agreement with Barclays California Corporation ("BarCal") whereby the Company 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, the
Company sold LongView for $29.0 million to Linedata Services. Accordingly, the operations of LongView have been included in the accompanying consolidated statements of operations for the
Company from the acquisition through March 15, 2001. The acquisition was accounted for using the purchase method of accounting.

In
connection with the sale of LongView, the Company 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, the Company 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 the Company
$1.8 million of the previously escrowed funds, with Linedata retaining the balance of approximately $1.2 million. As a result, the Company reduced its gain on sale of LongView by
$1.2 million during the quarter ended
September 30, 2001. During October 2001, the Company received the $1.8 million released from the escrow account and Linedata received $1.2 million, as contemplated in the
related agreement.

During
the quarter ended September 30, 2001 the Company received an additional $177,000 from collection of accounts receivable, less additional closing costs.

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

AmountTotal purchase price




$
29,000Less costs associated with sale





(885
)Net proceeds from sale





28,115Net book value of subsidiaryCurrent assets

$
(1,455
)Long-term assets


(19,042
)Current liabilities


5,745Long-term liabilities


(14,752
)Initial gain on sale




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





177Agreement to release escrowed funds to Linedata





(1,179
)Cumulative gain on sale




$
12,361


79

---

On
September 30, 1999, the Company entered into the Agreement with BarCal to purchase LongView. On October 7, 1999, the acquisition was closed. Pursuant to the Agreement,
the Company acquired from BarCal all of the issued and outstanding capital stock of LongView for $22.0 million, comprised of $10.0 million in cash and a $12.0 million note from
the Company to BarCal. The
promissory note was due and payable in installments of $3.0 million on April 15, 2000 and $9.0 million on July 15, 2000 and bore interest at 6.5 percent. Both
installment payments were made in accordance with the Agreement. As of December 31, 2000, no additional amounts remained outstanding.

A
total purchase price and final allocation among the tangible and intangible assets and liabilities acquired (including acquired in process technology) is summarized as follows (in
thousands):

Cash consideration

$
22,000Acquisition costs


416Total purchase price

$
22,416


The
allocation of the purchase price was as follows (in thousands):

Amount

Amortization
PeriodNet liabilities assumed

$
(4,187
)Intangible assets:Goodwill


16,303

5 yearsExisting technology


2,000

5 yearsAssembled workforce


700

5 yearsCustomer list


5,600

7 yearsIn process research and development


2,000

Expensed in 1999Total

$
22,416


BarCal
has been a customer of LongView since 1998. BarCal has been a customer of the Company since 1997 and, as such, has various software license and service agreements with the
Company. BarCal signed, on September 30, 1999, an additional Master Software License and Services Agreement, purchasing from the Company a multi-project license to the Universal Application and
TenFold ComponentWare products and related technical support services for $4.0 million. The Company recorded approximately $3.7 million of license revenue in the three months
ended December 31, 1999 and recorded the remaining $330,000 as support revenue, ratably over the annual support period.

At
the acquisition date, LongView was in the process of conducting research and development on two products, 1) LongView 2000 and 2) TradeXpress. In connection with the
acquisition, the Company recorded a write-off of $2.0 million for acquired in process research and development related to these two products in the fourth quarter of 1999.

The
following unaudited pro forma financial information (in thousands, except per share amounts) presents the combined results of operations of the Company and LongView for 1999, as if

80

---

the acquisition had occurred at the beginning of 1999, after giving effect to certain adjustments, including, but not limited to, amortization of goodwill and other intangible assets, decreased
interest income, and entries to conform LongView to the Company's accounting policies. The $2.0 million write-off for acquired in process research and development has been excluded
from the pro forma results as it is a non-recurring charge.

1999Total revenues

$
95,905Net income


44Earnings per share:Basic

$
0.00Diluted

$
0.00


6.    Property Plant & Equipment

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

December 31,2001

2000Computer equipment under capital lease

$
9,016

$
9,521Computer equipment


7,126


9,134Leasehold improvements


6,450


6,616Furniture and fixtures


4,085


4,458Office equipment


2,367


2,369Software


1,778


1,749Total cost


30,822


33,847Less accumulated depreciation and amortization


(26,465
)

(13,613
)$
4,357

$
20,234


Accumulated
amortization under capital leases amounted to approximately $8.2 million, $3.8 million, and $883,000 at December 31, 2001, 2000, and 1999, respectively.

During
the year ended December 31, 2000, the Company acquired two office buildings totaling 14,000 square feet and adjoining property in San Rafael, California. The Company did
not occupy any of this space during the year ended December 31, 2001. The Company sold these buildings in January 2002 for an amount equal to their net book value after previously
recorded impairment adjustments, of approximately $2.0 million. These buildings and related land are classified as "Assets held for sale" in the Consolidated Balance Sheet at
December 31, 2001.

During
the year ended December 31, 2001, the Company recognized an impairment charge on its fixed assets. The accumulated depreciation and amortization in the table above has been
adjusted for the impairment charge. See Note 20 for more information.

81

---

7.    Accrued Liabilities

Accrued liabilities consists of the following (in thousands):

December 31,2001

2000Accrued restructuring costs

$
5,627

$
321Due to Perot Systems


2,000


2,000Litigation and project loss accruals


1,722


2,908Accrued vacation


830


1,286Accrued compensation


754


906Accrued medical insurance


498


1,187Other accrued expenses


1,641


3,435Total accrued liabilities

$
13,072

$
12,043


The
Company is currently in a loss position on one of its on-going fixed-price contracts. At December 31, 2001, the Company had accrued $1.7 million for
estimated losses expected to be incurred while completing the project.

8.    Notes Payable

The Company has 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. At December 31, 2001, these outstanding notes payable of $6.2 million had a weighted average interest rate of
9.0 percent. Interest expense on the notes was $685,000, $540,000, and $215,000 for the years ended December 31, 2001, 2000, and 1999, respectively. None of the interest was
capitalized.

In
May of 2000, the Company signed a $2.4 million note collateralized by real property in San Rafael, California. This is a five-year note with an interest rate
of 8.25%. The note requires monthly payments and has a balloon payment of $1.9 million due upon maturity in May of 2005. The note was collateralized by the property, and other security
interests. As of December 31, 2001, the balance on the note was $2.3 million (which is included in the $6.2 million notes payable total at December 31, 2001). In
January 2002, the Company sold the real property for an amount equal to the net book value after previously recorded impairment adjustments, and reduced the note payable balance to $70,000.

As
of December 31, 2001, the Company owed its primary lender $6.0 million (which is included in the $6.2 million note payable total at December 31, 2001)
under certain credit facilities and loan agreements (the "Loan Agreements") relating to equipment that the Company leased through this lender and relating to the Company's prior purchase of real
property in San Rafael, California. The Company's obligations under the Loan Agreements are secured by a blanket first priority security interest in its assets. As of December 31, 2001, the
Company was in default of the Loan Agreements for non-timely payment of principal and interest. Accordingly, these note payable have been classified as current liabilities in the
accompanying Consolidated Balance Sheet.

82

---

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

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

As
of December 31, 2001, the lender had issued two letters of credit totaling approximately $3.5 million to secure the Company's obligations under office leases in Chicago
and San Francisco. Pursuant to the Loan Agreements, the Company had provided the lender with $3.5 million in restricted cash as collateral for these letters of credit. In March 2002, a
new lender issued substitute letters of credit for the same amount and with the same expiration dates to replace the letters of credit issued by the prior lender. As a result, the Company transferred
the $3.5 million of restricted cash from the prior lender to this new lender to collateralize the substitute letters of credit.

9.    Lease Commitments

The Company leases office space and equipment under non-cancelable lease agreements, which expire at various dates through 2011. These leases
generally require the Company 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, 2001 are as follows (in thousands):

Total

Operating

Capital2002

$
5,849

$
2,943

$
2,9552003


4,774


2,966


1,8162004


3,029


3,029


2005


3,122


3,122


2006


3,170


3,170


Thereafter


14,459


14,459


Total minimum lease payments

$
34,403

$
29,689


4,771Less: Amount representing interest


(192
)Present value of net minimum capital lease payments


4,579Less: Current installments of obligations under capital leases


(2,770
)Obligations under capital leases, excluding current installments

$
1,809


Total
rental expense under operating leases, net of $513,000 sublease income in 2001, $1.0 million sublease income in 2000 and $0 sublease income in 1999, was approximately

83

---

$4.4 million, $6.2 million, and $3.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.

During
the years ended December 31, 2001 and 2000, the Company received prepayments on certain sublease agreements. The Company has recorded $1.3 million of these
prepayments as other current liabilities in the Consolidated Balance Sheet at December 31, 2001.

The
table above of future minimum lease payments has not been reduced by future minimum rentals due under subleases of $2.3 million in 2002, $1.3 million in 2003, $931,000
in 2004, $335,000 in 2005 and $137,000 for years thereafter. These future minimum rentals are offset against related lease obligations accrued as part of restructurings.

During
the year ended December 31, 2000, the Company issued stand-by letters of credit as security for the Company's Chicago, Illinois and San Francisco, California
office leases of $3.5 million. These letters of credit will terminate on June 30, 2008. Subsequent to December 31, 2001, the Company replaced these letters of credit with new
corresponding letters of credit for the same amount and expiration dates from a new lender. During 1999, the Company issued stand-by letters of credit of $359,000, which will terminate by
December 31, 2003. During the year ended December 31, 2001, the Company was released from its obligation under the Atlanta, Georgia lease and the stand-by letter of
credit were reduced by $175,000. These letters of credit have not been drawn upon at December 31, 2001, 2000 and 1999.

In
May 2000, the Company signed a 10-year lease for 168,000 square feet of office space in South Jordan, Utah. This lease is part of a development project. The lease,
without any modification to the development project, commences upon completion of construction and the Company's subsequent occupancy of the office space, which is estimated to occur in early 2002 to
approximately coincide with the expiration of the lease for the Company's current Salt Lake City headquarters. It is expected that this lease will be an operating lease. In November 2000, the
Company negotiated with the developer of the project to reduce its commitments under this lease obligation by 65,431 square feet. In April 2002, the Company negotiated with the developer to
extend the term of the lease to eleven years and to further reduce its monthly payment obligations. As of the date of this filing, the Company is pursuing options to reduce this commitment
further, including the possible sublease of a significant portion of this space.

During
the quarter ended September 30, 2001, the Company was temporarily in default on capital lease obligations to three lessors for late payment of lease payments. The Company
has negotiated restructured payment arrangements with these lessors and is no longer in default with these lessors. The payment restructuring reduced the Company's payment obligations by approximately
$497,000 during each of the fourth quarter of 2001 and first quarter of 2002. Beginning in April 2002, the Company is required to resume paying its pre-restructuring lease payment
amounts through September 30, 2002. After September 30, 2002, the Company is required to pay pre-restructuring lease payment amounts plus approximately one twelfth of the
deferred amount until paid in full. As of December 31, 2001, the Company had leases payable to these lessors totaling approximately $4.7 million.

Operating
lease obligations for properties that have been restructured are included in accrued liabilities in the Consolidated Balance Sheet at December 31, 2001. See
Note 7 for more information.

84

---

10.  Legal Proceedings and Contingencies

Resolved Customer Disputes

Since March 2001, the Company has settled eight customer disputes, six of which were filed against the Company before 2001. In none of these settlement
agreements did any party admit liability. The
Company's errors and omissions insurance carrier paid the entire amount of the compromised and confidential settlement sums above the self-insurance retention the Company paid to cover
legal defense costs. In one case, the customer paid the Company for services the Company had provided.



On
September 17, 1999, Ohio Farmers Insurance Company doing business as Westfield Companies ("Westfield"), filed a complaint in the United States District Court for the District
of Ohio. On November 4, 1999, the Company filed an Answer and Counterclaim. Effective April 26, 2001, the Company and Westfield entered a Settlement Agreement and Mutual Release that
settled and resolved all claims between the two companies.



On
June 14, 2000, Nielsen Media Research, Inc. ("Nielsen"), filed a complaint in the Circuit Court of Cook County, Illinois. On August 30, 2000, the Company filed an
Answer and Counterclaim. Effective May 30, 2001, the Company and Nielsen entered a Settlement Agreement and Mutual Release that settled and resolved all claims between the two companies.



On
August 18, 2000, Trumbull Services, L.L.C. ("Trumbull"), filed a demand for arbitration with the American Arbitration Association. On September 13, 2000, the Company
filed an Answer and Counterclaim. On May 10, 2001, the Company and Trumbull entered a Settlement Agreement and Mutual Release that settled and resolved all claims between the two companies.



On
October 4, 2000, Unitrin Services Company, Inc. ("Unitrin") sent the Company a notice of dispute letter requesting non-binding mediation. On March 8,
2001, the Company and Unitrin entered a Confidential Settlement Agreement and Release that settled and resolved all of Unitrin's claims.



On
November 22, 2000, Southern Company Energy Marketing L.P. ("SCEM") filed a demand for arbitration with the American Arbitration Association. The Company filed detailed
Counterclaims. On August 27, 2001, the Company and SCEM entered a Confidential Settlement Agreement and Release that settled and resolved all claims between the two companies.

85

---



On
January 3, 2001, Utica Mutual Insurance Company ("Utica") filed a complaint against the Company in the Federal District Court of Utah. On January 23, 2001, the Company
filed an Answer. On August 16, 2001, the Company and Utica entered a Confidential Settlement Agreement and Release that settled and resolved all claims asserted by Utica.



On
April 4, 2001, the Company received a letter from another customer alleging that the Company had materially breached the Company's contract with that customer. On May 2,
2001, the Company entered a Termination and Settlement Agreement with this customer under which the customer agreed to pay the Company a compromised and confidential settlement amount for services the
Company had provided to this customer.



On
December 14, 2000, Crawford & Company ("Crawford") sent a letter to the Company alleging breach under the terms of the Company's Master Software License and Services
Agreement with Crawford (the "Crawford Agreement"). On September 4, 2001, Crawford filed a demand for arbitration with the American Arbitration Association. On March 8, 2002, the Company
and Crawford entered a Confidential Settlement Agreement and Release that settled and resolved all claims between the two companies.

Unresolved Customer Disputes

The Company has two unresolved customer disputes and a dispute with Perot Systems.



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

86

---

revenue from the SkyTel Agreement and recognized $130,000 from SkyTel during the same period in 2000. During the twelve months ended December 31, 2001, the Company recognized revenues
of $263,000 from SkyTel as compared to $9.8 million in 2000.



On
November 14, 2001, the Company received a letter from a customer alleging that the Company has materially breached the Company's contract with that customer. The letter
requests that the Company engage in an executive dispute resolution procedure required by the contract. The Company does not believe that it has materially breached the contract, and the Company has
continued to perform under the contract. The Company is currently in discussions with the customer regarding the alleged breach and a mutually beneficial restructuring of the relationship. Should the
customer continue to assert that the Company has materially breached the contract, the Company will vigorously assert its rights under the contract and defend itself against any claims the customer
may assert. An unfavorable outcome of this matter may have a material adverse impact on the Company's business, results of operations, financial position, or liquidity.



On
November 19, 2001, the Company received a demand for arbitration from Perot Systems Corporation ("Perot") alleging that the Company has materially breached agreements with
Perot. The demand requests relief of $3.1 million. The Company is currently in discussions with Perot regarding the alleged breach and a mutually beneficial restructuring of the relationship.
If these discussions do not lead to a mutually agreeable settlement, the Company intends to vigorously assert its rights under the contract and defend itself against the claims Perot has asserted. An
unfavorable outcome of this matter may have a material adverse impact on the Company's business, results of operations, financial position, or liquidity. The Company has $2.0 million in accrued
liabilities and $673,000 in accounts payable in the Consolidated Balance Sheet at December 31, 2001, that the Company previously accrued related to the Company's agreements with Perot.

Summary and Insurance

As a result of the legal proceedings and contingencies noted above, the Company has provided an allowance for doubtful accounts of $818,000 related to billed
accounts receivable and $1.3 million related to unbilled accounts receivable at December 31, 2001.

The
Company maintained errors and omissions and umbrella liability insurance coverage to protect itself in the event of claims for damages related to the performance of computer-related
services or the failure to perform computer-related services that occurred after March 1, 1998, but prior to March 1, 2001. The Company does not believe that the dispute with SkyTel will
be covered by the Company's original errors and omissions and umbrella liability insurance coverage. However, the Company also maintains a $2 million supplemental extended reporting period
policy on one of the Company's prior errors and omissions liability policies. The Company believe that this supplementary extended reporting insurance policy may cover some of the types of alleged
damages (but not unpaid or unbilled accounts receivable) claimed in the SkyTel dispute noted above, to the extent that they occurred during the policy periods. The Company also believe that this
supplementary extended reporting insurance policy may cover the costs of legal defense of the

87

---

SkyTel dispute, subject to the policies' total limit, and any stated reservation of rights by the carrier regarding conditions or findings that might exclude coverage for a particular matter. The
Company does not believe that this insurance or any other insurance that the Company maintains will cover the disputes with the unnamed customer or Perot. The Company has reserved against certain of
the billed and unbilled accounts receivable related to these disputed amounts for which a loss is considered probable and estimable. An unfavorable outcome of any of these matters may have a material
adverse impact on the Company's business, results of operations, financial position, or liquidity.

On
November 18, 2000, the Company's excess errors and omissions policy expired. On March 1, 2001, the Company's primary errors and omissions policy expired. On
March 1, 2001, the Company secured a new, industry standard, errors and omissions policy that covers claims made after March 1,
2001. The Company renewed this policy on March 1, 2002. The Company's new policy excludes contractual related disputes such as cost and time guarantees, and only covers software errors or
omissions that occur after the delivery of software. The Company believe this policy provides adequate coverage for potential damages related to errors and omissions in the Company's delivered
software.

Stockholder Matters

On or after August 12, 2000, six complaints were filed in the United States District Court of Utah alleging that the Company and certain of the Company's
officers violated certain federal securities laws. All six complaints were virtually identical and allege that 1) the Company improperly recognized revenues on some of the Company's projects;
2) the Company failed to maintain sufficient accounting reserves to cover the risk of contract disputes or cancellations; 3) the Company issued falsely optimistic statements that did not
disclose these accounting issues; and 4) TenFold insiders sold stock in early calendar year 2000 while knowing about these issues.

On
October 30, 2000, the Company's motion to consolidate the six complaints into one class action complaint was granted. On March 7, 2001, the court appointed lead
plaintiffs and lead class counsel. On May 1, 2001, the plaintiffs filed an amended consolidated complaint. The Company filed a motion to dismiss the amended complaint on June 19, 2001.
On March 19, 2002, the court granted the Company's motion to dismiss the amended complaint, but allowed the plaintiffs leave to make a motion to amend their complaint. The Company has
stipulated with the plaintiffs that they have until May 20, 2002 to file such a motion.

On
November 6, 2001, a class action complaint alleging violations of the federal securities laws was filed in the United States District Court for the Southern District of New
York naming the Company, certain of its officers and directors, and certain underwriters of the Company's initial public offering as defendants. The complaint alleges, among other things, that the
underwriters of the Company's initial public offering violated the securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock
stabilization practices) in the offering's registration statement. The Company and certain of its officers and directors are named in the complaint pursuant to Sections 11 and 15 of the
Securities Act of 1933. Similar complaints have been filed against over 180 other issuers that have had initial public offerings since 1998. The Company intends to defend this action vigorously.
Although no assurance can be given that this matter will be resolved in the Company's favor, the Company believe that the resolution of this lawsuit will not have a material adverse effect on the
Company's financial

88

---

position, results of operations or cash flows. An unfavorable outcome of this matter may have a material adverse impact on the Company's business, results of operations, financial position, or
liquidity.

SEC Inquiry

On May 26, 2000, the United States Securities and Exchange Commission ("SEC") issued a Formal Order Directing Private Investigation. The Order contains no
specific factual allegations. The Company understands, however, that the SEC is conducting a non-public fact-finding inquiry into the Company's revenue recognition decisions on
approximately 15 contracts. The Company has received several document subpoenas from the SEC and the Company has complied with all of them. The Company has learned that the SEC has issued subpoenas to
the Company's independent auditors and to several of the Company's current and former customers. Since February 2001, the SEC has taken testimony from several of the Company's current and
former executives and staff.

On
March 20, 2002, the Company and five of its current and former officers and employees received notices from the SEC's Denver regional office indicating that the staff intends
to recommend that the SEC commence fraud and non-fraud (books and records) enforcement proceedings against the Company and these individuals. The SEC's potential remedies under such
enforcement proceedings include various forms of injunctive relief, monetary penalties, and orders barring individuals from future employment in public companies. It is too early in the inquiry to say
which of these remedies, if any, the SEC might seek against the Company and the individuals. Management and outside legal counsel believe that the Company has meritorious defenses to any allegations
the SEC may make and intends to continue to cooperate fully with the SEC. At this time, the Company's outside legal counsel is not able to provide an opinion on the probable outcome of the inquiry. An
unfavorable outcome of this matter may have a material adverse impact on the Company's business, results of operations, financial position, or liquidity.

11.  Perot Systems Corporation Alliance

The Company entered into a strategic alliance agreement with Perot Systems Corporation ("Perot Systems"), a systems integrator, which became effective
May 1, 1999. The agreement provided for the development and delivery of applications, products, and services to TenFold and Perot Systems customers using the TenFold Way, the Universal
Application, TenFold ComponentWare, and Universal Application Integrator. As part of the agreement, Perot Systems was given the opportunity to purchase 1,000,000 shares of the Company's common stock
being sold at the initial public offering price. Perot Systems purchased 1,000,000 shares in the Company's initial public offering as contemplated by the agreement.

The
strategic alliance agreement stated that if Perot Systems failed to provide the Company with opportunities to contract for revenue of at least $15.0 million during the year
ended April 30, 2000, Perot Systems would pay the Company 20 percent of the shortfall. During the three months ended June 30, 2000, and in connection with this requirement,
Perot Systems paid the Company $540,000 which the Company recognized as other income. This payment fulfilled Perot System's remaining obligation to the Company for the year ended April 30,
2000. As part of the amendment to the strategic alliance agreement discussed below, the Company no longer requires that Perot Systems provide the Company with opportunities to contract for revenue.
Accordingly, the Company does not expect to receive similar payments in the future.

89

---

In June 2000, the Company amended its strategic alliance and related agreements with Perot Systems. The Company also entered into a reseller agreement under which Perot Systems
could sublicense the Company's current applications and technology products for five years. Perot Systems paid the Company $2.0 million for initial sublicense fees and for the related
application support for these products. The Company recognized $1.4 million of license revenue associated with these fees upon shipment of these products to Perot Systems during the
three months ended June 30, 2000, and the Company recognized $48,000 of the related support revenues ratably over the support period from July 1, 2000 through November 30,
2000.

In
connection with the signing of this reseller agreement, the Company also amended two of its existing service agreements with Perot Systems and Perot Systems' healthcare affiliate. The
Company committed to use a minimum number of Perot Systems staff on TenFold projects for a one-year period beginning July 1, 2000. Perot Systems agreed to reduce the standard rate
that it charged the Company for these Perot Systems staff working on TenFold projects during this same one-year period. Additionally, as part of these changes, Perot Systems committed to
dedicate two salespeople to sell TenFold products and services through June 2001.

For
various business reasons occurring during the fourth quarter of 2000, the Company determined to restructure the Perot Systems relationship and, effective December 8, 2000, the
Company negotiated a restructuring agreement with Perot Systems. Under the terms of this agreement and the second amended and restated master services agreements, the Company agreed 1) to
terminate the strategic alliance, 2) to terminate the reseller agreement, 3) to amend the amended and restated master services agreements so that the Company is no longer committed to
use a minimum number of Perot Systems staff, 4) to refund to Perot Systems the $2.0 million that Perot Systems paid to the Company in sublicensing fees and support, as well as $646,000
in lost revenue from reducing the Company's commitment to pay for Perot Systems staff, and 5) to pay these amounts in six equal monthly payments of $441,000 beginning January 15, 2001.
The Company has included the $2.0 million refund in accrued liabilities, and the $646,000 service obligation in accounts payable, in the Consolidated Balance Sheet at December 31, 2001
and December 31, 2000. The Company reduced revenue during the three months ended December 31, 2000 by $1.4 million including the $48,000 of support revenue, so that the net
effect is that the Company recognized no revenue during the year ended December 31, 2000 from the Perot Systems reseller agreement.

Because
of TenFold management changes and TenFold's continuing restructuring, the Company has had discussions with Perot Systems to reconsider the scope of their future relationship and
to renegotiate the December 8, 2000 agreements, and as a result the Company has not made any of the monthly payments described above. On November 19, 2001, the Company received a demand
for arbitration from Perot Systems alleging that the Company had materially breached the prior purported agreements with Perot and requesting relief of $3.1 million. The Company is currently in
discussions with Perot regarding the alleged breach and a mutually beneficial restructuring of the relationship. See Note 10 for more information.

90

---

12.  Income Taxes

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

Year ended December 31,2001

2000

1999Provision (benefit) for income taxes:Current:Federal

$
536

$
(1,304
)
$
946State


1,044


(74
)

345Foreign


1,385


655


Total current


2,965


(723
)

1,291Deferred:Federal





88


(834
)State





16


(258
)Total deferred





104


(1,092
)Charge in lieu of taxes attributable to employee stock plans








4,537Total provision (benefit) for income taxes

$
2,965

$
(619
)
$
4,736


The
table below reconciles the expected U.S. federal statutory income tax rate (34% for 2001 and 2000, 35% for 1999) to the recorded income tax provision (benefit) (in thousands):

Year ended December 31,2001

2000

1999Tax expense (benefit) at U.S. statutory rates

$
(4,319
)
$
(27,459
)
$
3,711State tax (benefit), net of federal tax impact


1,044


(3,823
)

675Meals & entertainment


58


355


108Purchased intangibles


3,855


1,109


963Foreign taxes


129


655


Credits for research activities


(153
)

(3,883
)

(284
)Change in valuation allowance attributable to operations


2,351


32,427


(277
)Other








(160
)Provision (benefit) for income taxes

$
2,965

$
(619
)
$
4,736


91

---

The
Company's deferred tax assets are comprised of the following (in thousands):

|                          |                                              | December 31,                                  |  
|------------------------- | -------------------------------------------- | --------------------------------------------- | -
|
|Deferred tax assets:      |                                              |                                               |  
|                          | Reserves and accruals                        |                                               | $
|                          | Stock option compensation                    |                                               |  
|                          | Credits for research activities              |                                               |  
|                          | Differences in timing of revenue recognition |                                               |  
|                          | Loss carryovers                              |                                               |  
|                          | Depreciation for book in excess of tax       |                                               |  
|                          | Other                                        |                                               |  
|                          |                                              |                                               |  
|                          |                                              | Total deferred tax assets                     |  
|                          | Valuation allowance                          |                                               |  
|                          |                                              |                                               |  
|                          |                                              | Deferred tax assets after valuation allowance |  
|                          |                                              |                                               |  
|Deferred tax liabilities: |                                              |                                               |  
|                          | Purchased intangibles                        |                                               | $
|                          | Accelerated depreciation                     |                                               |  
|                          |                                              |                                               |  
|                          |                                              | Total deferred tax liabilities                |  
|                          |                                              |                                               |  
|                          |                                              | Total net deferred tax liabilities            |  
|                          |                                              |                                               |  
|Recorded as:              |                                              |                                               |  
|                          | Deferred income tax asset  current          |                                               | $
|                          | Deferred income tax liability  long-term    |                                               | $
|                          |                                              |                                               |  
|                          |                                              | Total net deferred tax liabilities            |  
|                          |                                              |                                               |  

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

Year ended December 31,2001

2000

1999Domestic

$
(13,098
)
$
(81,080
)
$
10,154Foreign


395


319


449Income (loss) before taxes

$
(12,703
)
$
(80,761
)
$
10,603


On
March 9, 2002, President Bush signed into law theJobs 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, the Company has included $536,000
of current alternative minimum tax liability in the 2001 tax provision even though it is expected that there will be no federal alternative minimum tax liability that is paid due to the retroactive
application of the new tax law.

92

---

As
of December 31, 2001, the Company had federal net operating loss carryforwards of approximately $44.9 million that expire in 2020. As of December 31, 2001, the
Company had state net operating loss carryforwards of approximately $33.4 million, which are subject to various state carryover provisions that generally provide shorter carryover periods than
federal. In addition, as of December 31, 2001, the Company had federal credit carryforwards for increasing research activities of approximately $3.4 million that begin to expire in 2014,
the Company also had $1.1 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, the Company's future earnings, and other events. As of December 31,
2001, the Company had recorded a valuation allowance of $41.9 million. During the year ended December 31, 2001, the valuation allowance decreased approximately $689,000, and for the year
ended December 31, 2000 the valuation allowance increased $41.5 million. The decrease for the year ended December 31, 2001 relates primarily to the gain on the sale of a
subsidiary and other adjustments that did not affect current year operations. The increase for the year ended December 31, 2000 relates primarily to the general valuation allowance 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, 2001 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 $32.7 million to operations and $9.2 million to paid-in capital.

13.  Classes of Stock



The
Company's registration statement (Registration No. 333-74057) under the Securities Act of 1933, for the Company's initial public offering, became effective
May 20, 1999. The Company's offering proceeds, net of aggregate expenses of approximately $4.7 million, were $34.2 million. The Company used a portion of the proceeds for the
payment of $22.0 million for the acquisition of LongView, which closed on October 7, 1999. The remainder of the net proceeds has been used for working capital and invested in cash and
cash equivalents.



On
March 4, 1997, the Company established a series of voting preferred shares designated as Series A Preferred Stock, consisting of 2,920,799 shares with $0.001 par value.
On November 24, 1997, the Company increased the authorized number of common shares to 44,000,000, and established a series of voting preferred shares designated as Series B Preferred
Stock, consisting of 3,340,330 shares with $0.001 par value, increasing the number of authorized preferred shares to 6,261,129.

During
March 1997, the Company entered into a transaction wherein the Company sold 1,460,399 shares of Series A Preferred Stock and a software license to a third party. In
the transaction, the majority stockholder of the Company sold 1,460,400 shares of common stock of the Company to the third party. Simultaneously, the Company granted the third party an option to
exchange the 1,460,400 shares of common stock for an equal number of shares of Series A Preferred Stock. This conversion option was exercised during 1997. The third party paid a total of
$8.0 million

93

---

as consideration for this transaction, of which $2.5 million was received by the majority stockholder and $5.5 million was received by the Company. Based on an independent valuation of
the Company's common and preferred stock, the Company allocated the total consideration paid by the third party of $8.0 million based on the respective fair values of the preferred and common
shares. Based on these valuations, the Company allocated $1.4 million to the Series A Preferred Stock and option, and $5.5 million to revenue. As a result of the transaction, the
majority stockholder received a premium of $1.4 million on the sale of common shares. The Company reflected that premium as an other charge in the 1997 Consolidated Statement of Operations.

In
November 1997, the Company issued 3,340,330 shares of Series B Preferred Stock resulting in net proceeds to the Company of approximately $7.0 million.

In
connection with the Company's initial public offering, the Company's Series A and B Preferred Stock were automatically converted into common stock.

|                                                    |  | Series A
Preferred Stock |   | Series B
Preferred Stock |        | Redeemable
Common Stock |           
|--------------------------------------------------- |  | ------------------------ | - | ------------------------ | ------ | ----------------------- | ----------
|
|Balance at December 31, 1997                        |  | 2,920,799                |   | $                        | 1,608  |                         | 3,340,330 
|                                                    |  |                          |   |                          |        |                         |           
|Redeemable common stock Issued for cash             |  |                         |   |                          |       |                         |          
|Accretion of redeemable convertible preferred stock |  |                         |   |                          | 328    |                         |          
|                                                    |  |                          |   |                          |        |                         |           
|Balance at December 31, 1998                        |  | 2,920,799                |   |                          | 1,936  |                         | 3,340,330 
|                                                    |  |                          |   |                          |        |                         |           
|Conversion of redeemable common stock               |  |                         |   |                          |       |                         |          
|Accretion of redeemable convertible preferred stock |  |                         |   |                          | 129    |                         |          
|Conversion of preferred stock into common stock     |  | (2,920,799               | ) |                          | (2,065 | )                       | (3,340,330
|                                                    |  |                          |   |                          |        |                         |           
|Balance at December 31, 1999                        |  |                         |   | $                        |       |                         |          
|                                                    |  |                          |   |                          |        |                         |           



On
October 31, 1996, the Company sold 4,530,104 shares of common stock to the then current Chief Executive Officer ("former CEO") for an aggregate price of $1.0 million
pursuant to a restricted stock purchase agreement entered into in connection with an employment agreement between the Company and the former CEO dated September 1, 1996. On January 11,
2001, the Company announced the resignation of the former CEO with whom it entered the employment agreement. During 2001, the Company repurchased 226,505 of the CEO's restricted shares for $2,265.

On
February 2, 1998, the Company allowed two other officers to exercise options on a total of 300,000 shares of common stock in advance of their vesting, subject to the Company's
right to repurchase these shares if the officers leave the Company before the shares are fully vested. As of December 31, 2001, these shares are fully vested and none remain subject to
repurchase.

94

---

14.  Stock Option Plans

1993 Flexible Stock Incentive Plan.The Company's 1993 Flexible Stock Incentive Plan (the "1993 Stock Plan") was
adopted by the Board of Directors and approved by the Company'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 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. Unless terminated earlier, the 1993 Stock Plan will terminate in
February 2003. To date, the Company 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.The Company's 1999 Stock Plan was adopted by the Board of Directors and approved by the
stockholders in March 1999. A total of 6,500,000 shares of common stock have been 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 the Company'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, 2001 and January 1, 2000 the number of shares reserved
for issuance under the plan increased by 1,000,000 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. The Company 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 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, 2001, the Company has not issued any stock purchase rights, stock bonus awards, or stock appreciation rights under the 1999 stock plan; and
has issued only one incentive stock option grant.

2000 Employee Stock Option Plan.The Company'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 the Company'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,

95

---

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.

Stock
option activity under the Company's 1993, 1999, and 2000 stock option plans is as follows:

Option
Shares

Weighted
Average
Exercise Price
Per ShareOutstanding at December 31, 1998

6,417,300

$
2.36Granted

2,640,800

$
15.27Exercised

986,868

$
1.21Canceled

1,165,112

$
5.09Outstanding at December 31, 1999

6,906,120

$
7.00Granted

16,965,200

$
12.28Exercised

662,584

$
2.28Canceled

3,396,030

$
15.11Outstanding at December 31, 2000

19,812,706

$
10.29Granted

7,865,000

$
0.63Exercised

1,041,680

$
0.07Canceled

12,366,615

$
10.23Outstanding at December 31, 2001

14,269,411

$
5.76


At
December 31, 2001, 4,909,196 options were vested and exercisable as compared to 2,925,522 in 2000 and 714,840 in 1999, 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.

96

---

The following table summarizes information about stock options under the plans outstanding at December 31, 2001:

|                |  | Options Outstanding |  |            |  |  
|--------------- |  | ------------------- |  | ---------- |  | -
|
|
|
|$0.02 to $0.45  |  | 2,080,800           |  | 8.81 Years |  | $
|0.60 to 0.89    |  | 3,051,450           |  | 9.57 Years |  |  
|1.14 to 2.84    |  | 6,515,108           |  | 8.87 Years |  |  
|4.44 to 9.81    |  | 1,081,373           |  | 7.91 Years |  |  
|10.25 to 21.00  |  | 155,980             |  | 7.56 Years |  |  
|21.56 to 55.88  |  | 1,384,700           |  | 8.05 Years |  |  
|                |  |                     |  |            |  |  
|$0.02 to $55.88 |  | 14,269,411          |  | 8.85 Years |  | $
|                |  |                     |  |            |  |  

The
Company has elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees("APB 25") as amended by Financial Accounting Standards Board Interpretation No. 44 ("FIN 44") in accounting for its option plans. Had compensation expense for the Company'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, the Company's net income (loss) for the years ended December 31, 2001, 2000,
and 1999 would have been as follows (in thousands except per share information):

|                                                           |         | 2001 |         | 2000  |   | 1999    
|---------------------------------------------------------- | ------- | ---- | ------- | ----- | - | --------
|Net income (loss) applicable to common stock  as reported |         | $    | (15,668 | )     | $ | (80,142 
|Net income (loss) applicable to common stock  pro forma   |         |      | (31,641 | )     |   | (104,395
|Earnings (loss) per common share  as reported:            |         |      |         |       |   |         
|                                                           | Basic   |      | $       | (0.44 | ) | $       
|                                                           | Diluted |      |         | (0.44 | ) |         
|Earnings (loss) per common share  pro forma:              |         |      |         |       |   |         
|                                                           | Basic   |      | $       | (0.89 | ) | $       
|                                                           | Diluted |      |         | (0.89 | ) |         

The
effect of SFAS 123 on pro forma net loss and net loss per share disclosed for 2001, 2000, and 1999 may not be representative of the effects on pro forma results in future
years.

The
number of remaining options available to grant under the 1993, 1999, and 2000 plans is 6,745,157 as of December 31, 2001.

The
weighted-average fair value of the options granted under the plans in 2001 is $0.60 as compared to $7.97 in 2000 and $11.64 in 1999. 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

97

---

2001, 2000, and 1999: risk-free interest rate of 4.22 percent in 2001, 6.51 percent in 2000, and 6.80 percent in 1999; a dividend yield of 0 percent; a
volatility factor of 161.0 percent for 2001, 131.1 percent for 2000 and 108.5 percent in 1999; and a weighted-average expected life of 3.5 years in 2001 and
5.0 years in 2000, and 5.0 years in 1999.

The
Company recorded deferred compensation pursuant to APB 25 of $280,000 in 2001 relating to a restricted stock grant; $0 in 2000; and $5.9 million in 1999 relating to
stock options which were granted in a range of prices between $0.45 and $5.00, which were below the estimated fair market values of the underlying common stock. The Company recognized compensation
expense of $857,000 in 2001, $1.2 million in 2000, and $1.4 million in 1999 related to the normal vesting of these options.

15.  1999 Employee Stock Purchase Plan

The Company'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 the Company's fiscal years beginning in 2000, 2001, 2002, 2003, and 2004 equal to the lesser of 300,000 shares, 0.75 percent of the Company'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 529,068 shares through December 31, 2001. 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. The Company issued 261,429 shares under this plan during the year ended December 31, 2001, and
266,672 shares during the year ended December 31, 2000.

As
of December 31, 2001, 1,000,967 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 the Company, or of any
majority-owned subsidiary designated by the Board, are eligible to participate in the purchase plan if they are employed by the Company 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 the Company 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

98

---

offering period. The Company 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 2001 was $1.16 as compared to $4.63 in 2000 and $7.01 in 1999. The
fair value of the employee stock purchase rights was estimated using the Black-Scholes model with the following assumptions for 2001: a weighted-average risk-free interest rate of
4.11 percent, dividend yield of 0 percent, an expected life of 6 months, and the same volatility factors as used for the stock option plans.

16.  401(k) Retirement Plan

The Company 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, the Company matched 20 percent of the first
6 percent of the employees' contributions, up to a maximum of $2,000 per employee per year. Total Company contributions for 2001, 2000, and 1999 were approximately $196,000, $396,000, and
$237,000, respectively. On January 15, 2002, the Company discontinued matching of employee contributions.

17.  Vertical Business Group Operations



During
the year ended December 31, 2000, the Company 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, the Company consolidated its vertical business operations into one corporate organization to provide better focus for employees, to
solidify the Company's core delivery and operational infrastructure, and to reduce costs; and merged its vertical subsidiaries into TenFold Corporation.



During
1999, the Company formed six subsidiaries in each of which the Company 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 are similar to the
Company'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

99

---

options terminated, no subsidiary options remain outstanding and the Company has no minority interest holders.



During
1999, TenFold Energy, Inc., a wholly owned subsidiary of the Company, sold 1,181,600 warrants to Southern Company Energy Marketing ("SCEM"). Each warrant entitles SCEM to
purchase one share of Class A Common Stock at $2.12 per share in one of the Company's 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.

18.  Operating Segments

The Company has adopted the provisions of Statement of Financial Accounting Standards No. 131,Disclosure About Segments of an
Enterprise and Related Information("SFAS No. 131").SFAS No. 131 establishes standards for the reporting by
public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the
way that management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered
to be the Company's CEO.

Beginning
in January 2001, the Company's CEO reviews financial information on a consolidated basis, identical in format to the accompanying Consolidated Statements of Operations.
The Company consolidates revenue and expense information for all other business groups for internal and external reporting and for decision-making purposes. The Company operates in a single operating
segment, which is applications products and services.

Revenues
from operations outside of North America were approximately 28 percent of total revenues for 2001, 11 percent of total revenues for 2000, and 10 percent of
total revenues for 1999. Revenues from operations in the United Kingdom were approximately 22 percent of total revenue for 2001, 10 percent of total revenue for 2000, and
10 percent of total revenue for 1999. Revenues from operations in Argentina were approximately 6 percent of total revenue for 2001, 1 percent of total revenue for 2000, and
0 percent of total revenue for 1999.

19.  Additional Significant Risks and Uncertainties

The Company'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 the Company's revenue and billed and unbilled accounts receivable may relate to a single customer or a small number of customers. Although the
Company plans to expand and diversify its customer base, currently the loss of any of the Company's large customers, without their replacement by new customers, would likely have a material adverse
effect on the
Company's revenue, cash flow, and allowances for doubtful billed and unbilled accounts receivable. The following table provides customer revenue concentration for the three years ended

100

---

December 31, 2001, 2000 and 1999. No other customer accounted for more than 10 percent of total revenue for these years.

|           |  | December 31, |  
|---------- |  | ------------ | -
|
|Customer A |  | 27           | %
|Customer B |  | 16           | %
|Customer C |  | 11           | %
|Customer D |  |             |  

20.  Special 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. Special charges for the year ended December 31, 2000 of $4.8 million include $2.9 million of asset impairment charges, and
$1.9 million of restructuring charges.

Asset Impairment Charges.During the year ended December 31, 2001, the Company further restructured its operations to reduce
operating expenses. As part of the restructuring, the Company 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. The Company 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 the Company. The Company 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, the Company recorded asset impairment charges of $10.1 million during the year ended December 31, 2001.

During
the year ended December 31, 2000, the Company restructured its operations to reduce operating expenses. As part of the restructuring, the Company closed excess facilities
in Chicago, Illinois; Dallas, Texas; Salt Lake City, Utah; and San Francisco, California during November and December of 2000. The Company had $2.9 million in computer equipment, leasehold
improvements, furniture and fixtures, and other assets in these offices that it determined had no future value to the Company. Accordingly, the Company recorded asset impairment charges of
$2.9 million during the year ended December 31, 2000.

Restructuring Charges.During the year ended December 31, 2001, the Company incurred restructuring charges of $8.8 million
as part of its plans to improve operating results by reducing headcount, by closing duplicative Company 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.

During
the year ended December 31, 2000, the Company incurred restructuring charges of $1.9 million as part of a plan to improve its operating results by reducing
headcount, by closing duplicative Company facilities in Chicago, Illinois; Dallas, Texas; Salt Lake City, Utah; and San

101

---

Francisco, California, and by implementing other measures. The restructuring charge was comprised of $1.1 million for a headcount reduction of 159 staff, and $861,000 for facilities related
costs including penalties associated with terminating leases and future lease payments.

The
Company 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 the Company commit to an exit plan before it accrues employee termination costs and exit costs.

Restructuring
reserves are included in accrued liabilities at December 31, 2001. Detail of the restructuring charges as of and for the year ended December 31, 2001 are
summarized below (in thousands):

|Restructuring Charges: |  | Balance at
December 31,
2000 |     | New
Charges |   | Adjustments |  | Utilized |       | Balance at
December 31,
2001
|---------------------- |  | ---------------------------- | --- | ----------- | - | ----------- |  | -------- | ----- | ----------------------------
|Employee related       |  | $                            | 141 |             | $ | 873         |  | $        |      |                             
|Facilities related     |  |                              | 321 |             |   | 6,632       |  |          | 1,289 |                             
|                       |  |                              |     |             |   |             |  |          |       |                             
|                       |  | $                            | 462 |             | $ | 7,505       |  | $        | 1,289 |                             
|                       |  |                              |     |             |   |             |  |          |       |                             

|Balance Sheet Components: |  | Balance at
December 31,
2000 |     | New
Charges |   | Adjustments |  | Utilized |       | Balance at
December 31,
2001
|------------------------- |  | ---------------------------- | --- | ----------- | - | ----------- |  | -------- | ----- | ----------------------------
|Accrued liabilities       |  | $                            | 321 |             | $ | 7,489       |  | $        | 1,289 |                             
|Accounts payable          |  |                              | 141 |             |   | 16          |  |          |      |                             
|                          |  |                              |     |             |   |             |  |          |       |                             
|                          |  | $                            | 462 |             | $ | 7,505       |  | $        | 1,289 |                             
|                          |  |                              |     |             |   |             |  |          |       |                             

The
Company has estimated future sublease income which reduces future facility related charges, including lease obligations. The Company 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 may result in restructuring charge adjustments in future periods.

21.  Subsequent Events

In February 2002, the Company entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC
("Fusion Capital"), in connection with a private equity line financing transaction pursuant to which the Company shall offer and sell to Fusion Capital up to $10,000,000 of the Company's common stock,
$0.001 par value ("Common Stock"), over a period of up to 40 months. As a condition to Fusion Capital's obligation to make purchases under the Purchase Agreement, the Common Stock to be offered
and sold to Fusion Capital must be registered in an effective registration statement with the Securities and Exchange Commission. Once the registration statement is effective, the Company may make
draws under the equity line. The Company can elect to draw up to $250,000 per month so long as its stock price exceeds $0.25 (below which it may not make draws).

102

---



Schedule II

TENFOLD CORPORATION  Valuation and Qualifying Accounts  For the Years Ended December 31, 2001, 2000, and 1999  (in thousands)

|Allowances for Doubtful
Accounts (Billed and Unbilled) |  | Balance at
beginning of
period |        | Additions
charged to
costs and
expenses |   | Deductions |   | Balance at
end of
period
|------------------------------------------------------ |  | ------------------------------ | ------ | --------------------------------------- | - | ---------- | - | ------------------------
|Year ended December 31, 1999                           |  | $                              | 500    |                                         | $ | 763        |   | $                       
|                                                       |  |                                |        |                                         |   |            |   |                         
|Year ended December 31, 2000                           |  | $                              | 725    |                                         | $ | 12,722     |   | $                       
|                                                       |  |                                |        |                                         |   |            |   |                         
|Year ended December 31, 2001                           |  | $                              | 10,287 |                                         | $ | (76        | ) | $                       
|                                                       |  |                                |        |                                         |   |            |   |                         

|Allowances for Doubtful
Stockholder Notes Receivable
(Principal and Interest) |  | Balance at
beginning of
period |       | Additions
charged to
costs and
expenses |   | Deductions |  | Balance at
end of
period
|----------------------------------------------------------------------------- |  | ------------------------------ | ----- | --------------------------------------- | - | ---------- |  | ------------------------
|Year ended December 31, 1999                                                  |  |                                |      |                                         |   |           |  |                         
|                                                                              |  |                                |       |                                         |   |            |  |                         
|Year ended December 31, 2000                                                  |  |                                |      |                                         | $ | 2,782      |  |                         
|                                                                              |  |                                |       |                                         |   |            |  |                         
|Year ended December 31, 2001                                                  |  | $                              | 2,782 |                                         |   |           |  | $                       
|                                                                              |  |                                |       |                                         |   |            |  |                         

|Deferred Tax Valuation
Accounts |  | Balance at
beginning of
period |        | Additions
charged to
costs and
expenses |   | Deductions |   | Balance at
end of
period
|------------------------------- |  | ------------------------------ | ------ | --------------------------------------- | - | ---------- | - | ------------------------
|Year ended December 31, 1999    |  | $                              | 701    |                                         | $ | 659        |   | $                       
|                                |  |                                |        |                                         |   |            |   |                         
|Year ended December 31, 2000    |  | $                              | 1,083  |                                         | $ | 41,540     |   | $                       
|                                |  |                                |        |                                         |   |            |   |                         
|Year ended December 31, 2001    |  | $                              | 42,623 |                                         | $ | (689       | ) | $                       
|                                |  |                                |        |                                         |   |            |   |                         

103

---



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 April 15, 2002.

|Dated: | April 15, 2002 |  | By: | /s/JONATHAN E. JOHNSON IIIJonathan E. Johnson III
Executive Vice President and Chief 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: | April 15, 2002 |  | /s/NANCY M. HARVEYNancy M. Harvey, President, Chief Executive Officer and Director (Principal
Executive Officer)                    
|------ | -------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Dated: | April 15, 2002 |  | /s/JONATHAN E. JOHNSON IIIJonathan E. Johnson III
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
|Dated: | April 15, 2002 |  | /s/WYNN K. CLAYTONWynn K. Clayton
Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)                  
|Dated: | April 15, 2002 |  | /s/JEFFREY L. WALKERJeffrey L. Walker, Chairman of the Board of Directors, Executive Vice President, and Chief Technology
Officer   
|Dated: | April 15, 2002 |  | /s/ROBERT W. FELTONRobert W. Felton
Director                                                                                        
|Dated: | April 15, 2002 |  | /s/RALPH W. HARDY, JR.Ralph W. Hardy, Jr.
Director                                                                                  
|Dated: | April 15, 2002 |  | /s/KAY R. WHITMOREKay R. Whitmore
Director                                                                                          

104

---

TENFOLD CORPORATION
EXHIBIT INDEX

|Number |       | Description
|------ | ----- | -----------
|       | 10.7  |            
|       | 10.8  |            
|       | 10.20 |            
|       | 10.25 |            
|       | 10.26 |            
|       | 10.27 |            
|       | 10.28 |            
|       | 10.31 |            
|       | 10.32 |            
|       | 10.33 |            
|       | 10.34 |            
|       | 11*   |            
|       | 21    |            
|       | 23.1  |            

*
Incorporated by reference to "Notes to Consolidated Financial Statements" herein

---