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TABLE OF CONTENTS
Part IV

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

FORM 10-K
(Mark One)

For the year ended December 31, 2001

OR

For the transition period from                              to                             

Commission file number 000-25661

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

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

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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."

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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

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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.

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        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

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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:

•

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

•

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

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

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Improved quality because the Universal Application replaces individually-coded logic with already-existing, thoroughly-tested algorithms that provide both basic and sophisticated applications behavior such as security, menuing, transaction behavior, and powerful windows and browser interface features.

•

Greater consistency, by replacing individually-built screen designs with a systematic, optimal, standard design and by eliminating the details of page layout from the application developer's task list;

•

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

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Typically sub-second response-time on properly configured hardware, because the Universal Application is carefully optimized to provide good performance.

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

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Portability across popular databases such as Oracle, DB2, SQL Server, and Sybase;

•

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

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

•

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

•

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

•

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

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

•

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

•

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

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•

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

•

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

        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

        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.

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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.

Training

        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.

Applications Development and Implementation Services

        We offer services to help customers build, implement, operate and maintain their applications. Applications development services include helping customers identify requirements and describe their application 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.

Customer and Technical Support

        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

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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

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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:

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Status quo;

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

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

Status quo

        TenFold's largest competitor is "status quo." Corporations continually wrestle with the issue of when to 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.

Buy a Packaged Application (with or without modification)

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

Build New Applications

        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

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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."

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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.

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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:

        Nancy M. Harvey joined 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 III joined 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. Moratti joined 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

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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. Salomon joined 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. Walker founded 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.

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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:

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

        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.

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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.

Westfield

        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.

Nielsen

        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.

Trumbull

        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.

Unitrin

        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.

SCEM

        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.

Utica

        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.

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Other

        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.

Crawford

        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.

SkyTel

        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.

Other Customer Dispute

        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

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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.

Perot Systems

        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

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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.

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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.

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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:

        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.

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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.

(1)

See Note 4 of "Notes to Consolidated Financial Statements" for an explanation of the determination of the method used to determine the number of shares used in computing net earnings (loss) per share.

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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.

(1)

The negative revenues during the three months ended December 31, 2000, are primarily due to lower than anticipated sales, project delays and disputes on certain projects, changes in

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estimates 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.

(2)

During the fourth quarter of 2001, the Company recorded a reclassification reducing the gain on sale of The LongView Group, Inc. and the provision for income taxes each by $408,000 for the quarter ended March 31, 2001.

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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

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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.

Current Business Status

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

1.

Set a new strategic direction;

2.

Laid the groundwork for future success; and

3.

Resolved many of the issues that damaged TenFold in recent quarters.

        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.

Set a New Strategic Direction

        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.

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        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.

Laid Groundwork for Future Success

        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

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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

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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.

Resolved Many Historical Issues

        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

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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:

Unitrin – On March 8, 2001, we entered a Confidential Settlement Agreement and Release with Unitrin Services Company, Inc. ("Unitrin") dismissing all of Unitrin's claims.

Westfield – Effective April 26, 2001, we entered into a Settlement and Mutual Release with Ohio Farmers Insurance Company, doing business as Westfield Companies, dismissing all claims each party had against the other.

Trumbull – On May 10, 2001, we entered into a Settlement Agreement and Mutual Release with Trumbull Services LLC dismissing all claims each party had against the other.

Nielsen – Effective May 30, 2001, we entered into a Confidential Settlement Agreement and Release with Nielsen Media Research, Inc. dismissing all claims each party had against the other.

SCEM – On August 27, 2001, we entered into a Confidential Settlement Agreement and Release with Southern Company Energy Marketing L.P. dismissing all claims each party had against the other.

Utica – On August 16, 2001, we entered into a Confidential Settlement Agreement and Release with Utica Mutual Insurance Company dismissing all claims each party had against the other.

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Unnamed Customer – On April 4, 2001, we received a letter from a 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.

Crawford – On March 8, 2002, we entered into a Confidential Settlement Agreement and Release with Crawford & Company dismissing all claims each party had against the other.

        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. With the resolution of these disputes, we now have unresolved disputes with two customers and one business partner. In addition, we have outstanding stockholder suits and continue to be the subject of an SEC inquiry. See "Legal Proceedings" for more information.

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.

Revenue Recognition and Project Profitability

        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.

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        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.

Litigation Reserves

        We review asserted litigation claims each quarter to determine the likelihood that the claim will result in a loss. Significant management judgment is required to conclude on the likely outcome of outstanding litigation. If a loss is probable on a litigation claim, management estimates the loss and we accrue the estimated loss. If a loss is considered probable but cannot be reasonably estimated, we disclose the contingency in the notes to our financial statements. Losses may result on litigation claims that are not considered probable or are not estimable at the current time. 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.

Restructuring Charges

        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

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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.

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

        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.

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        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.

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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.

2001 as Compared to 2000

Revenues

        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.

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        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.

Operating Expenses

        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.

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        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.

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        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):

Total Other Income, net

        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.

Provision (Benefit) for Income Taxes

        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

Revenues

        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

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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.

Operating Expenses

        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

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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.

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        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,

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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):

Total Other Income, net

        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.

Provision (Benefit) for Income Taxes

        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.

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        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.

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        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

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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):

Real Estate Lease 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:

Standby Letters of Credit

        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.

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Guarantees

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

        In August 2001, the FASB issued SFAS No. 144 Accounting 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.

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

        While our financial statements have been prepared under the assumption that we will continue as a going concern, the independent auditors' report on our December 31, 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

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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.

Our future prospects are difficult to evaluate

        In light of our operating results for recent periods and the national economic downturn in the technology sector, it is difficult to evaluate our future prospects. 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.

If we do not complete our existing projects, we may not receive payments, which could impair our ability to continue operations

        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 continue to experience difficulty in securing future customer revenue

        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.

Our existing errors and omissions coverage may not cover all existing claims

        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

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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.

Our new errors and omissions insurance policy coverage does not cover contractual disputes

        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.

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

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

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

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

        We 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.

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Our documents with Perot Systems may restrict our sources of additional financing

        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 stock may be subject to de-listing from Nasdaq

        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.

There are many factors that may cause fluctuations in our financial results, and if results are below the expectations of securities market analysts, our stock price will likely decline

        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:

•

the timing of sales of our products and services;

•

the number, size, and scope of projects in which we are engaged;

•

the contractual terms and degree of completion of our projects;

•

any delays or changes in customer requirements incurred in connection with new or existing projects;

•

the accuracy of our estimates of the resources required to complete ongoing, as well as new, projects;

•

the adequacy of provisions for losses associated with fixed-price contracts; and

•

the adequacy of allowances for doubtful billed and unbilled accounts receivable.

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        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.

Our historical operating results have varied significantly and future adverse operating results could cause our stock price to 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 may continue to incur increased employee and consulting costs due to project delays on fixed-price contracts

        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.

If we fail to accurately estimate the resources required for a fixed-price project, or the resources required to complete existing fixed-price projects, our operating results could suffer

        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.

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

        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-

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

Our historical guaranteed fixed-price, fixed-time contracts have had and may continue to have an adverse impact on our financial results

        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.

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

        We believe that a customer's decision to purchase our software involves a significant commitment of resources and is influenced by customer budget cycles. To successfully sell our products, we generally must educate our potential customers regarding the use and benefit of our products, 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.

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

        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

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

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

If we are unable to successfully market our services on a time-and-materials basis, our future operating results could suffer

        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.

If we are unable to successfully divest our vertical applications products, our future financial results could suffer

        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

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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.

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

        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.

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

        Our industry is competitive and we are substantially dependent upon the continued service of our existing executive personnel, especially Nancy M. Harvey, President 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 failure to attract and retain highly skilled employees, particularly project managers and other senior technical personnel, could impair our ability to complete projects and expand our business

        Our 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.

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Our growth and success depends in part on our ability to resell applications products; however, we have limited experience reselling applications products to date and our current and future agreements with our customers may limit our ability to resell applications products in the future

        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.

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

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

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

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

        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.

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

        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.

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

        The executive officers, directors, and entities affiliated with them, in the aggregate, beneficially own approximately 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.

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

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

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

        As of December 31, 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.

Currency 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.

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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

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Part III

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

Item 10. Directors and Executive Officers of the Registrant

(a)

Executive Officers

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

(b)

Directors

        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

(c)

Section 16

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required by this Item is incorporated by reference to the section entitled "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.

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Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

TENFOLD CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS