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

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-25661

================================================================================

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

Delaware 83-0302610
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)

180 West Election Road
Draper, Utah 84020
(Address of principal executive offices, including zip code)

(801) 495-1010
(Registrant's telephone number, including area code)

================================================================================

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

Yes [X] No [_]

As of March 31, 2001, there were 36,003,705 shares of the registrant's Common
Stock outstanding.

INDEX
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Page
----

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Condensed Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000........................................................... 3

Condensed Consolidated Statements of Operations for the three months ended
March 31, 2001 and March 31, 2000........................................... 4

Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and March 31, 2000........................................... 5

Notes to Condensed Consolidated Financial Statements........................ 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 23

Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings........................................................... 47

Item 6. Exhibits and Reports on Form 8-K............................................ 52

SIGNATURES................................................................................ 53

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TENFOLD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

March 31, December 31,
--------------- ---------------
2001 2000
--------------- ---------------

Assets
Current assets:
Cash and cash equivalents......................................................... $ 20,794 $ 13,854
Accounts receivable, (net of allowances for doubtful accounts
of $2,847 and $7,338, respectively)...................................... 4,211 3,451
Unbilled accounts receivable, (net of allowance for doubtful accounts
of $2,949)............................................................... 293 282
Prepaid expenses and other assets................................................. 929 652
Deferred income taxes............................................................. - 612
Income taxes receivable........................................................... 644 644
Assets held for sale.............................................................. 2,510 2,944
Other assets, (net of allowance of $236).......................................... 112 256
--------------- ---------------
Total current assets.......................................................... 29,493 22,695

Restricted cash................................................................... 8,887 2,598
Property and equipment, net....................................................... 15,124 20,234
Due from stockholders, (net of allowance of $860)................................. 40 40
Other assets...................................................................... 669 770
Goodwill and acquired intangibles, net............................................ - 18,938
--------------- ---------------
Total assets.................................................................. $ 54,213 $ 65,275
=============== ===============

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable.................................................................. $ 6,541 $ 9,769
Income taxes payable.............................................................. 2,724 766
Accrued liabilities............................................................... 13,795 12,043
Deferred revenue.................................................................. 30,079 35,853
Current installments of obligations under capital leases.......................... 3,239 3,381
Current installments of notes payable............................................. 7,653 3,377
Other current liabilities......................................................... 1,981 899
Deferred income taxes............................................................. 81 -
--------------- ---------------
Total current liabilities..................................................... 66,093 66,088
--------------- ---------------

Long-term liabilities:
Deferred income taxes............................................................. - 612
Obligations under capital leases, excluding current installments.................. 2,761 3,498
Notes payable, excluding current installments..................................... - 5,284
Other long-term liabilities....................................................... 966 1,241
--------------- ---------------
Total long-term liabilities................................................... 3,727 10,635
--------------- ---------------

Contingencies (Note 9)

Stockholders' deficit:
Common stock, $0.001 par value:
Authorized: 120,000,000 shares
Issued and outstanding shares: 36,003,705 shares at March 31, 2001 and
35,735,858 shares at December 31, 2000....................................... 36 36
Additional paid-in capital........................................................ 66,322 66,170
Notes receivable from stockholders, (net of allowance of $1,686).................. (302) (429)
Deferred compensation............................................................. (1,564) (2,132)
Accumulated deficit............................................................... (79,468) (74,270)
Accumulated other comprehensive loss.............................................. (631) (823)
--------------- ---------------
Total stockholders' deficit................................................... (15,607) (11,448)
--------------- ---------------
Total liabilities and stockholders' deficit................................... $ 54,213 $ 65,275
=============== ===============

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

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

Three Months Ended
March 31,
----------------------------------------
2001 2000
---------------- -----------------

Revenues:
License..................................................................... $ 2,981 $ 4,681
Services.................................................................... 8,286 26,994
---------------- -----------------
Total revenues.......................................................... 11,267 31,675
---------------- -----------------

Operating expenses:
Cost of revenues (exclusive of non-cash compensation of $64
and $132, respectively).................................................. 9,222 11,718
Sales and marketing (exclusive of non-cash compensation of
$44 and $83, respectively)............................................... 2,846 6,844
Research and development (exclusive of non-cash compensation
of $55 and $103, respectively)........................................... 4,451 6,424
General and administrative (exclusive of non-cash compensation
of $12 and $33, respectively)............................................ 4,253 1,864
Amortization of goodwill and acquired intangibles........................... 962 1,151
Amortization of deferred compensation....................................... 175 351
Special charges............................................................. 5,729 -
---------------- -----------------
Total operating expenses................................................ 27,638 28,352
---------------- -----------------
Income (loss) from operations................................................ (16,371) 3,323
---------------- -----------------

Other income (expense):
Interest and other income................................................... 433 787
Interest expense............................................................ (251) (279)
Gain on sale of The LongView Group, Inc..................................... 13,771 -
---------------- -----------------
Total other income, net................................................. 13,953 508
---------------- -----------------
Income (loss) before income taxes and minority interest...................... (2,418) 3,831

Provision for income taxes................................................... 2,780 1,686
---------------- -----------------
Net income (loss) before minority interest................................... (5,198) 2,145
Minority interest............................................................ - 8
---------------- -----------------
Net income (loss)............................................................ $ (5,198) $ 2,137
================ =================

Basic earnings (loss) per common share....................................... $ (0.15) $ 0.06
================ =================
Diluted earnings (loss) per common share..................................... $ (0.15) $ 0.05
================ =================
Weighted average common and common equivalent shares used to calculate
earnings (loss) per share:
Basic....................................................................... 35,404 34,038
================ =================
Diluted..................................................................... 35,404 38,864
================ =================

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

TENFOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three Months Ended
March 31,
------------------------------------
2001 2000
-------------- ---------------

Cash flows from operating activities:
Net income (loss)................................................................ $ (5,198) $ 2,137
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Tax benefit from exercise of stock options.................................... - 6,820
Deferred income tax provision (benefit)....................................... 488 (5,139)
Amortization of goodwill and acquired intangibles............................. 962 1,151
Depreciation and amortization................................................. 1,833 1,011
Impaired assets charge........................................................ 3,038 -
Provision for bad debts....................................................... 240 (262)
Amortization of deferred compensation......................................... 175 351
Compensation expense related to stock options................................. 43 -
Gain on sale of The LongView Group, Inc....................................... (13,771) -
Minority interest............................................................. - 8

Changes in operating assets and liabilities:
Accounts receivable.......................................................... (2,227) (3,786)
Unbilled accounts receivable................................................. (151) (5,746)
Prepaid expenses and other assets............................................ (143) 520
Accounts payable............................................................. (2,883) (690)
Income taxes payable......................................................... 1,974 (224)
Accrued liabilities.......................................................... 2,106 (6,762)
Deferred revenues............................................................ (401) (2,054)
Other liabilities............................................................ 809 -
-------------- ---------------
Net cash used in operating activities................................. (13,106) (12,665)
-------------- ---------------

Cash flows from investing activities:
Additions to property and equipment........................................... (215) (804)
Additions to restricted cash.................................................. (6,400) -
Net proceeds from sale of The LongView Group, Inc............................. 28,115 -
Net increase in other assets.................................................. - (733)
-------------- ---------------
Net cash provided by (used in) investing activities................... 21,500 (1,537)
-------------- ---------------
Cash flows from financing activities:
Proceeds from employee stock purchase plan stock issuance..................... 458 2,520
Exercise of common stock options.............................................. 43 821
Proceeds from issuance of notes payable....................................... - 576
Principal payments on notes payable........................................... (1,008) (412)
Payments of notes receivable from stockholders................................ 127 -
Principal payments on obligations under capital leases........................ (855) (222)
-------------- ---------------
Net cash (used in) provided by financing activities..................... (1,235) 3,283
-------------- ---------------

Effect of exchange rate changes..................................................... (219) (100)
-------------- ---------------

Net (decrease) increase in cash and cash equivalents................................ 6,940 (11,019)
Cash and cash equivalents at beginning of period.................................... 13,854 58,247
-------------- ---------------
Cash and cash equivalents at end of period.......................................... $ 20,794 $ 47,228
============== ===============

Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1 $ 308
Cash paid for interest $ 259 $ 287

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

TENFOLD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements
included herein have been prepared by TenFold Corporation (the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
In management's opinion, the interim financial data presented includes all
adjustments necessary for a fair presentation. All intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made in
the prior years' financial statements to conform to the current period's
presentation. Certain information required by generally accepted accounting
principles has been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission. Operating results for the three month
period ended March 31, 2001 are not necessarily indicative of the results that
may be expected for any future period or for the year ended December 31, 2001.

This report should be read in conjunction with the Company's audited
Consolidated Financial Statements for the year ended December 31, 2000 included
in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

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

The Company's financial statements have been prepared under the assumption
that the Company will continue as a going concern. During the year ended
December 31, 2000, the Company experienced several difficult quarters as a
result of rapid internal growth, delivery challenges and a difficult sales
environment. The delivery challenges prevented the Company from collecting final
payments on certain projects and led to several customer disputes. As the
Company disclosed the customer disputes in its quarterly filings, the sales
environment became increasingly difficult. The substantial operating losses
incurred in the year ended December 31, 2000 further deteriorated its ability to
sell its products and services. In order to better align its expenses with its
revenues, the Company took aggressive steps to restructure its operations
through consolidating its management structure, reducing its workforce and
closing offices. Additionally, the Company raised cash through the sale of
LongView for $29.0 million. The Company believes that the strength of its core
technologies, product assets, customer base, and the corrective actions that the
Company is taking, provide a solid foundation for its continued operation in
2001. Additionally, the Company will continue to seek additional capital to
finance its operations through the remainder of 2001. However, there can be no
assurance that the measures taken to date or additional measures, if necessary,
will prove successful.

2. Revenue Recognition

The Company derives revenues from license fees, application development and
implementation services, support, and training services. License revenues
consist of fees for licensing the Universal Application as a tool or as a
developed application, and license fees for the applications that the Company
develops for its customers. The Company also derives license revenues from the
resale of its vertical applications products. 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, the Company adopted
the provisions of SOP 97-2, as modified by SOP 98-9.

The Company generally enters into software arrangements that involve
multiple elements, such as software products, enhancements, post-contract
customer support ("PCS"), installation and training. The Company allocates a
portion of the arrangement fee to each undelivered element based on the relative
fair values of the elements. The fair values of an element must be based on
vendor specific objective evidence ("VSOE"). The Company establishes VSOE based
on the price charged when the same element is sold separately. VSOE for services
is based on standard rates for the individuals providing services. These rates
are the same rates charged when the services are sold separately under time-and-
materials contracts. The Company bases VSOE for training on standard rates
charged for each particular training course. These rates are the rates charged
when the training is sold separately for supplemental training courses. For PCS,
VSOE is determined by reference to the renewal rate the Company charges the
customer in future periods. The fee allocated to the delivered software product
is based upon the residual method described in SOP 98-9.

The Company recognizes license revenues from vertical application product
sales and

Universal Application development licenses that do not include services or where
the related services are not considered essential to the functionality of the
software, when the following criteria are met: the Company has signed a
noncancellable license agreement with nonrefundable fees; the Company has
shipped the software product; there are no uncertainties surrounding product
acceptance; the fees are fixed and determinable; and collection is considered
probable. This policy applies both when the vertical application license or the
Universal Application development licenses are sold separately or when a
Universal Application development license is sold with an application
development project. License fees recognized upon achieving these criteria, for
the three months ended March 31, 2001 were $0 as compared to $512,000 for the
three months ended March 31, 2000. Services relating to the Universal
Application development licenses only include post contract customer support
services. Services for vertical application product licenses do not add
significant functionality, features, or significantly alter the software. In
addition, similar services are available from other vendors; there are no
milestones or customer specific acceptance criteria which affect the
realizability of the software license fee; and the software license fee is non-
cancelable and non-refundable.

For software arrangements that include a service element that is considered
essential to the functionality of the software, the Company recognizes license
fees related to the application, and the application development service fees,
over time as the Company performs the services, using the percentage-of-
completion method of accounting and following the guidance in Statement of
Position ("SOP") 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. The Company makes adjustments, if necessary,
to the estimates used in the percentage-of-completion method of accounting as
work progresses under the contract and as the Company gains experience.
For presentation purposes within the Condensed Consolidated Statements of
Operation Fixed-price project revenues are split between license and service
based upon the relative fair value of the components.

For certain projects, the Company limits revenue recognition in the period
to the amount of direct and indirect project costs incurred in the same period,
and postpones recognition of profits until results can be estimated more
precisely. At March 31, 2001, the Company is applying this "zero profit"
methodology to all fixed-price projects except those relating to its Revenue
Manager application. The total project values for ongoing projects at March 31,
2001 accounted for using the "zero profit" methodology is approximately $57.6
million. Revenue recognized from these projects during the three months ended
March 31, 2001 was $4.2 million as compared to $6.1 million during the three
months ended March 31, 2000.

For time and material contracts, the Company generally estimates a profit
range and recognizes the related revenue using the lowest level of profit in the
estimated range. Billings in excess of revenue recognized under time and
material contracts are deferred and recognized upon completion of the time and
material contract or when the results can be estimated more precisely.

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

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

The Company records billings and cash received in excess of revenue earned
as deferred revenue. The Company's deferred revenue balance at March 31, 2001
was $30.1 million. The Company's deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to the Company in
advance of revenues earned, and from application of the "zero profit" margin
methodology described above. The Company's unbilled accounts receivable
represents revenue that the Company has earned but which the Company has not yet

billed. The Company bills customers as payments become due under the terms of
the customer's contract. The Company considers current information and events
regarding its customers and their contracts and establishes allowances for
doubtful accounts when it is probable that the Company will be unable to collect
amounts due under the terms of existing contracts.

3. Earnings (Loss) Per Share

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

Three Months Ended
March 31,
-----------------------------------
Numerator: 2001 2000
------------ ------------

Numerator for basic earnings (loss) per share - net income
(loss) available to common stockholders.......................... $ (5,198) $ 2,137
============ ============
Assumed dilution related to subsidiaries' earnings (loss)
applicable to minority stockholders.............................. - (43)
------------ ------------

Numerator for diluted earnings (loss) per share................... $(5,198) $ 2,094
============ ============

Denominator:
Denominator for basic earnings (loss) per share - weighted
average shares................................................... 35,404 34,038
============ ============
Employee stock options............................................ - 4,826
------------ ------------
Denominator for diluted earnings (loss) per share................. 35,404 38,864
============ ============

Earnings (loss) per common share:
Basic earnings (loss) per common share............................ $ (0.15) $ 0.06
============ ============
Diluted earnings (loss) per common share.......................... $ (0.15) $ 0.05
============ ============

Employee stock options of 16,252,776 and 182,700 outstanding during the
three months ended March 31, 2001 and 2000, respectively, that have a weighted
average exercise price of $10.45 and $58.51 per share, respectively, and that
could potentially dilute basic earnings per share in the future, were not
included in the computation of diluted earnings per share because to do so would
have been anti-dilutive for the period.

Warrants to purchase 1,181,600 shares of common stock in a wholly-owned
subsidiary outstanding during the three months ended March 31, 2001 and 2000
that could potentially dilute basic earnings per share were not included in the
computation of diluted earnings per share because to do so would have been anti-
dilutive.

4. Cash Equivalents

Cash equivalents include all highly liquid investments purchased with remaining
maturities of three or fewer months. Cash equivalents are recorded at cost,
which approximates fair value, and consist primarily of investments in money
market mutual funds, commercial paper, auction rate money market preferred stock
investments, and taxable and non-taxable municipal bonds and notes.

5. Restricted Cash

Restricted cash relates to $3.5 million to collateralize letters of credit
that secure the Company's office facilities in Chicago and San Francisco; $2.9
million held in an escrow account

as part of the Company's agreement with Linedata Services related to the sale of
The LongView Group, Inc.; $2.1 million held in an escrow account to secure a
lease on office space in South Jordan, Utah; and $340,000 held in the Company's
cash accounts to secure letters of credit used to secure leases on office space
in Atlanta, Georgia and Dallas, Texas.

6. Comprehensive Income (Loss)

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income (loss) and its
components in financial statements. Comprehensive income (loss) for the three
months ended March 31, 2001 and 2000, ignoring the insignificant impact of taxes
on foreign currency translation, were as follows (in thousands):

Three Months Ended
March 31,
-------------------------------------
2001 2000
------------ ------------

Net income (loss)............................................. $ (5,198) $ 2,137

Foreign currency translation.................................. 192 (100)
------------ ------------
Comprehensive income (loss)................................... $ (5,006) $ 2,037
============ ============

7. Income Taxes

The provision for income taxes for the three months ended March 31, 2001
relates primarily to income taxes on the gain from the sale of The LongView
Group, Inc., foreign taxes, and an adjustment to record a valuation allowance
against remaining net deferred tax assets. No tax benefit was recorded during
the quarter for the Company's net operating losses.

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 deferred tax assets.
Based on a number of factors, the currently available, objective evidence
indicates that it is more likely than not that the Company's net deferred tax
assets will not be realized.

8. Commitments

The Company has commitments under long-term operating leases, principally
for office space and computer equipment. Future minimum lease payments under
non-cancelable operating lease obligations, in excess of one year, at March 31,
2001 are as follows (in thousands):

Year Amount
---- ------------
Q2-Q4, 2001 $ 6,755
2002 10,382
2003 8,861
2004 8,497
2005 8,035
Thereafter 26,578
------------
Total minimum lease commitments $ 69,108
============

During the three months ended March 31, 2001, the Company subleased a
portion of its office space in San Francisco for sublease amounts in excess of
the Company's contractual lease commitment. During the three months ended March
31, 2001, the Company received sublease payments of $1.1 million of which
$603,000 was recorded as an offset to operating expenses, and

$413,000 was recorded as a prepayment for future periods. The remaining $84,000
was recorded as other income in the Condensed Consolidated Statements of
Operations for the three months ended March 31, 2001. The table of future
minimum lease payments above has not been reduced by future minimum rentals due
under subleases of $1.4 million for the remainder of 2001 and $493,000 in 2002.

During the year ended December 31, 2000 and the three months ended March
31, 2001, the Company received prepayments on certain sublease agreements, which
the Company recorded as other current liabilities and other long-term
liabilities. During the three months ended March 31, 2001, the Company
recognized $62,000 of these sublease prepayments as an offset to operating lease
expenses, and $48,000 as other income. At March 31, 2001, the balance of these
prepayments was $1.7 million in current liabilities and $770,000 in long-term
liabilities.

In May of 2000, the Company signed a 10-year lease for approximately
170,000 square feet of office space in South Jordan, Utah. This lease is part of
a development project. The lease, without any modification to the development
project, commences upon completion of construction and the Company's subsequent
occupancy of the office space, which is estimated to occur in late 2001 or early
2002. It is expected that this lease will be an operating lease. In December of
2000, the Company negotiated with the developer of the project to reduce its
commitments under this lease obligation by 65,431 square feet. During the three
months ended March 31,2001, the Company began pursuing options to reduce this
commitment further, including the possible sublease of a significant portion of
this space. As of the date of these financial statements, the Company continues
to negotiate a reduction to this commitment. The future minimum lease payments
under the modified lease are included in the table above.

The Company currently leases approximately 22,000 square feet in Chicago,
Illinois. As part of this lease agreement, the Company is obligated to expand
its leased space in this facility by approximately 44,000 square feet beginning
October 1, 2001. The minimum lease payments associated with this obligation are
included in the table above. As of the date of these financial statements, the
Company is in the process of renegotiating the requirement.

In March 2001, the Company announced plans to close its offices in Atlanta,
Georgia; Irving, Texas; Foster City, California; and Raleigh, North Carolina.
See Note 10 for additional information. The table of future minimum lease
payments above includes payments of approximately $7.1 million for facilities
closed as part of the Company's restructuring activities in the fourth quarter
of 2000, and the first quarter of 2001.

The Company did not incur any additional capital lease obligations during
the three months ended March 31, 2001.

9. Legal Proceedings and Contingencies

Recently Resolved Customer Disputes

use of the Company's proprietary information. Westfield did not oppose that
motion. In February of 2001, the parties agreed to engage in non-binding
mediation. Accordingly, the court issued a stay of all proceedings pending the
outcome of the mediation. Effective April 26, 2001, the parties entered into a
Settlement Agreement and Mutual Release in which the parties agreed to settle
and resolve all claims between the two companies in consideration for each
dismissing all claims against the other and in further consideration of a
compromised and confidential payment from the Company's errors and omissions
carrier to Westfield in excess of the Company's self-insured retention of
$25,000 already paid by the Company to cover legal defense costs.

On August 18, 2000, Trumbull Services, L.L.C. ("Trumbull"), filed a demand
for arbitration with the American Arbitration Association seeking a refund of at
least $2.8 million paid by Trumbull to the Company. The demand alleges that the
Company failed to deliver on contractual commitments under the Master Software
License and Service Agreement, (the "Trumbull Agreement"), as amended. Trumbull
claimed it was entitled to a refund of fees paid to the Company from the second
quarter of 1999 through the second quarter of 2000. On September 13, 2000, the
Company filed an Answer and Counterclaim denying Trumbull's allegations and
seeking recovery of approximately $2.0 million in fees that Trumbull owes the
Company under the Trumbull Agreement. On May 10, 2001, the Company and Trumbull
entered into a Settlement Agreement and Mutual Release in which the parties
agreed to settle and resolve all claims between the two companies in
consideration for each dismissing all claims against the other and in further
consideration of a compromised and confidential payment from the Company's
errors and omissions carrier to Trumbull in excess of the Company's self-insured
retention of $100,000. The arbitration proceeding has been cancelled and all
claims have been released.

On October 4, 2000, Unitrin Services Company, Inc. ("Unitrin"), sent the
Company a notice of dispute letter requesting non-binding mediation. Unitrin was
seeking a refund of fees paid by Unitrin to the Company for the PowerPAC
application of approximately $13.3 million, plus other unspecified damages.
Settlement negotiations between the Company and Unitrin continued and on March
8, 2001, the parties entered a Confidential Settlement Agreement and Release,
dismissing all of Unitrin's claims. The Company's errors and omissions insurance
carrier paid the entire amount of the compromised and confidential settlement
sum above the $100,000 of self-insurance retention already paid by the Company
to cover legal defense costs.

On April 4, 2001, the Company received a letter from another customer
alleging that the Company has materially breached the Company's contract with
that customer. On May 2, 2001, the Company entered a Termination and Settlement
Agreement with this customer under which the customer agreed to pay the Company
a compromised and confidential settlement amount for services the Company has
provided to this customer. For the three months ended March 31, 2001, the
Company recognized $721,000 in revenues from this customer and recognized no
revenue from this customer for the same period in 2000. As a result of the
Termination and Settlement Agreement, the Company will recognize $2.2 million in
revenues during the three months ending June 30, 2001, which represents the
deferred profits on the contract.

Customer Disputes

On June 14, 2000, Nielsen Media Research, Inc. ("Nielsen"), filed a
complaint in the Circuit Court of Cook County, Illinois seeking $4.5 million,
plus out of pocket expenses paid by Nielsen to the Company. The complaint
alleges that the Company failed to deliver on contractual commitments under a
license and services agreement with Nielsen and includes specific claims of
breach of contract and violation of the Illinois Consumer Fraud and Deceptive
Practices Act. The amount being sought from the Company by Nielsen is for fees
paid to the Company by Nielsen from the fourth quarter of 1997 through the first
quarter of 2000 and recognized as revenue by the Company during this period. On
August 30, 2000, the Company filed an Answer and Counterclaim denying Nielsen's
claims and seeking recovery of at least $1.7 million that Nielsen owes the
Company under the license agreement, plus the Company's attorney fees and costs.
For

the three months ended March 31, 2001, the Company recognized no revenue from
the Nielsen contract and recognized $441,000 in revenues from Nielsen during the
same period in 2000.

The case is in its preliminary stages and based on the information
currently available, the Company believes it has valid defenses against
Nielsen's claims and intends to vigorously defend against Nielsen's claims and
enforce the Company's rights under the agreement. On August 3, 2000, the Company
filed a motion to dismiss Nielsen's claim under the Illinois Consumer Fraud and
Deceptive Practices Act on the grounds that Nielsen had failed to state a claim
under the Act. On October 19, 2000, the court granted the Company's motion to
dismiss; however, the court gave Nielsen leave to attempt to replead a claim
under such Act. Nielsen has not done so. The case is now in active discovery.
The Company's legal counsel has commenced investigation of the facts pertinent
to the claims. An unfavorable outcome of this matter may have a material adverse
impact on the Company's business, results of operations, financial position, or
liquidity.

On November 9, 2000, Utica Mutual Insurance Company ("Utica"), notified the
Company of its intent to terminate the Software License and Services Agreement
("Utica Agreement") dated November 2, 1998. On December 15, 2000, Utica sent a
letter to the Company proposing that the parties rescind the contract, that the
Company refund all payments made by Utica, and that the Company compensate Utica
for the expenses Utica allegedly incurred in fulfilling its contractual duties.
On December 20, 2000, Utica provided the Company with statutorily required
notice of alleged violations of Utah's Truth in Advertising statute. On January
3, 2001, Utica filed a complaint against the Company in the Federal District
Court of Utah. In its complaint, Utica asserts claims for breach of contract,
breach of warranties and guarantees, false advertising under a Utah statute,
negligent misrepresentation, and fraud. Utica seeks monetary damages of
approximately $15.5 million in fees and expenses under the contract, plus any
additional amount recoverable under the contractual guarantee, as well as
punitive damages, prejudgment interest, attorneys' fees, and costs. Utica also
seeks an injunction against alleged false advertising by the Company under a
Utah truth-in-advertising statute. On January 23, 2001, the Company filed an
Answer denying Utica's claims. On February 27, 2001, Utica filed a motion for
partial summary judgment on its breach of contract claim seeking an order of
rescission. On March 29, 2001, the Company filed its opposition to Utica's
motion for partial summary judgement. On May 1, 2001, the court heard argument
and denied Utica's motion for partial summary judgment, finding no basis for
rescission of the contract. However, the court also issued a finding that the
Company had failed to deliver the software application within the time allowed
under the contract. Discovery is ongoing and the Company's outside legal
counsel continues to gather relevant documents and interview potential
witnesses. As of March 31, 2001, of the fees paid by Utica, $1.7 million has not
been recognized as revenue and is included in accrued liabilities together with
an accrued loss amount of $582,000 which the Company established during the
quarters ended June 30, 2000 and September 30, 2000 in the normal course of
performing its percentage-of-completion calculations.

The total revenues recognized by the Company from the Utica Agreement from
November 2, 1998 through March 31, 2001, were $7.6 million. Of this amount, $3.9
million is not subject to the terms of the limited guarantee. The Company
recognized no revenue from the Utica Agreement for the three months ended March
31, 2001, and recognized $1.2 million during the same period of 2000.

Although this matter is still in the early stages of litigation, it is
probable, based on the court's factual finding of breach, that the Company may
suffer a loss on Utica's claims that the Company failed to deliver the software
application within the time allowed under the contract. The Company believes
that its errors and omissions insurance covers damages that may arise out of
Utica's claims that the Company failed to deliver the software application
within the time allowed under the contract, as well as covering the costs of
legal defense, subject to the policies' total limit, and the insurance carrier's
standard reservation of rights. However, the Company will vigorously assert its
rights under the Utica Agreement and defend against Utica's claims. An
unfavorable outcome of this matter may have a material adverse impact on the
Company's

business, results of operations, financial position, or liquidity.

On November 2, 2000, the Company received notice of intent to terminate the
Master Software Licenses and Service Agreement (the "SCEM Agreement") between
the Company and Southern Company Energy Marketing L.P. ("SCEM") due to an
alleged material nonperformance by the Company. SCEM filed a demand for
arbitration with the American Arbitration Association on November 22, 2000
seeking "an award of $20 million in damages, plus interest"-- an amount
allegedly consisting of all amounts previously paid to the Company in software
development plus license fees of approximately $10.2 million. The Company
responded in a timely manner to the demand denying that it breached the contract
and filed detailed Counterclaims including a breach of contract claim against
SCEM for improper and ineffective termination of the contract and nonpayment.
The Company is seeking to recover damages exceeding $1 million in unpaid fees.
The Company has filed a motion for summary judgment seeking immediate dismissal
of SCEM's breach of contract claim and an award of damages in the Company's
favor on its claims against SCEM. The arbitrator selected by the parties will
consider the Company's motion for summary judgment in early June, 2001. If the
Company's motion for summary judgment is not granted, the arbitration hearing is
expected to take place in Dallas, Texas commencing on June 18, 2001. Total
revenue recognized by the Company during the second quarter of 1999 through the
first quarter of 2001 was $11.5 million. For the three months ended March 31,
2001, the Company recognized no revenue from SCEM and recognized $2.9 million
from SCEM during the same period in 2000.

The matter is in the active discovery stage, and based on the information
currently available, the Company will continue to vigorously assert its rights
under the SCEM Agreement and defend against SCEM's claims, including recovery of
the amounts SCEM owes the Company and the remaining amounts due under the SCEM
Agreement. An unfavorable outcome of this matter may have a material adverse
impact on the Company's business, results of operations, financial position, or
liquidity.

On December 14, 2000, Crawford & Company ("Crawford") sent a letter to the
Company purporting to give notice of breach under the terms of the Master
Software License and Services Agreement between the Company and Crawford (the
"Crawford Agreement"). Crawford's letter also purports to give notice of
Crawford's election to terminate the Crawford Agreement. Crawford's letter
asserts that the Company failed to deliver the NIMBUS software application
within the agreed schedule for doing so. Although Crawford has not filed a
formal complaint or made a formal demand for arbitration, Crawford is demanding
refund of all fees paid by Crawford under the Crawford Agreement, plus a
performance penalty of $2.0 million. The Crawford Agreement provides that, in
the event of a dispute, the parties must follow a dispute resolution procedure
consisting initially of a three-tiered negotiation process by which settlement
negotiations are elevated to increasingly higher levels of management for 90
days before either party makes a demand for arbitration. The parties met on
January 25, 2001 in the second tier of settlement negotiations. The parties were
unable to reach agreement and exchanged correspondence confirming the topics
discussed at the meeting. The Company is waiting for Crawford to initiate the
third tier of negotiations. The Crawford Agreement further provides that if
resolution is not achieved within the 90-day period, the dispute shall be
determined by binding arbitration upon the initiation of either party. For the
three months ended March 31, 2001, the Company recognized no revenue from
Crawford and recognized negative $993,000 million in revenues from Crawford
during the same period in 2000 as a result of adjustments made to its estimated
costs to complete the project.

The Company does not believe that it materially breached the Crawford
Agreement. Should Crawford persist in its attempt to terminate the Crawford
Agreement, the Company will vigorously assert its rights under the Crawford
Agreement and defend against Crawford's claims, including recovery of the
amounts that Crawford owes the Company and the remaining amounts due under the
Crawford Agreement totaling at least $1.8 million. An unfavorable outcome of
this matter may have a material adverse impact on the Company's business,
results of

operations, financial position, or liquidity.

In March 2001, SkyTel Communications, Inc. ("SkyTel") orally informed the
Company of its intent to terminate the Master Software License and Services
Agreement between SkyTel and the Company (the "SkyTel Agreement"). The Company
disclosed the initial contact in its Form 10-K for the year ended December 31,
2000. On May 15, 2001, SkyTel sent the Company a letter purporting to terminate
the SkyTel Agreement based on the Company's alleged material breach of the
SkyTel Agreement. SkyTel's letter also demands a refund of approximately $11
million paid by SkyTel under the SkyTel Agreement. The matter is in its
preliminary stages, and based on the information currently available, the
Company will vigorously assert its rights under the agreement and defend against
the customer's claims, including payment of the amounts that the customer owes
the Company and the remaining amounts due under the agreement totaling at least
$ 6.2 million. While the Company believes that this potential dispute will be
covered by one of its prior errors and omissions and umbrella liability
policies, if the alleged error or omission did occur, the Company would need to
show that it occurred during the coverage period of the prior policy. The total
contract value of this potentially material customer dispute is approximately
$17.6 million, of which $11.4 million has been received by the Company to date.
An unfavorable outcome of this matter may have a material adverse impact on the
Company's business, results of operations, financial position, or liquidity.

As a result of the legal proceedings and contingencies noted above, the
Company has provided an allowance for doubtful accounts of $2.8 million related
to billed accounts receivable and $2.9 million related to unbilled accounts
receivable at March 31, 2001.

The Company maintained errors and omissions and umbrella liability
insurance coverage to protect itself in the event of claims for damages related
to the performance of or failure to perform computer-related services that
occurred after March 1, 1998 but prior to March 1, 2001. The Company believes
that this insurance covers the types of alleged damages (but not unpaid or
unbilled accounts receivable) that may be claimed in the legal cases and
customer disputes noted above (with the possible exception of the additional
potential customer dispute), as well as covering the costs of legal defense,
subject to the policies' total limit, and the insurance carrier's standard
reservation of rights under which the carrier defers its final determination of
the amount of claims that it will cover until final disposition of a case.
Although the total maximum potential liability for these disputes exceeds the
policies' total limit, management believes that it is unlikely that the
Company's losses from existing claims will exceed the policies' limits. The
Company has reserved against certain of the billed and unbilled accounts
receivable related to these disputed amounts for which a loss is considered
probable. An unfavorable outcome or claim not covered by an insurance policy on
one or more of these matters may have a material adverse impact on the Company's
business, results of operations, financial position, or liquidity.

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

The Company may in the future face other litigation or disputes with
customers, employees, partners, stockholders, or other third parties. Such
litigation or disputes could result in substantial costs and diversion of
resources that would harm the Company's business. An unfavorable outcome of
these matters may have a material adverse impact on the Company's business,
results of operations, financial position, or liquidity.

Stockholder Matters

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

On October 30, 2000, the Company's motion to consolidate the six complaints
into one class action complaint was granted. On March 7, 2001, the court
appointed lead plaintiffs and lead class counsel. On May 1, 2001, the plaintiffs
filed an amended consolidated complaint that repeats their earlier allegations
while adding additional details regarding the projects on which revenue was
allegedly improperly recognized. The Company is reviewing this complaint and
intends to file a motion to dismiss on or before June 19, 2001.

Management and outside legal counsel believe that the defendants have
meritorious defenses to the allegations made in these lawsuits. Because the
matter is in its preliminary stages, the Company's outside legal counsel is not
able to provide an opinion on the probable outcome of the claim and therefore,
no provision for loss has been recorded in the Company's Condensed Consolidated
Financial Statements. Although the Company carries directors and officers
liability insurance that it believes is sufficient for such class action claims,
the Company intends to vigorously defend itself and denies any wrongdoing. An
unfavorable outcome of this matter may have a material adverse impact on the
Company's business, results of operations, financial position, or liquidity.

SEC Inquiry

On May 26, 2000, the United States Securities and Exchange Commission
("SEC") issued a Formal Order Directing Private Investigation. The Order
contains no specific factual allegations. The Company understands, however, that
the SEC is conducting a non-public fact-finding inquiry into the Company's
revenue recognition decisions on approximately 15 contracts. The Company has
received several document subpoenas from the SEC and the Company has complied or
is in the process of complying with them. The Company has learned that the SEC
has issued subpoenas to its independent auditors and to several of its current
and former customers. In February 2001, the SEC took testimony from the
Company's former Chief Financial Officer. In March 2001, the SEC took testimony
from the Company's Senior Vice President of Applications Products and the
Company's former Senior Vice President, Sales and Marketing who was also the
President of TenFold Insurance, Inc.

The inquiry is in its preliminary stages and the Company has retained outside
legal counsel to represent it concerning the investigation. The SEC has a number
of statutory remedies that it may use in both fraud and non-fraud (books and
records) enforcement proceedings. These remedies include various forms of
injunctive relief, monetary penalties, and orders barring individuals from
future employment in public companies. It is too early in the inquiry to say
which of these remedies, if any, the SEC might seek against the Company and its
officers. Management and outside legal counsel believe that the Company has
meritorious defenses to any allegations the SEC may make and intends to continue
to cooperate fully with the SEC. However, because the inquiry is in its
preliminary stages, the Company's outside legal counsel is not able to provide
an opinion on the probable outcome of the inquiry. An unfavorable outcome of
this matter may have a material adverse impact on the Company's business,
results of operations, financial position, or liquidity.

10. Special Charges

Special charges for the three months ended March 31, 2001 include a $3.0
million asset impairment charge, and a $2.7 million restructuring charge.

Asset Impairment Charge. During the three months ended March 31, 2001, the
Company restructured operations to reduce operating expenses. As part of the
restructuring, the Company closed facilities in Atlanta, Georgia; Foster City,
California; Irving, Texas; and Raleigh, North Carolina. The Company had $1.8
million of leasehold improvements, furniture and fixtures, and other assets in
these offices that it determined had no future value to the Company and are no
longer in active use. In addition the Company determined that $766,000 of
computer equipment was also similarly impaired as a result of these
restructuring activities. The Company also determined that it would not be able
to sell its Marin County land and building for the amount it had previously
expected, and as a result the Company recorded a further asset impairment charge
of $481,000 on this asset. Accordingly, the Company recorded a total asset
impairment charge of $3.0 million during the three months ended March 31, 2001.

First Quarter 2001 Restructuring Charge. During the three months ended
March 31, 2001, the Company incurred a restructuring charge of $2.7 million as
part of its continuing efforts to reduce operating expenses. As part of this
restructuring, the Company closed offices in Atlanta, Georgia; Foster City,
California; Irving, Texas; and Raleigh, North Carolina, and reduced its
workforce by 38 individuals. The restructuring charge was comprised of $226,000
for headcount reductions, and $2.5 million for facilities related costs. As of
March 31, 2001 $256,000 had been paid out on this restructuring accrual.

The Company determined its 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 the Company commit to an
exit plan before it accrues employee termination costs and exit costs. On March
15, 2001, the Company's senior management prepared a detailed exit plan that
included the termination of 38 employees and closure of certain facilities.

In connection with the restructuring actions, the Company terminated the
employment of 38 employees, consisting primarily of applications development
employees, technical and other support employees, and administrative employees
in all of its locations. All employees associated with these restructuring
actions were notified as of March 31, 2001. At March 31, 2001 the Company had
exited facilities in Atlanta, Georgia; Foster City, California; Irving, Texas;
and Raleigh, North Carolina. The Company is pursuing sublease arrangements for
these facilities.

The Company expects to generate annualized savings of approximately $9
million ($0.26 per share) in the following areas: $5 million in reduced cost of
revenues, $200,000 in reduced sales and marketing expenses, $3 million in
reduced research and development expenses, and $500,000 in reduced general and
administrative expenses.

The first quarter restructuring reserves are included in accrued
liabilities and accounts payable at March 31, 2001. Detail of the restructuring
charges as of and for the three months ended March 31, 2001 are summarized
below:

First Quarter 2001 Original Balance at
Restructuring Actions: Charge Reversals Utilized March 31, 2001
- --------------------- -------- --------- -------- --------------
Employee related $ 226 $ - $ 165 $ 61
Facilities related 2,465 - 91 2,374
-------- --------- -------- --------------
$ 2,691 $ - $ 256 $ 2,435
======== ========= ======== ==============

Original Balance at
Balance Sheet Components: Charge Reversals Utilized March 31, 2000
- ------------------------- -------- --------- -------- --------------
Accrued liabilities $ 2,675 $ - $ 240 $ 2,435
Accounts payable 16 - 16 -
-------- --------- -------- --------------
$ 2,691 $ - $ 256 $ 2,435
======== ========= ======== ==============

Fourth Quarter 2000 Restructuring Charge. During the three months ended
December 31, 2000, the Company incurred a restructuring charge of $1.9 million
as part of a plan to improve 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. This charge is part of a plan to streamline the Company's efforts to
focus on a return to profitability. 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 March 31, 2001 approximately $1.7 million had been
paid out on the restructuring charge.

The Company determined its 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 the Company commit to an
exit plan before it accrues employee termination costs and exit costs. On
November 14, 2000, the Company's 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, the Company terminated the
employment of 159 employees, consisting primarily of applications development
employees, technical and other support employees, and administrative employees
in all of its locations. In addition, the Company did not replace approximately
40 employees who resigned voluntarily during October and November 2000. At
December 31, 2000, the Company had terminated all employees associated with
these restructuring actions. As of March 31, 2001, the Company has exited a
portion of its facility in Salt Lake City, Utah and closed duplicative offices
in Chicago, Illinois; San Francisco, California; and Dallas, Texas. The Company
has entered into sublease arrangements for its Dallas, Texas and Chicago,
Illinois office space.

The Company expects to generate annualized savings of approximately $40
million ($1.11 per share) from this restructuring, in the following areas: $30
million in reduced cost of revenues, $3 million in reduced sales and marketing
expenses, $4 million in reduced research and development expenses, and $3
million in reduced general and administrative expenses.

The Company also reached an agreement to decrease its lease commitment for
new office space currently under construction in South Jordan, Utah, and is
actively pursuing the sale of two office buildings in San Rafael, California.

Restructuring reserves are included in accrued liabilities and accounts
payable at March 31, 2001.

Fourth Quarter 2000 Balance at Balance at
Restructuring Actions: December 31, 2000 Reversals Utilized March 31, 2001
- --------------------- ----------------- --------- -------- --------------
Employee related $ 141 $ - $ 141 $ -
Facilities related 321 - 155 166
----------------- --------- -------- --------------
$ 462 $ - $ 296 $ 166
================= ========= ======== ==============

Balance Sheet Balance at Balance at
Components: December 31, 2000 Reversals Utilized March 31, 2001
----------- ----------------- --------- -------- --------------
Accrued liabilities $ 321 $ - $ 155 $ 166
Accounts payable 141 - 141 -
----------------- --------- -------- --------------
$ 462 $ - $ 296 $ 166
================= ========= ======== ==============

11. Operating Segments

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 131, Disclosure About Segments of an Enterprise and Related
Information ("SFAS No. 131"). SFAS No. 131 establishes standards for the
reporting by public business enterprises of

information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operating decisions and assessing financial performance. The
Company's chief operating decision-maker is considered to be the Company's CEO.

In the fourth quarter of 1999, the Company implemented a vertical business
strategy. This vertical business strategy involved segmenting the Company's
business along industry lines, through the creation of separate subsidiaries,
and having these subsidiaries evolve into separate operating companies. During
the year ended December 31, 2000, the CEO reviewed financial information
presented on a consolidated basis accompanied by disaggregated information about
revenues by Vertical Business Group for purposes of making operating decisions
and assessing financial performance. Beginning in 2001, the Company's CEO
reviews the Company's financial information on a consolidated basis only. The
consolidated financial information reviewed by the CEO for the three months
ended March 31, 2001 is identical to the information presented in the
accompanying consolidated statements of operations. Therefore, the Company
operates in a single operating segment, which is applications products and
services.

Revenues from operations outside of North America were approximately 23
percent of total revenues for the three months ended March 31, 2001 as compared
to 10 percent of total revenues for the same period in the prior year. The
Company's long-lived assets continue to be deployed predominantly in the United
States.

Three customers accounted for 12 percent, 11 percent, and 10 percent of the
Company's total revenues for the three months ended March 31, 2001, compared to
one customer accounting for 24 percent of the Company's total revenues for the
same period in 2000. No other single customer accounted for more than 10 percent
of the Company's total revenues for the three months ended March 31, 2001 or the
same period in 2000.

12. Acquisition and Disposition

On September 30, 1999, the Company entered into a Stock Purchase Agreement
("Agreement") with Barclays California Corporation ("BarCal") whereby the
Company purchased the entire equity interest of BarCal in its wholly owned
subsidiary, The LongView Group, Inc. ("LongView"). On October 7, 1999, the
acquisition was closed. On March 15, 2001, the Company sold LongView for $29.0
million to Linedata Services. Accordingly, the operations of LongView have been
included in the accompanying consolidated statements of operations for the
Company since the acquisition through March 15, 2001. The Condensed Consolidated
Statements of Operations for the three months ended March 31, 2001 includes
revenues of approximately $3.4 million and net income of approximately $370,000
related to the operations of Longview. The acquisition was accounted for using
the purchase method of accounting.

On March 15, 2001, Argenesis Corporation ("Argenesis"), a wholly owned
subsidiary of the Company entered into a LongView Purchase Agreement
("Agreement") with Linedata Services ("Linedata") whereby Argenesis sold its
entire equity interest in its wholly-owned subsidiary, The LongView Group, Inc.
("LongView"). The transaction closed on March 15, 2001. Beginning March 15,
2001, the financial results of the Company exclude the operating results of
LongView.

Pursuant to the Agreement, Argenesis sold to Linedata all of the issued and
outstanding capital stock (and any other equity interests) of LongView for $29.0
million in cash proceeds and recognized a gain of approximately $13.8 million.
In connection with this Agreement, the Company deposited $2.9 million in an
interest bearing escrow account to be used for settlement of indemnified claims
that may arise over the next eighteen months, and which is included in
restricted cash on the Condensed Consolidated Balance Sheet at March 31, 2001.
The Company also incurred a state income tax liability of approximately $1.9
million on the sale.

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

Amount
--------
Total purchase price.................... $ 29,000
Less costs associated with sale....... (885)
Net proceeds from sale.................. 28,115
Net book value of subsidiary............
Current assets........................ $ (1,455)
Long-term assets...................... (21,441)
Current Liabilities................... 5,745
Long-term liabilities................. 2,807
(14,344)
--------
Gain on sale............................ $ 13,771
========
13. Subsidiary Stock Plans

During 1999, the Company formed six subsidiaries in each of which the
Company holds 20,000,000 issued and outstanding shares of common stock.

Each of the six subsidiaries formed during 1999, with approval of its
respective Board of Directors, adopted its own stock plan during 1999. The terms
of the plans are similar to the Company's 1999 Stock Plan. A total of 3,740,000
shares of common stock of each subsidiary has been reserved under the Stock
Plans for each of the six subsidiaries. The Company accounts for the sale of
common stock in the Company's subsidiaries as an equity transaction.

The stock underlying each subsidiary option grant is Class A common stock
of the subsidiary. The Company currently holds 10,000,000 shares of Class A
common stock in each subsidiary. Each subsidiary also has a Class B common stock
which is similar to the Class A common stock, except that the Class B common
stockholders as a class are entitled to elect 80 percent of the subsidiary's
directors. The Company currently holds 100 percent of the Class B common stock
authorized and issued by each of the subsidiaries, or 10,000,0000 shares. The
Company has no current intent to dispose of its Class A and Class B ownership
interests in any subsidiary.

The subsidiary common stock is not convertible into Company stock.
Employees can sell or transfer the subsidiary common stock, subject to
applicable securities laws and the subsidiary's right of first refusal on any
bona-fide offer to purchase such stock that the employee receives from a third-
party. Exercise of the subsidiary's right of first refusal is at the
subsidiary's choice. The right of first refusal terminates upon the public
registration of the subsidiary's stock. Neither the Company nor any subsidiary
is required to purchase these shares if the employee terminates employment.

Each subsidiary's Board of Directors determines the fair market value for
its stock at the date of option grant based upon its knowledge of the
subsidiary's financial condition, prospects, success in the marketplace, counsel
from their professional advisors such as outside counsel or independent
appraisers, and other factors. These subsidiaries have from time to time,
historically every six months, obtained formal valuations from independent
appraisers. The valuations provided by these independent appraisers consider
many factors, including for example, market valuations of similar vertical
software companies and system integrators, the Company's market valuation, and
the value of the subsidiary's discounted future cash flows.

The Company has not issued any options to purchase common stock in its
horizontal subsidiary, TenFold Technology, Inc.

One employee exercised stock options for the purchase of 200,000 shares at
a purchase price of $4.80 per share in the Company's insurance subsidiary during
the three months ended March 31, 2000. No compensation expense has been provided
for this option exercise as the exercise price was equivalent to the estimated
fair market value of the insurance subsidiary stock at the date of grant. The
insurance subsidiary provides large-scale e-business applications for leading
customers in the insurance industry. In connection with this option exercise,
the Company loaned the employee $960,000, which is included in stockholders'
equity in the Condensed Consolidated Balance Sheet under the caption Notes
Receivable from Stockholders. This loan is full recourse, secured by the related
shares, and bears interest at 6.56 percent per annum. During the three months
ended December 31, 2000, the Company established an allowance against this note.
As of March 31, 2001, the related minority interest has been reduced to zero due
to net operating losses incurred subsequent to the exercise of the stock
options. Subsequent to March 31, 2001, the employee resigned from the subsidiary
and agreed to transfer the shares back to the Company; and the Company agreed to
cancel the outstanding loan. As a result of this event, the Company will again
own 100 percent of its insurance subsidiary.

In March 2001, under the terms of its existing option plan, and in
connection with its sale of The LongView Group, Inc. the Company's Argenesis
subsidiary accelerated vesting of its outstanding stock options. Under the terms
of the existing option plan, optionees had a specified

time to exercise their options, or they would terminate. No optionee chose to
exercise their options. As a result, the options terminated, no Argenesis
options remain outstanding and the Company owns 100 percent of this subsidiary.

No grants of subsidiary stock options and no issuances of subsidiary stock
occurred during the three months ended March 31, 2001.

14. Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes
new accounting and reporting standards for companies to report information about
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. For a derivative not designated as a hedging instrument, changes in the
fair value of the derivative are recognized in earnings in the period of change.
The Company adopted SFAS No. 133 on January 1, 2001. The adoption of SFAS No.
133 did not have a material effect on the Company's business, results of
operations, financial position, or liquidity. The Company has no derivatives as
of March 31, 2001.

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125. This standard revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
adoption of SFAS No. 140 is not expected to have a material effect on the
Company's business, results of operations, financial position, or liquidity.

15. Subsequent Events

On April 4, 2001, the Company received a letter from a customer alleging that
the Company had materially breached its contract with that customer. On May 2,
2001, the Company entered a Termination and Settlement Agreement with this
customer under which the customer agreed to pay the Company a compromised and
confidential settlement amount for services the Company has provided to this
customer. For the three months ended March 31, 2001, the Company recognized
$721,000 in revenues from this customer and recognized no revenue from this
customer for the same period in 2000. As a result of the Termination and
Settlement Agreement, the Company will recognize $2.2 million in revenues during
the three months ending June 30, 2001, which represents the deferred profits on
the contract.

Effective April 26, 2001, the Company and Ohio Farmers Insurance Companies
("Westfield") entered into a Settlement Agreement and Mutual Release in which
the parties agreed to settle and resolve all claims between the two companies in
consideration for each dismissing all claims against the other and in further
consideration of a compromised and confidential payment from the Company's
errors and omissions carrier to Westfield in excess of the Company's self-
insured retention of $25,000 already paid by the Company to cover legal defense
costs.

On May 10, 2001, the Company and Trumbull Services LLC ("Trumbull") entered
into a Settlement Agreement and Mutual Release in which the parties agreed to
settle and resolve all claims between the two companies in consideration for
each dismissing all claims against the other and in further consideration of a
compromised and confidential payment from the Company's errors and omissions
carrier to Trumbull in excess of the Company's self-insured retention of
$100,000. The arbitration proceeding has been cancelled and all claims have been

released.

In March 2001, SkyTel Communications, Inc. ("SkyTel") orally informed the
Company of its intent to terminate the Master Software License and Services
Agreement between SkyTel and the Company (the "SkyTel Agreement"). On May 15,
2001, SkyTel sent the Company a letter purporting to terminate the SkyTel
Agreement based on the Company's alleged material breach of the SkyTel
Agreement. SkyTel's letter also demands a refund of certain fees paid by SkyTel
under the SkyTel Agreement. See Note 9 for additional information.

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

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties that may cause actual future events or results
to differ materially from those described in the forward-looking statements.
Words such as "expects," "intends," "anticipates," "should," "believes," "will,"
"plans," "estimates," "may," variations of such words and similar expressions
are intended to identify such forward-looking statements. We disclaim any
intention or obligation to revise any forward-looking statements whether as a
result of new information, future developments, or otherwise. 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; collectibility of final project payments; future
customer revenue; increased employee and consultant costs due to project delays;
limited operating history; ability to achieve cost reductions; 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; 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; uncertainty and volatility associated with
Internet and e-business-related activities; the mix of revenues derived from
license sales as compared to services; protection of intellectual property;
retention of key project and management personnel; maintaining and ending
strategic partnerships; and risks associated with the separation of The LongView
Group, Inc. from TenFold's operations. 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
"Factors That May Affect Future Results and Market Price of Stock."

Overview

TenFold is a provider of an applications development platform, Universal
Application(TM) ("UA"), and mission-critical, Universal Application-based
applications for customers in communications, energy, financial services,
healthcare, insurance, and other industries. TenFold also offers integration
technology and services to put Universal Application-based applications into
production.

From 1993 through 1995, we engaged primarily in the development of our
patented Universal Application technology and derived revenue primarily from
technology development and consulting projects, generally on a time-and-
materials basis. 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 (the "TenFold Guarantee").
Starting in 1998, we also began reselling vertical applications products that we
had previously developed for other customers. In 1999 and early 2000 we signed
several large, fixed-price, build-for-hire contracts with customers and hired
many new employees. In 2001, we intend to continue to resell vertical
applications products that we have previously developed for other customers and
to provide applications development and implementation services on a time-and-
materials

basis, rather than on a fixed-price basis, and to license the Universal
Application to customers wishing to use it to build their own Universal
Application-based applications.

During the year ended December 31, 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
and prevented us from collecting final payments on several projects. We
currently have unresolved disputes with five customers.

As we disclosed these and other previous customer disputes in our quarterly
filings, the sales environment became increasingly difficult for us. The
substantial operating losses we incurred for the year ended December 31, 2000
further deteriorated our ability to sell our products and services. These sales
challenges occurred at a time when industry-wide technology spending appeared to
be slowing, making it even more difficult for us to attract new customers.

In addition to experiencing lower sales, our operating results were negatively
impacted by our operating structure. We conducted most of our business
operations during 2000 through largely autonomous vertical subsidiaries in the
communications, energy, financial services, healthcare, and insurance
industries. This decentralization structure promoted redundant overhead and
increased our operating costs.

We have initiated actions in the fourth quarter of 2000 and in 2001, that we
believe are necessary to correct our financial and operating difficulties,
including centralizing management of our delivery organization, changing our
business model from fixed-price to time-and-materials contracts, focusing near-
term sales efforts on existing, successful customer relationships and
applications products sales opportunities, consolidating our multiple vertical
subsidiaries, restructuring our business to significantly reduce operating
costs, and raising additional capital. Some details of these actions include:

Strengthened Delivery Capabilities

During the first quarter of 2001, we centralized management of our delivery
organization. We believe we are now better able to leverage our experienced
personnel for each of our customer projects, have improved project management
controls, and provide centralized oversight of all on-going projects.

During the fourth quarter of 2000, we implemented a securities lending
application at two international locations of a large global institutional
investment manager.

During the first quarter of 2001 we completed some significant product
delivery milestones including implementing TenFold Wealth Manager in
production at a major mortgage lender, 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 have achieved significant
project delivery milestones for a large property and casualty insurance
company and a major energy and transmission provider.

Changed Business Model

Beginning in the fourth quarter of 2000, we no longer offer the TenFold
Guarantee, and we provide applications development and implementation services
on a time-and-materials basis, rather than on a fixed-price, fixed-time basis.

During the first quarter of 2001 we began more actively promoting the
Universal Application to customers wishing to use it to build their own
Universal Application-based applications. In 2001, one of our customers, a
major insurance company, implemented in three states, an insurance application
that they developed using the Universal Application.

Focused Near-term Sales Efforts

We anticipate that sales to new customers will continue to be difficult
with our current financial position and delivery record. While we endeavor to
correct our financial position and delivery record, we are focusing our
efforts on increasing sales to customers for whom we have successfully
delivered applications. We are also focusing our sales efforts on reselling
completed applications and time-and-materials service contracts, rather than
on build-for-hire opportunities. During the year ended December 31, 2000 we
completed or substantially completed a number of very important software
applications. Although we experienced difficulties in the development process,
we now have a portfolio of products available for resale.

A substantial portion of our projected 2001 revenue and cash flow is from
existing customers. We have contracts with 17 customers, five of which have
future payments contingent on final project delivery. Payments contingent on
final delivery total $8.1 million and, assuming project deliveries are
successful, we expect to receive these payments principally in the second and
third quarters of 2001. We also expect to recognize as revenue in 2001, a
significant portion of our March 31, 2001 deferred revenue balance of $30.1
million, as we complete these and other projects. We recognize the importance
of successfully delivering applications to these five customers and have
assigned our most experienced technology and delivery staff to these projects.

Consolidated Operations

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

Restructured Business

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
San Francisco, California; Chicago, Illinois; and Dallas, Texas. A second
restructuring in March 2001 further reduced the workforce by 58 employees,
including 20 employees who resigned voluntarily, and closed offices in
Atlanta, Georgia; Irving, Texas; Foster City, California; and Raleigh, North
Carolina. From November 2000 to April 1, 2001, we have reduced our headcount
from approximately 744 to 398, and reduced the number of operating offices
from 13 to 4, excluding two small office shares totaling less than 2,000
square feet.

As a consequence of our November 2000 restructuring we reduced annualized
operating costs by approximately $40 million or 26%. We expect the March 2001
restructuring to generate additional annualized savings of approximately $9
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, 2000 were approximately 13% of operating costs. We
performed a comprehensive review of our network costs and expect significant
reductions by canceling services in closed offices and other actions. We are
reviewing expenses for company events, telecommunications, contractors, and
all other expenses with the objective of minimizing operating expenses in
2001. By June 2001, we expect to be managing and operating the business out of
four primary offices: Chicago, Illinois; San Francisco, California; Salt Lake
City, Utah; and Richmond, UK.

Additional Capital

On March 15, 2001 we announced the sale of The LongView Group, Inc. to
Linedata

Services for $29.0 million. As part of our agreement with Linedata, we placed
$2.9 million of the proceeds into an escrow account. We will continue to seek
additional capital to finance our operations through the remainder of 2001.

In 2001 we have also favorably resolved four customer disputes. On March 8,
2001, we entered a Confidential Settlement Agreement and Release with Unitrin
Services Company, Inc. ("Unitrin") dismissing all of Unitrin's claims. Our
errors and omissions insurance carrier paid the entire amount of the compromised
and confidential settlement sum above the $100,000 of self-insurance retention
we already paid to cover legal defense costs. On May 10, 2001, we entered into a
Settlement Agreement and Mutual Release with Trumbull Services LLC ("Trumbull")
dismissing all claims each party had against the other. Our errors and omissions
insurance carrier paid the entire amount of the compromised and confidential
settlement sum above the $100,000 of self-insurance retention we already paid to
cover legal defense costs. Effective April 26, 2001, we entered into a
Settlement and Mutual Release with Ohio Farmers Insurance Companies
("Westfield") dismissing all of claims each party had against the other party.
Our errors and omissions insurance carrier paid a confidential settlement sum
above the $25,000 of self-insurance retention already paid by us to cover legal
defense costs. As we have previously disclosed, 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 under which the customer agreed to pay TenFold a
compromised and confidential settlement amount for services the Company has
provided to this customer. In none of these settlement agreements did any party
admit liability. See Legal Proceedings for additional information.

Revenue Recognition

We derive our revenues from license 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. 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 an element must be based on vendor specific objective evidence
("VSOE"). We establish VSOE based on the price charged when the same element is
sold separately. VSOE for services is based on standard rates for the
individuals providing services. These rates are the same rates charged when the
services are sold separately under time-and-materials contracts. We base VSOE
for training on standard rates charged for each particular training course.
These rates are the rates charged when the training is sold separately for
supplemental training courses. For PCS, VSOE is determined by reference to the
renewal rate 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.

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 three months ended March
31, 2001 were $0 as compared to $512,000 for the three months ended March 31,
2000. Services relating to the Universal Application development licenses only
include post contract customer support services. Services for vertical
application product licenses do not add significant functionality, features, or
significantly alter the software. In addition, similar services are available
from other vendors; there are no milestones or customer specific acceptance
criteria which affect the realizability of the software license fee; and the
software license fee is non-cancelable and non-refundable.

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

Three Months ended March 31,
-------------------------------

2001 2000
-------------------------------
Products:
Universal Application development license revenue $ - $ -
Vertical application product license revenue - 512
Solutions:
Percentage-of-completion license revenue 2,981 4,169
-------------------------------
Total license revenues $ 2,981 $ 4,681

Percentage-of-completion service revenue 4,903 25,540
Time-and-materials service revenue 2,286 -
Maintenance revenue 849 684
Training revenue 248 770
-------------------------------
$ 8,286 $26,994
-------------------------------
Total services revenues $11,267 $31,675
Total revenues ===============================

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 alternatives. 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. For
presentation purposes within the Condensed Consolidated Statements of
Operations, fixed-price project revenues are split between license and service
based upon the relative fair value of the components. In 2001 we intend to
provide new application development and implementation services on a time-and-
materials basis, rather than on a fixed-price basis. In addition, we have
converted certain of, and expect to convert more of, our existing fixed-time,
fixed-price application development and implementation contracts to a time-and-
materials basis.

For certain projects, we limit revenue recognition in the period to the amount
of direct and indirect 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. The total project values for ongoing projects
at March 31, 2001 that we accounted for using the "zero profit" methodology is
approximately $57.6 million. Revenue recognized from these projects during the
three months ended March 31, 2001 was $4.2 million as compared to $6.1

million during the three months ended March 31, 2000.

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 March 31, 2001, we have accrued $259,000 for estimated losses we
expect to incur while completing the project. Subsequent to March 31, 2001, we
completed and delivered, four days late, a project milestone for this customer.
Under the terms of this legacy fixed-price guarantee contract, the customer
could potentially allege breach and demand repayment of funds previously paid
under the guarantee. We continue toward completion of the project while the
customer continues testing the application. We have five remaining interim
milestones due throughout the next three months. Some of these interim
milestones will be delayed and the customer could potentially allege breach and
demand repayment of funds previously paid under the guarantee. The final
delivery is scheduled for completion and delivery in accordance with the
existing contract schedule. While the outcome is unknown, and the late delivery
event occurred after Q1, we have chosen to recognize no revenue on this contract
(and similarly defer related project costs), for the three months ended March
31, 2001, pending resolution of this situation. We have received approximately
$2.8 million in payments from the customer that could potentially be covered by
the guarantees.

Our current estimates for one of our fixed-price projects suggests that we
will miss the guaranteed deliver date by approximately six weeks. We believe
that steps such as adding staff to the project team and reducing project
delivery risk issues will result in our substantially delivering the project
within the guarantee date. If we are unsuccessful at delivering the application
covered by the guarantee date, the customer may cancel the contract and demand a
refund of cash paid under the contract, or make other demands but continue to
work with us until complete. We have included in our total estimated costs of
the project at March 31, 2001, our best estimate of additional costs that we may
incur if our delivery extends beyond the guarantee date. During the three month
period ended March 31, 2001 we recognized revenue of $177,000 as compared to
none in 2000 on this contract. An unfavorable outcome of this matter may have a
material adverse impact on our business, results of operations, financial
position, or liquidity.

We have three other customers with guarantees in their fixed-price
contracts. 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 three customers may have a material adverse impact on our business,
results of operations, financial position, or liquidity.

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. 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.

Other Matters

The timing and amount of cash received from customers can vary
significantly depending on specific contract terms and can therefore have a
significant impact on the amount of deferred revenue and unbilled accounts
receivable in any given period. We record billings and cash received in excess
of revenue earned as deferred revenue. Our deferred revenue balance at March 31,
2001 was $30.1 million. We expect to recognize most of this amount as revenue
within the next twelve months. Our deferred revenue balance generally results
from contractual commitments made by customers to pay amounts to us in advance
of revenues earned, and from application of the "zero profit" margin methodology
described above. Our unbilled accounts receivable represents revenue that we
have earned but which we have not yet billed. We bill customers as payments
become due under the terms of the customer's contract. We consider current
information and events regarding our customers and their contracts and establish
allowances for doubtful accounts when it is probable that we will be unable to
collect amounts due under the terms of existing contracts.

During the year ended December 31, 2000, we conducted our vertical business
operations through subsidiaries in the communications, energy, financial
services, healthcare, insurance, and investment management industries. During
the three months ended September 30, 2000, our investment management subsidiary
changed its name from TenFold Investment Management, Inc. to Argenesis
Corporation ("Argenesis"). During the three months ended December 31, 2000, our
financial services subsidiary merged with the Argenesis subsidiary with the
combined company being called Argenesis Corporation. During the first quarter of
2001, we consolidated vertical business operations into one corporate
organization to provide better focus for employees and to solidify our core
delivery and operational infrastructure.

On September 30, 1999, we entered into a definitive agreement to acquire
The LongView Group, Inc ("LongView"). The closing of the transaction occurred on
October 7, 1999. TenFold's acquisition of LongView was reported in a Form 8-K
filed on October 14, 1999, as amended. On March 15, 2001 TenFold announced the
sale of LongView to Linedata Services for $29.0 million in cash. See Note 12 of
"Notes to Condensed Consolidated Financial Statements" for additional
information.

See "Legal Proceedings" for information about litigation and disputes with
some of our customers.

During the year ended December 31, 2000, the United States Securities and
Exchange Commission commenced a non-public, fact-finding inquiry into TenFold.
Because this inquiry is still in the early stages, management is unsure of the
scope or the likely outcome of this inquiry. See "Legal Proceedings" for
additional information.

During the three months ended March 31, 2001 we incurred a charge of
approximately $5.7 million related to our plans to improve our operating results
by reducing headcount, by closing duplicative facilities, and by implementing
other measures. See "Results of Operations - Special Charges" for additional
information.

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.

Three Months Ended
March 31,
-----------------------------
2001 2000
----------- ------------

Revenues:
License.................................................... 26% 15%
Services................................................... 74% 85%
----------- ------------
Total revenues.......................................... 100% 100%

Operating expenses:
Cost of revenues........................................... 82% 37%
Sales and marketing........................................ 25% 22%
Research and development................................... 40% 20%
General and administrative................................. 38% 6%
Amortization of goodwill and acquired
intangibles................................................ 9% 4%
Amortization of deferred compensation...................... 2% 1%
Special charges............................................ 51% -
----------- ------------
Total operating expenses................................ 245% 90%
----------- ------------

Income (loss) from operations.......................................... (145%) 10%
Total other income, net................................................ 124% 2%
----------- ------------
Income (loss) before income taxes...................................... (21%) 12%
Provision for income taxes............................................. 25% 5%
----------- ------------
Net income (loss)....................................... (46%) 7%
=========== ============

Revenues

Total revenues decreased $(20.4) million, or (64) percent, to $11.3 million
for the three months ended March 31, 2001, as compared to $31.7 million for the
three months ended March 31, 2000. The decrease in revenues is primarily due to
lower sales, and limiting revenue recognition on certain fixed-price projects to
costs incurred.

We believe 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, and our operating losses for the last several
quarters.

License revenues decreased $(1.7) million, or (36) percent, to $3.0 million
for the three months ended March 31, 2001 as compared to $4.7 million for
the same period in 2000. License revenues represented 26 percent of total
revenues during the three months ended March 31, 2001 as compared to 15 percent
for the same period in 2000. We recognize license revenues from vertical
application product sales and some Universal Application development license
sales when we have a signed noncancellable license agreement with fixed and
determinable nonrefundable fees, we have shipped the product, and there are no
uncertainties surrounding acceptance of the product or collection of the stated
fees. Due primarily to the reasons for lower overall revenues described above,
license sales for these products were lower for the three months ended March 31,
2001 than for the same period in 2000.

Service revenues decreased $(18.7) million, or (69) percent, to $8.3
million for the three months ended March 31, 2001 as compared to $27.0 million
for the same period in 2000. Service revenues decreased for the three months
ended March 31, 2001 compared to the same period in 2000 due to lower sales, and
limiting revenue recognition on certain fixed-price projects to costs incurred.

Revenues from international customers were approximately 23 percent of
total revenues for the three months ended March 31, 2001 as compared to 10
percent for the same period in 2000. Revenue from international customers for
the three months ended March 31, 2001 was attributable to three customers as
compared to two customers for the same period in 2000.

Three customers accounted for 12 percent, 11 percent, and 10 percent of our
total revenues for the three months ended March 31, 2001, compared to one
customer accounting for 24 percent of our total revenues for the same period in
2000. No other single customer accounted for more than 10 percent of our total
revenues for the three months ended March 31, 2001 or the same period in 2000.

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 decreased
$(2.5) million, or (21) percent, to $9.2 million for the three months ended
March 31, 2001 compared to $11.7 million for the same period in 2000. Cost of
revenues as a percentage of total revenues was 82 percent for the three months
ended March 31, 2001 as compared to 37 percent for the same period in 2000. The
decrease in absolute dollars between periods was due to having fewer employees
working on customer projects, support and training due to the reduction in our
workforce associated with our restructuring actions and employee attrition. In
addition, cost of revenues decreased for the quarter ended March 31, 2001 as a
result of our deferring project costs incurred during the quarter on one project
on which we chose to also recognize no revenue for the quarter as a result of
being late on certain project deliverables, as described above under Revenue
Recognition. Cost of revenues as a percentage of total revenues increased due to
lower revenues from limiting revenue recognition on certain fixed-price projects
to costs incurred during the three months ended March 31, 2001.

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 $(4.0) million, or (58) percent, to $2.8 million
for the three months ended March 31, 2001 as compared to $6.8 million during the
same period in 2000. Sales and marketing expenses as a percentage of total
revenues were 25 percent for the three months ended March 31, 2001 as compared
to 22 percent for the same period in 2000. The decrease in sales and marketing
expenses in absolute dollars was due to having fewer sales and marketing
employees and the Company's allocation of its resources towards completion of
its application development projects rather than to marketing activities. The
increase in expenses as a percentage of total revenues for the three months
ended March 31, 2001 was due to lower revenues during the period.

Research and Development. Research and development expenses consist
primarily of compensation and other related costs of personnel dedicated to
research and development activities. Research and development expenses decreased
$(2.0) million, or (31) percent, to $4.4 million for the three months ended
March 31, 2001, as compared to $6.4 million during the same period in 2000.
Research and development expenses as a percentage of total revenues were 40
percent for the three months ended March 31, 2001 as compared to 20 percent for
the same period in 2000. Research and development expenses decreased in absolute
dollars due primarily to having fewer research and development employees during
the three months ended March 31, 2001. Research and development expenses
increased as a percentage of total revenues for the three months ended March 31,
2001 due to lower revenues in the period.

General and Administrative. General and administrative expenses consist
primarily of allowances for doubtful accounts, the costs of executive
management, finance and administrative staff, recruiting, business insurance,
and professional fees. General and administrative expenses increased $2.4
million, or 128 percent, to $4.3 million for the three months ended March 31,
2001 as compared to $1.9 million for the same period in 2000. General and
administrative expenses as a

percentage of total revenues were 38 percent for the three months ended March
31, 2001 as compared to 6 percent for the same period in 2000. The increase in
absolute dollars and percentage of total revenues during the three months ended
March 31, 2000 was primarily due to additional legal and accounting fees
associated with the increase in customer disputes and legal proceedings
described in Note 9 of "Notes to Condensed Consolidated Financial Statements."

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 are being amortized
over the expected lives of the goodwill and intangibles (see Note 12 of "Notes
to Condensed Consolidated Financial Statements"). These lives range from five to
seven years. We recorded amortization expense of goodwill and acquired
intangibles of $962,000 for the three months ended March 31, 2001, as compared
to $1.2 million for the same period in 2000.

On March 15, 2001 we announced the sale of The LongView Group, Inc. to
Linedata Services for $29.0 million in cash. See Note 12 of "Notes to Condensed
Consolidated Financial Statements" for additional information. As a result, we
do not expect to incur any further charges for amortization of goodwill and
acquired intangibles related to LongView.

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 $175,000 for the three months ended March 31, 2001 as compared to
$351,000 for the same period in 2000. When employees who were granted these
options leave the Company, we reduce the associated deferred compensation. The
decrease in amortization expense is due to employees leaving the Company.

Special Charges. Special charges for the three months ended March 31, 2001
include a $3.0 million asset impairment charge, and a $2.7 million restructuring
charge.

Asset Impairment Charge. During the three months ended March 31, 2001, we
restructured our operations to reduce operating expenses. As part of the
restructuring, we closed facilities in Atlanta, Georgia; Foster City,
California; Irving, Texas; and Raleigh, North Carolina. We had $1.8 million of
leasehold improvements, furniture and fixtures, and other assets in these
offices that we determined had no future value to us and are no longer in active
use. In addition we determined that $766,000 of computer equipment was also
similarly impaired as a result of these restructuring activities. We also
determined that we would not be able to sell our Marin County land and building
for the amount we had previously expected, and as a result we recorded a further
asset impairment charge of $481,000 on this asset. Accordingly, we recorded a
total asset impairment charge of $3.0 million during the three months ended
March 31, 2001.

First Quarter 2001 Restructuring Charge. During the three months ended
March 31, 2001, we incurred a restructuring charge of $2.7 million as part of
our continuing efforts to reduce operating expenses. As part of this
restructuring, we closed offices in Atlanta, Georgia; Foster City, California;
Irving, Texas; and Raleigh, North Carolina, and reduced our workforce by 38
individuals. The restructuring charge was comprised of $226,000 for headcount
reductions, and $2.5 million for facilities related costs. As of March 31, 2001
$256,000 had been paid out on this restructuring accrual.

exit costs. On March 15, 2001, our senior management prepared a detailed exit
plan that included the termination of 38 employees and closure of certain
facilities.

In connection with the restructuring actions, we terminated the employment
of 38 employees, consisting primarily of applications development employees,
technical and other support employees, and administrative employees in all of
our locations. All employees associated with these restructuring actions were
notified as of March 31, 2001. At March 31, 2001 we had exited facilities in
Atlanta, Georgia; Foster City, California; Irving, Texas; and Raleigh, North
Carolina. We are pursuing sublease arrangements for these facilities.

We expect to generate annualized savings of approximately $9 million in the
following areas: $5 million in reduced cost of revenues, $200,000 in reduced
sales and marketing expenses, $3 million in reduced research and development
expenses, and $500,000 in reduced general and administrative expenses.

First Quarter 2001 Restructuring Original Balance at
Actions: Charge Reversals Utilized March 31, 2001
- --------------------------------- --------------- ---------------- --------------- -----------------------

Employee related $ 226 $ - $165 $ 61
Facilities related 2,465 - 91 2,374
--------------- ---------------- --------------- -----------------------
$2,691 $ - $256 $2,435
=============== ================ =============== =======================

Balance Sheet Original Balance at
Components: Charge Reversals Utilized March 31, 2000
- ------------------------- --------------- ---------------- --------------- -----------------------
Accrued liabilities $2,675 $ - $240 $2,435
Accounts payable 16 - 16 -
--------------- ---------------- --------------- -----------------------
$2,691 $ - $256 $2,435
=============== ================ =============== =======================

Fourth Quarter 2000 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.
This charge is part of a plan to streamline our efforts to focus on a return to
profitability. 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 March 31, 2001 approximately $1.7 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, 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. As of
March 31, 2001, we have 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 expect to generate annualized savings of approximately $40 million from
this restructuring, in the following areas: $30 million in reduced cost of
revenues, $3 million in reduced sales and marketing expenses, $4 million in
reduced research and development expenses, and $3 million in reduced general and
administrative expenses.

We also reached an agreement to decrease our lease commitment for new
office space currently under construction in South Jordan, Utah, and we are
actively pursuing the sale of two office buildings in San Rafael, California.

Restructuring reserves are included in accrued liabilities and accounts
payable at March 31, 2001.

Fourth Quarter 2000 Balance at Reversals Utilized Balance at
Restructuring Actions: December 31, 2000 March 31, 2001
- ------------------------- -------------------------- ---------------- --------------- -------------------------

Employee related $141 $ - $141 $ -
Facilities related 321 - 155 166
-------------------------- ---------------- --------------- -------------------------
$462 $ - $296 $166
========================== ================ =============== =========================

Balance Sheet Balance at Balance at
Components: December 31, 2000 Reversals Utilized March 31, 2001
- -------------------------- -------------------------- --------------- --------------- ------------------------
Accrued liabilities $321 $ - $155 $166
Accounts payable 141 - 141 -
-------------------------- ---------------- --------------- -------------------------
$462 $ - $296 $166
========================== ================ =============== =========================

Total Other Income, net

Net total other income increased $13.4 million, or 2,647 percent, to $14.0
million for the three months ended March 31, 2001 compared to $508,000 for the
same period in 2000. The increase was due to a gain of approximately $13.8
million on the sale of The LongView Group, Inc. to Linedata Services on March
15, 2001. See Note 12 of "Notes to Condensed Consolidated Financial Statements"
for additional information . We also recognized $173,000 of other income from
the sublease of portions of our San Francisco and San Rafael, California
offices. Interest income decreased for the three months ended March 31, 2001
compared to the same period in 2000 due to lower cash and cash equivalent
balances.

Provision for Income Taxes

The provision for income taxes was $2.8 million for the three months ended
March 31, 2001 as compared to a provision of $1.7 million for the same period in
2000. The provision for the three months ended March 31, 2001 is primarily for
income taxes on the gain from our sale of The LongView Group, Inc., foreign
taxes, and an adjustment to record a valuation allowance against the remaining
net tax assets.

At March 31, 2001, management has recognized a valuation allowance for the
net deferred tax assets related to temporary differences, foreign tax credit
carryforwards and net operating loss carryforwards. The valuation allowance was
recorded in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes, which requires that a
valuation allowance be established when there is significant uncertainty as to
the realizability of the deferred tax assets. Based on a number of factors, the
currently available, objective evidence indicates that it is more likely than
not that the net deferred tax assets will not be realized.

Liquidity and Capital Resources

We have funded our operations to date primarily through cash flows from
operations,

through cash generated from our initial public offering in May 1999, the private
sale of securities, and through the use of lines of credit and equipment leases.
During the three months ended March 31, 2001 we also used some of the proceeds
from our sale of The LongView Group, Inc. to help fund operations.

Net cash used in operating activities was $(13.1) million for the three months
ended March 31, 2001 as compared to $(12.7) million net cash used in operating
activities during the three months ended March 31, 2000. The increase in cash
flows used in operating activities was due primarily to lower cash inflows from
lower revenues.

Net cash provided by investing activities was $21.5 million for the three
months ended March 31, 2001 as compared to net cash used of $(1.5) million
during the three months ended March 31, 2000. During the three months ended
March 31, 2001, we sold The LongView Group, Inc. to Linedata Services for $29.0
million. The additions to restricted cash for the three months ended March 31,
2001, are for deposits to secure letters of credit in the amount of $3.5 million
and $2.9 million held in escrow as required by our agreement with Linedata
Services.

Net cash used in financing activities was $(1.2) million for the three months
ended March 31, 2001 as compared to $3.3 million net cash provided by financing
activities during the three months ended March 31, 2000. Net cash used by
financing activities for the three months ended March 31, 2001 resulted from
principal payments on notes and capital leases of $1.9 million which was
partially offset by $43,000 of proceeds from exercise of stock options, and
proceeds of $458,000 from the issuance of shares under the employee stock
purchase plan.

On January 18, 1999, we entered into a Revolving Line of Credit (the "Credit
Facility") providing for borrowings of up to $5.0 million. The Credit Facility
included covenants relating to the maintenance of certain financial ratios and
cash balances and limiting the payment of dividends. Through a series of
modifications, we increased the availability under the Credit Facility to $15.0
million and established the ability to issue letters of credit against this
availability. We agreed to secure outstanding letters of credit with
compensating cash balances upon default or expiration of the Credit Facility.
During 2000, we obtained letters of credit of approximately $3.5 million related
to office leases and $2.0 million to secure a performance bond. On November 15,
2000 our ability to borrow under the Credit Facility expired. We had no
borrowings under the Credit Facility. On December 1, 2000, we received notice of
a right to cure, referencing failure to provide the lender with cash collateral
to secure the outstanding letters of credit and our failure to meet and maintain
certain financial covenants described in the Credit Facility. Upon receiving
this notice, we commenced negotiations with the lender to satisfy the right to
cure. On January 19, 2001 we allowed the lender to secure a perfected lien under
its security agreement. On February 23, 2001, we further modified the Credit
Facility with a Modification and Forbearance Agreement. This agreement provides
us with a limited waiver of defaults and forbearance of remedies. The limited
waiver and forbearance of remedies applies to the cash collateral and financial
covenant requirements. The waiver had an expiration date of the earlier of May
31, 2001 or on the occurrence of an event of default on any of our obligations
to the lender, including a $2.4 million property loan and $6.3 million in notes
payable outstanding at December 31, 2000. The Agreement also allows for cross
default on all of our obligations with the bank. The cash collateral agreement
requires us to bring the balance of a restricted cash collateral account to $3.5
million prior to June 30, 2001. On March 16, 2001, we complied with the
requirements of the cash collateral agreement and, using $3.5 million of the
cash proceeds received from the sale of LongView, increased the balance in the
restricted cash collateral account to $3.5 million. On April 2, 2001 we extended
the waiver expiration date in the Modification and Forbearance Agreement from
May 31, 2001 to January 1, 2002. As the waiver expiration date is within 12
months of the date of these financial statements, we have classified the amounts
outstanding to the lender as current liabilities in the Condensed Consolidated
Balance Sheet at March 31, 2001. We expect to enter into further discussions
with the lender regarding these requirements and other matters prior to the
waiver expiration date. Additional cash collateral amounts may be required upon
expiration of the waiver to secure a performance bond. However, we expect to
complete the project relating to the performance bond prior to the January 1,
2002

waiver expiration date.

Recent Accounting Pronouncements

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125. This standard revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. We
do not expect the adoption of SFAS No. 140 to 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 from
other sources, 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, 2000 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, 2000 and our involvement in significant
legal proceedings. We believe that the strength of our core technologies,
product assets, customer base, and the corrective actions that we have taken and
are taking, provide a solid foundation for our continued operation in 2001.
Additionally, we will continue to seek additional capital to finance our
operations through the remainder of 2001. However, there can be no assurance
that the measures taken to date or additional measures, if necessary, will prove
successful.

If we do not complete our existing projects, we may not receive final
payments, which would 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 final 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, and re-evaluate the TenFold business
model as an applications development and delivery company. 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 may continue to experience difficulty in securing future customer revenue.

We believe that some prospective customers may be delaying and canceling
purchase decisions as a result of the litigation and customer disputes against
the Company, the decline in our stock price, and our financial results for the
last several quarters. 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 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, and re-evaluate the TenFold business model as an
applications development and delivery company. 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 may not be able to secure additional sources of financing when needed.

Our business model relies upon generating new sales and receiving payments
from existing customers. If we do not generate sufficient new sales and receive
payments from existing customers, we will be required to pursue one or a
combination of the following remedies: seek additional sources of financing,
further reduce operating expenses, sell part or all of our assets, and re-
evaluate the TenFold business model as an applications development and delivery
company. 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 potential
remedies sufficiently to continue operations.

Our failure to achieve cost reductions would negatively impact quarterly
operating results.

On November 14, 2000, we announced headcount reductions, consolidation of
facilities, and implementation of other measures in order to streamline our
efforts to focus on a return to profitability. On March 15, 2001 we announced
plans to close additional offices in Atlanta, Georgia; Foster City, California;
Irving, Texas; and Raleigh, North Carolina, and to further reduce our workforce.
We expect that the reduction of headcount, the consolidation of facilities, and
the other measures will reduce total operating expenses during calendar 2001 and
in future periods. Our success in realizing the benefits intended by such
actions is impacted by the timing of our execution of these measures. There can
be no assurance that we will be successful in our efforts to reduce operating
expenses in future periods.

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 are 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, the
Company's business, results of operations, financial condition and liquidity
would be materially affected.

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

While we believe that our errors and omissions insurance coverage is adequate
to cover current claims related to customer disputes that arise directly from
our customer contracts, given the nature and complexity of the factors affecting
the estimated liabilities, the actual liabilities may exceed our current errors
and omissions coverage. In addition, our errors and omissions insurance carrier
has issued reservations of rights letters relating to each of our existing
claims. We can give no assurance that our insurance carrier will not assert its
rights under any of these letters to deny coverage. 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 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.

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

We are currently involved in significant litigation and customer disputes.
Additionally, one consolidated complaint has been filed alleging that the
Company and certain officers have violated federal securities laws. See Note 9
of "Notes to Condensed Consolidated Financial Statements" for more information
concerning these matters. We may in the future face other litigation or disputes
with customers, employees, 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.

Our agreements with Perot Systems may restrict our sources of additional
financing.

Under agreements we reached with Perot Systems on December 8, 2000, we are
required to make six monthly payments of $441,000 each to Perot Systems
beginning on January 15, 2001. However, because of recent TenFold management
changes and TenFold's continuing restructuring, 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. Our failure to make these
payments in a timely manner to Perot Systems will make effective a stipulation
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 may inhibit our ability to raise capital, if necessary,
to continue operations.

Our future prospects are difficult to evaluate.

In light of our operating results for recent periods, it is difficult to
evaluate our future prospects. 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.

Our stock may be subject to de-listing.

Our Common Stock is currently traded on the Nasdaq National Market under the
symbol "TENF." Due to the recent decline in the share price of our common stock
and our operating losses, we have failed to meet some of the Nasdaq National
Market's minimum listing requirements and as a result, our common stock could be
de-listed. Nasdaq National Market listing requirements include a series of
financial tests relating to net tangible assets, public float,

number of market makers and shareholders, and maintaining a minimum bid price
for the Company's share price of $1.00. We have received from the Nasdaq
National Market, a request for information, and notifications that we have
failed to meet the net tangible assets, minimum bid price and public float
requirements and that if we do not achieve compliance with or present a
satisfactory plan for achieving compliance with these requirements within
certain time periods, our common stock could be de-listed. We have provided the
Nasdaq National Market with additional information and expect that we will enter
into discussions with Nasdaq to determine whether our stock will be de-listed.
Depending upon the outcome of these discussions, our stock could remain listed
on the Nasdaq National Market, it could be listed on the Nasdaq SmallCap Market,
or it could be de-listed. If our stock were de-listed from Nasdaq there would
likely be a substantial reduction in the liquidity of any investment in our
common stock. De-listing could also reduce the ability of holders of our common
stock to purchase or sell shares as quickly and as inexpensively as they have
done historically. This lack of liquidity also makes 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 quarterly 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 from
quarter-to-quarter 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 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;

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

. the timing of sales of our products and services; and

. delays in introducing new applications.

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 are not a good indication of our future performance. In future quarters,
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 quarterly operating results have varied significantly and
future adverse quarterly operating results could cause our stock price to
fall.

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

If we fail to accurately estimate the resources required for a new project, or
the resources required to complete existing projects, quarterly operating
results could suffer and our stock price could fall.

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 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 as work
progresses under the contract and as we gain experience. For example, in early
July 2000, as a result of receiving customer correspondence that raised concerns
about the status of a project, we initiated a supplemental review of our
significant projects in process to reassess the status of each project and to
verify the related completion percentage. Upon completion of this review, we
reduced revenues on certain projects in process and increased the allowance for
doubtful accounts related to unbilled accounts receivable. We updated this
review as part of our normal, financial reporting process for the three months
ended September 30, 2000 and December 31, 2000, and made adjustments, which
resulted in further reductions to revenue and further increases to the allowance
for doubtful accounts related to unbilled accounts receivable. 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 similar future adjustments will not be required. See Note 9 of "Notes to
Condensed Consolidated Financial Statements" for information about litigation
and disputes related to some of our projects.

If we fail to adequately anticipate employee and resource utilization rates,
quarterly operating results could suffer and our stock price could fall.

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
did and may continue to result in under-utilized employees and could, therefore,
cause us to suffer quarterly losses or adverse results of operations.

We have experienced project delays, causing our quarterly operating results to
suffer and our stock price to fall.

Because we recognize service revenues over the period we develop an
application, project delays have had and may continue to have a significant
negative impact on operating results. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Revenue Recognition" for a
discussion of our revenue recognition policies. We have recently and in the past
experienced delays. See "Management Discussion and Analysis of Financial
Condition and Results of Operations - Revenues" for more information concerning
our customers and revenues. There can be no assurance that we will not
experience project delays in the future.

Our sales cycle is lengthy and subject to delays and these delays could cause
our quarterly operating results to suffer and our stock price to fall.

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. 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 Discussion
and Analysis of Financial Condition and Results of Operations - Revenues" for
more information concerning our customers and revenues. There can be no
assurance that we will not experience sales delays 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.

Although we plan to expand and diversify our customer base, 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 customers, has had and may continue to have an adverse
effect on our revenues. For example, we lost several customers during the year
ended December 31, 2000. In the future, revenues from a single customer or a few
large customers may constitute a significant portion of our total revenues 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 hire
us to develop applications 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 hire us to
develop applications in a given year. See "Management Discussion and Analysis of
Financial Condition and Results of Operations - Revenues" 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 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. Although we intend to seek to diversify our customer base, there can be
no assurance that we will be able to do so in the near term or at all.

Our 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
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.

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 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.

Our failure to manage our organizational structure could impair our business.

Historically, our growth and new projects placed significant demands on our
management and other resources. With our recent closing of offices and
reductions in force, we may be unable to manage our organization and projects
effectively. This inability could have a material adverse effect on our ability
to deliver applications in the required timeframes, the quality of our services
and products, our ability to retain key personnel, our business, our financial
condition, and our results of operations. Our ability to manage our current
organizational structure effectively will require us to continue to develop and
improve our operational, financial, and other internal systems, as well as our
business development capabilities, and to train, motivate, and manage our
employees, and to maintain project quality.

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;
Sameer E. Shalaby, Senior Vice President of Development; and Adam Slovik, Senior
Vice President of Applications Products. 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 recently entered into an employment agreement with our President
and Chief Executive Officer, Nancy M. Harvey. We are currently in the process of
negotiating employment agreements with 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.

Our growth and success depends 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.

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

We may not be able to successfully develop applications for new vertical
industries in which we have limited experience.

We may expand our business into new vertical industries. If we are
unsuccessful in developing applications that meet the needs of companies in
these markets or if our applications are not competitive, our operating results
will suffer. We have limited experience in developing software applications for
companies outside of the industries we have targeted to date and there can be no
assurance that we will be able to successfully develop these applications in the
future. In addition, we will face competition from companies that have
significantly greater experience in developing applications for the industries
we intend to target and that have greater name recognition than we do.

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 granted two
patents and applied for one additional patent in the United States and intend to
continue to seek patents on our technology where appropriate. There can be no
assurance that the steps we have taken in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights. The laws of some countries may not protect our intellectual
property rights to the same extent, as do the laws of the United States.
Furthermore, litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. This litigation could result in substantial costs and diversion of
resources that would harm our business.

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

If we fail to successfully compete, our growth 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 growth and market share will
suffer. We believe that we currently compete principally with vertical software
providers, ERP packaged software providers, consulting and software integration
firms, e-Services consultants, and internal information technology
organizations. Many of these 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 the principal competitive factors in our markets include
quality of services and products, functionality, speed of development and
implementation, price, project management capability, and technical and business
expertise. 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.

If we fail to release new versions of our products or product enhancements in
a timely manner to accommodate technological change, our ability to grow our
business will suffer.

The market in which we compete is characterized by rapid technological change,
including new versions of operating systems, relational databases or new
hardware technologies. We may need to modify our products to accommodate these
changes. Our revenues and market share will decline if we fail to release new
versions of our products or product enhancements in a timely manner or if these
products and product enhancements fail to achieve market acceptance when
released. In addition, customers may defer or forego purchases of our products
if our competitors or major hardware, systems, or software vendors introduce or
announce new products or product enhancements.

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 60 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 49 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 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk. As of March 31, 2001, we had cash and cash equivalents
of $20.8 million. 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 March 31, 2001 rates
would cause the fair value of these 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, deferred revenue, 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 March 31, 2001 rate would
cause the fair value of such monetary assets and liabilities in the United
Kingdom to change by approximately $646,000. We are not currently engaged in any
foreign currency hedging activities.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Recently Resolved Customer Disputes

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 seeking $5.8 million from us. The
complaint alleges that we failed to deliver on contractual commitments under a
license agreement with Westfield and includes specific claims of anticipatory
breach of contract, breach of express warranty, and negligent misrepresentation.
The $5.8 million being sought from us by Westfield was paid to us by Westfield
in the first half of 1999 and was recognized as revenue by us during that
period. On November 4, 1999, we filed an Answer and Counterclaim denying these
allegations and seeking recovery of $3.9 million that Westfield owes us under
the license agreement together with claims for additional damages. On November
3, 2000, we filed a motion for partial summary judgement seeking dismissal of
Westfield's breach of contract claim. In addition, we filed a motion to amend
our Counterclaim to add an additional claim for breach of contract based upon
Westfield's suspected retention and use of our proprietary information.
Westfield did not oppose that motion. In February of 2001, the parties agreed to
engage in non-binding mediation. Accordingly, the court issued a stay of all
proceedings pending the outcome of the mediation. Effective April 26, 2001, the
parties entered into a Settlement Agreement and Mutual Release in which the
parties agreed to settle and resolve all claims between the two companies in
consideration for each dismissing all claims against the other and in further
consideration of a compromised and confidential payment from our errors and
omissions carrier to Westfield in excess of the Company's self-insured retention
of $25,000 already paid by the Company to cover legal defense costs.

On August 18, 2000, Trumbull Services, L.L.C. ("Trumbull"), filed a demand for
arbitration with the American Arbitration Association seeking a refund of at
least $2.8 million paid by Trumbull to us. The demand alleges that we failed to
deliver on contractual commitments under the Master Software License and Service
Agreement, (the "Trumbull Agreement"), as amended. Trumbull claimed it was
entitled to a refund of fees paid to us from the second quarter of 1999 through
the second quarter of 2000. On September 13, 2000, we filed an Answer and
Counterclaim denying Trumbull's allegations and seeking recovery of
approximately $2.0 million in fees that Trumbull owes us under the Trumbull
Agreement. On May 10, 2001, TenFold and Trumbull entered into a Settlement
Agreement and Mutual Release in which the parties agreed to settle and resolve
all claims between the two companies in consideration for each dismissing all
claims against the other and in further consideration of a compromised and
confidential payment from our errors and omissions carrier to Trumbull in excess
of our self-insured retention of $100,000. The arbitration proceeding has been
cancelled and all claims have been released.

On April 4, 2001, we received a letter from another customer alleging that we
have 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 the Company has provided to this customer. For the three
months ended March 31, 2001, we recognized $721,000 in revenues from

this customer and recognized no revenue from this customer for the same period
in 2000. As a result of the Termination and Settlement Agreement, we will
recognize $2.2 million in revenues during the three months ending June 30, 2001,
which represents the deferred profits on the contract.

Customer Disputes

On June 14, 2000, Nielsen Media Research, Inc. ("Nielsen"), filed a complaint
in the Circuit Court of Cook County, Illinois seeking $4.5 million, plus out of
pocket expenses paid by Nielsen to us. The complaint alleges that we failed to
deliver on contractual commitments under a license and services agreement with
Nielsen and includes specific claims of breach of contract and violation of the
Illinois Consumer Fraud and Deceptive Practices Act. The amount being sought
from us by Nielsen is for fees paid to us by Nielsen from the fourth quarter of
1997 through the first quarter of 2000 and recognized as revenue by us during
this period. On August 30, 2000, we filed an Answer and Counterclaim denying
Nielsen's claims and seeking recovery of at least $1.7 million that Nielsen owes
us under the license agreement, plus our attorney fees and costs. For the three
months ended March 31, 2001, we recognized no revenue from the Nielsen contract
and recognized $441,000 in revenues from Nielsen during the same period in 2000.

The case is in its preliminary stages and based on the information currently
available, we believe we have valid defenses against Nielsen's claims and we
intend to vigorously defend against Nielsen's claims and enforce our rights
under the agreement. On August 3, 2000, we filed a motion to dismiss Nielsen's
claim under the Illinois Consumer Fraud and Deceptive Practices Act on the
grounds that Nielsen had failed to state a claim under the Act. On October 19,
2000, the court granted our motion to dismiss; however, the court gave Nielsen
leave to attempt to replead a claim under such Act. Nielsen has not done so. The
case is now in active discovery. Our legal counsel has commenced investigation
of the facts pertinent to the claims. An unfavorable outcome of this matter may
have a material adverse impact on our business, results of operations, financial
position, or liquidity.

On November 9, 2000, Utica Mutual Insurance Company ("Utica"), notified us of
its intent to terminate the Software License and Services Agreement ("Utica
Agreement") dated November 2, 1998. On December 15, 2000, Utica sent a letter to
us proposing that the parties rescind the contract, that we refund all payments
made by Utica, and that we compensate Utica for the expenses Utica allegedly
incurred in fulfilling its contractual duties. On December 20, 2000, Utica
provided us with statutorily required notice of alleged violations of Utah's
Truth in Advertising statute. On January 3, 2001, Utica filed a complaint
against us in the Federal District Court of Utah. In its complaint, Utica
asserts claims for breach of contract, breach of warranties and guarantees,
false advertising under a Utah statute, negligent misrepresentation, and fraud.
Utica seeks monetary damages of approximately $15.5 million in fees and expenses
under the contract, plus any additional amount recoverable under the contractual
guarantee, as well as punitive damages, prejudgment interest, attorneys' fees,
and costs. Utica also seeks an injunction against alleged false advertising by
TenFold under a Utah truth-in-advertising statute. On January 23, 2001, we filed
an Answer denying Utica's claims. On February 27, 2001, Utica filed a motion for
partial summary judgment on its breach of contract claim seeking an order of
rescission. On March 29, 2001, we filed our opposition to Utica's motion for
partial summary judgement. On May 1, 2001, the court heard argument and denied
Utica's motion for partial summary judgment, finding no basis for rescission of
the contract. However, the court also issued a finding that TenFold had failed
to deliver the software application within the time allowed under the contract.
Discovery is ongoing and our outside legal counsel continues to gather relevant
documents and interview potential witnesses. As of March 31, 2001, of the fees
paid by Utica, $1.7 million has not been recognized as revenue and is included
in accrued liabilities together with an accrued loss amount of $582,000 which we
established during the quarters ended June 30, 2000 and September 30, 2000 in
the normal course of performing our percentage-of-completion calculations.

The total revenues recognized by us from the Utica Agreement from November 2,
1998

through March 31, 2001, were $7.6 million. Of this amount, $3.9 million is not
subject to the terms of the limited guarantee. We recognized no revenue from the
Utica Agreement for the three months ended March 31, 2001, and recognized $1.2
million during the same period of 2000.

Although this matter is still in the early stages of litigation, it is
probable, based on the court's factual finding of breach, that TenFold may
suffer a loss on Utica's claims that we failed to deliver the software
application within the time allowed under the contract. We believe that our
errors and omissions insurance covers damages that may arise out of Utica's
claims that we failed to deliver the software application within the time
allowed under the contract, as well as covering the costs of legal defense,
subject to the policies' total limit, and the insurance carrier's standard
reservation of rights. However, we will vigorously assert our rights under the
Utica Agreement and defend against Utica's claims. An unfavorable outcome of
this matter may have a material adverse impact on our business, results of
operations, financial position, or liquidity.

On November 2, 2000, we received notice of intent to terminate the Master
Software Licenses and Service Agreement (the "SCEM Agreement") between us and
Southern Company Energy Marketing L.P. ("SCEM") due to an alleged material
nonperformance by us. SCEM filed a demand for arbitration with the American
Arbitration Association on November 22, 2000 seeking "an award of $20 million in
damages, plus interest"-- an amount allegedly consisting of all amounts
previously paid to us in software development plus license fees of approximately
$10.2 million. We responded in a timely manner to the demand denying that we
breached the contract and filed detailed Counterclaims including a breach of
contract claim against SCEM for improper and ineffective termination of the
contract and nonpayment. We are seeking to recover damages exceeding $1 million
in unpaid fees. TenFold has filed a motion for summary judgment seeking
immediate dismissal of SCEM's breach of contract claim and an award of damages
in TenFold's favor on its claims against SCEM. The arbitrator selected by the
parties will consider TenFold's motion for summary judgment in early June, 2001.
If TenFold's motion for summary judgment is not granted, the arbitration hearing
is expected to take place in Dallas, Texas commencing on June 18, 2001. Total
revenue recognized by us during the second quarter of 1999 through the first
quarter of 2001 was $11.5 million. For the three months ended March 31, 2001, we
recognized no revenue from SCEM and recognized $2.9 million from SCEM during the
same period in 2000.

The matter is in the active discovery stage, and based on the information
currently available, we will continue to vigorously assert our rights under the
SCEM Agreement and defend against SCEM's claims, including recovery of the
amounts SCEM owes us and the remaining amounts due under the SCEM Agreement. An
unfavorable outcome of this matter may have a material adverse impact on our
business, results of operations, financial position, or liquidity.

On December 14, 2000, Crawford & Company ("Crawford") sent a letter to us
purporting to give notice of breach under the terms of the Master Software
License and Services Agreement between us and Crawford (the "Crawford
Agreement"). Crawford's letter also purports to give notice of Crawford's
election to terminate the Crawford Agreement. Crawford's letter asserts that we
failed to deliver the NIMBUS software application within the agreed schedule for
doing so. Although Crawford has not filed a formal complaint or made a formal
demand for arbitration, Crawford is demanding refund of all fees paid by
Crawford under the Crawford Agreement, plus a performance penalty of $2.0
million. The Crawford Agreement provides that, in the event of a dispute, the
parties must follow a dispute resolution procedure consisting initially of a
three-tiered negotiation process by which settlement negotiations are elevated
to increasingly higher levels of management for 90 days before either party
makes a demand for arbitration. The parties met on January 25, 2001 in the
second tier of settlement negotiations. The parties were unable to reach
agreement and exchanged correspondence confirming the topics discussed at the
meeting. We are waiting for Crawford to initiate the third tier of negotiations.
The Crawford Agreement further provides that if resolution is not achieved
within the 90-day period, the dispute shall be determined by binding arbitration
upon the initiation of either party. For the three months ended March 31, 2001,
we recognized no revenue from Crawford and recognized negative $993,000 million
in revenues from Crawford during the same period in 2000 as a result of
adjustments

made to our estimated costs to complete the project.

We do not believe that we materially breached the Crawford Agreement. Should
Crawford persist in its attempt to terminate the Crawford Agreement, we will
vigorously assert our rights under the Crawford Agreement and defend against
Crawford's claims, including recovery of the amounts that Crawford owes us and
the remaining amounts due under the Crawford Agreement totaling at least $1.8
million. An unfavorable outcome of this matter may have a material adverse
impact on our business, results of operations, financial position, or liquidity.

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"). We disclosed the initial contact
in our Form 10-K for the year ended December 31, 2000. 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 under the SkyTel Agreement.
The matter is in its preliminary stages, and based on the information currently
available, we will vigorously assert our rights under the agreement and defend
against the customer's claims, including payment of the amounts that the
customer owes us and the remaining amounts due under the agreement totaling at
least $ 6.2 million. While we believe that this potential dispute will be
covered by one of our prior errors and omissions and umbrella liability
policies, if the alleged error or omission did occur, we would need to show that
it occurred during the coverage period of the prior policy. The total contract
value of this potentially material 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.

As a result of the legal proceedings and contingencies noted above, we have
provided an allowance for doubtful accounts of $2.8 million related to billed
accounts receivable and $2.9 million related to unbilled accounts receivable at
March 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 or failure to perform computer-related services that occurred
after March 1, 1998 but prior to March 1, 2001. We believe that this insurance
covers the types of alleged damages (but not unpaid or unbilled accounts
receivable) that may be claimed in the legal cases and customer disputes noted
above (with the possible exception of the additional potential customer
dispute), as well as covering the costs of legal defense, subject to the
policies' total limit, and the insurance carrier's standard reservation of
rights under which the carrier defers its final determination of the amount of
claims that it will cover until final disposition of a case. Although the total
maximum potential liability for these disputes exceeds the policies' total
limit, management believes that it is unlikely that our losses from existing
claims will exceed the policies' limits. We have reserved against certain of the
billed and unbilled accounts receivable related to these disputed amounts for
which a loss is considered probable. An unfavorable outcome or claim not covered
by an insurance policy on one or more 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. 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.

We may in the future face other litigation or disputes with customers,
employees, 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.

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 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) Company 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 that repeats their earlier allegations while
adding additional details regarding the projects on which revenue was allegedly
improperly recognized. TenFold is reviewing this complaint and intends to file a
motion to dismiss on or before June 19, 2001.

Management and outside legal counsel believe that the defendants have
meritorious defenses to the allegations made in these lawsuits. Because the
matter is in its preliminary stages, our outside legal counsel is not able to
provide an opinion on the probable outcome of the claim and therefore, no
provision for loss has been recorded in our Condensed Consolidated Financial
Statements. Although we carry directors and officers liability insurance that we
believe is sufficient for such class action claims, we intend to vigorously
defend ourselves and we deny any wrongdoing. 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 or are in the process of complying with them. We have
learned that the SEC has issued subpoenas to our independent auditors and to
several of our current and former customers. In February 2001, the SEC took
testimony from our former Chief Financial Officer. In March 2001, the SEC took
testimony from our Senior Vice President of Applications Products and our former
Senior Vice President, Sales and Marketing who was also the President of TenFold
Insurance, Inc.

The inquiry is in its preliminary stages and we have retained outside legal
counsel to represent us concerning the investigation. The SEC has a number of
statutory remedies that it may use in both fraud and non-fraud (books and
records) enforcement proceedings. These remedies 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 us and our officers.
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. However, because the inquiry is in its preliminary stages, 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.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Number Description
------ -----------

10.1** LongView Purchase Agreement (1)
10.2** Exhibit D to LongView Purchase Agreement - Deposit Account,
Escrow and Control Agreement (1)
10.3** Exhibit E to LongView Purchase Agreement - Pledge and Assignment
Agreement (1)
10.4# Employment Agreement Between TenFold Corporation and Nancy M.
Harvey
11* Computation of Shares used in Computing Basic and Diluted Net
Income Per Share

* Incorporated by reference to "Notes to Condensed Consolidated Financial
Statements" herein
** Previously filed
# Indicates management contract or compensatory plan or arrangement

(1) Filed on March 30, 2001 as an exhibit to the Company's Current Report on
Form 8-K and incorporated by reference.

(b) Reports on Form 8-K

On January 16, 2001, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission disclosing the resignation of Gary D.
Kennedy as president, chief executive officer and a director; and the
appointment of Nancy M. Harvey as the Company's new president, chief executive
officer and a director.

On March 19, 2001, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission disclosing the sale of The LongView Group,
Inc.

On March 30, 2001 the Company filed an amendment to the Current Report on
Form 8-K, related to the sale of The LongView Group, Inc. The Company at that
time filed an Unaudited Pro Forma Condensed Consolidated Balance Sheet and a
Statement of Operations for the nine months ended September 30, 2000 and an
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1999, reflecting the disposition of The Longview Group, Inc.
and including the notes to the unaudited pro forma financial information.

SIGNATURES

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

TenFold Corporation

By: /s/ Donald R. Jefferis
------------------------------------
Donald R. Jefferis
Chief Financial Officer

Date: May 18, 2001