UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~Washington,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-Q~~D.C. 20549

~~(Mark~~FORM ~~One)~~10-Q

~~x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(dMark One) ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~x ~~the~~QUARTERLY ~~quarterly~~REPORT ~~period~~PURSUANT ~~ended~~TO ~~March~~SECTION ~~31,~~13 ~~2004~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ORFor the quarterly period ended June 30, 2006

~~¨ TRANSITION REPORT PURSUANT TO SECTION 13~~ OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~¨ ~~the~~TRANSITION ~~transition~~REPORT ~~period~~PURSUANT ~~from to~~ TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~file~~the ~~number~~transition ~~000-25661~~period from to

~~TenFold~~Commission file ~~Corporation~~number 000-25661

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

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

(Exact name of registrant as specified in its charter)

698 West 10000 South

Delaware

83-0302610

(State or other jurisdiction of incorporation or

organization)

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

~~South~~698 ~~Jordan,~~West ~~Utah~~10000 ~~84095~~South

~~(Address~~South ~~of principal executive offices~~Jordan, ~~including~~Utah ~~zip~~84095 ~~code)~~

(~~801)~~Address ~~495-1010~~of principal executive offices, including zip code)

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

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

Indicate by check mark whether the registrant is(1) has anfiled all ~~accelerated~~reports ~~filer~~required to be filed by Section 13 or 15(asd) ~~defined~~of inthe Securities Exchange Act ~~Rule~~of ~~12b-~~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 x¨

AsIndicate ofby ~~March~~check ~~31,~~mark ~~2004~~whether the registrant is a large accelerated filer, ~~there~~an ~~were~~accelerated 46filer,~~070,294~~ ~~shares~~or ofa ~~the~~non-accelerated ~~registrant’s~~filer. ~~Common~~See ~~Stock~~definition ~~outstanding~~of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

~~INDEX~~Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer x

			Page
		Forward-Looking Statements	3
PART I.		FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003	4
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and March 31, 2003	5
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and March 31, 2003	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	30
PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	31
	Item 6.	Exhibits and Reports on Form 8-K	31
Signature			32

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

2Yes ¨ No x

As of June 30, 2006, there were 46,502,013 shares ~~FORWARD-LOOKING~~of ~~STATEMENTS~~the registrant’s Common Stock outstanding.

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

3 INDEX

PART I. FINANCIAL INFORMATION


		Page
	Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements

	Condensed Balance Sheets at June 30, 2006 and December 31, 2005	4

	Condensed Statements of Operations for the three and six months ended June 30, 2006 and June 30, 2005	5

	Condensed Statements of Cash Flows for the six months ended June 30, 2006 and June 30, 2005	6

	Notes to Condensed Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 4.	Submission of Matters to a Vote of Security Holders	30

Item 6.	Exhibits	31

Signatures		32

~~Item~~2 ~~1. Condensed Consolidated Financial Statements~~

TENFOLDTable CORPORATIONof Contents

~~CONDENSED~~ ~~CONSOLIDATED~~FORWARD-LOOKING ~~BALANCE~~STATEMENTS ~~SHEETS~~

(In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those contained in ~~thousands~~the forward-looking statements. Factors that might cause or contribute to such differences include, ~~except~~but ~~share~~are ~~data)~~not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this report, the words “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” “seeks,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Quarterly Report. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document. You should carefully review the risk factors described in this Quarterly Report, including those in Part II, Item 1A “Risk Factors.” You should also carefully review the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2005, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

~~(unaudited)~~3

	March 31,			December 31,
	2004			2003
Assets
Current assets:
Cash and cash equivalents	$	11,270		$	12,236
Accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)		166			942
Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)		10			58
Prepaid expenses and other assets		247			243
Other assets		10			10
Total current assets		11,703			13,489
Restricted cash		73			73
Property and equipment, net		817			855
Total assets	$	12,593		$	14,417
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	625		$	1,127
Income taxes payable		1,723			1,728
Accrued liabilities		4,482			5,416
Deferred revenue		7,204			7,586
Current installments of obligations under capital leases		13			—
Total current liabilities		14,047			15,857
Long-term liabilities:
Obligations under capital leases, excluding current installments		26			—
Total long-term liabilities		26			—
Contingencies
Stockholders’ deficit:
Common stock, $0.001 par value:
Authorized: 120,000,000 sharesIssued and outstanding shares: 46,070,294 shares at March 31, 2004 and 45,969,524 shares at December 31, 2003		46			46
Additional paid-in capital		76,091			75,936
Deferred compensation		(32	)		(43	)
Accumulated deficit		(77,585	)		(77,379	)
Total stockholders’ deficit		(1,480	)		(1,440	)
Total liabilities and stockholders’ deficit	$	12,593		$	14,417

~~The~~PART ~~accompanying notes~~I. ~~are~~FINANCIAL anINFORMATION ~~integral part of these condensed consolidated financial statements~~

4Item 1. Condensed Financial Statements

TENFOLD CORPORATION

CONDENSED ~~CONSOLIDATED~~ ~~STATEMENTS~~BALANCE OFSHEETS ~~OPERATIONS~~

(in thousands, except ~~per~~ share data)

(unaudited)

	Three Months EndedMarch 31,
	June 30,2006			December 31,2005
	2004			2003
Assets
Revenues:
Current assets:
License	$	152		$	3
Cash and cash equivalents	$	3,244		$	1,344
Subscription		—			6,052
Accounts receivable, (net of allowances for doubtful accounts of $0 and $9, respectively, includes related party receivable of $6 and $25 respectively),		250			209
Services and other		3,439			3,313
Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)		3			2
Total revenues		3,591			9,368
Prepaid expenses and other assets		142			161
Operating expenses:
Total current assets		3,639			1,716
Cost of revenues		2,187			2,275
Restricted cash		74			74
Sales and marketing		315			225
Property and equipment, net		247			352
Research and development		824			915
Total assets	$	3,960		$	2,142
General and administrative		578			1,241
Liabilities and Stockholders’ Equity
Total operating expenses		3,904			4,656
Current liabilities:
Income (loss) from operations		(313	)		4,712
Accounts payable	$	199		$	483
Other income (expense):
Income taxes payable		243			250
Interest income		22			14
Accrued liabilities		1,249			1,492
Interest expense		(1	)		(3	)
Deferred revenue		1,820			2,218
Other income		86			78
Current installments of obligations under capital leases		26			35
Gain on retirement of debt		—			2,206
Notes payable – related parties		—			600
Total other income, net		107			2,295
Total current liabilities		3,537			5,078
Income (loss) before income taxes		(206	)		7,007
Long-term liabilities:
Provision (benefit) for income taxes		—			12
Obligations under capital leases, excluding current installments		1			10
Net income (loss)	$	(206	)	$	6,995
Total long-term liabilities		1			10
Basic earnings (loss) per common share	$	(0.00	)	$	0.18
Commitments and contingencies
Diluted earnings (loss) per common share	$	(0.00	)	$	0.18
Stockholders’ equity:
Weighted average common and common equivalent shares used to calculate earnings (loss) per share:
Convertible preferred stock, $0.001 par value:
Basic		46,015			39,351
Authorized: 2,000,000 shares Issued and outstanding shares: 1,500,000 shares at June 30, 2006 and 0 shares at December 31, 2005		2			—
Diluted		46,015			39,628
Common stock, $0.001 par value:
Authorized: 120,000,000 shares Issued and outstanding shares: 46,502,013 shares at June 30, 2006 and 46,445,749 shares at December 31, 2005		46			46
Additional paid-in capital		83,347			76,411
Deferred compensation		—			(6	)
Accumulated deficit		(82,973	)		(79,397	)
Total stockholders’ equity		422			(2,946	)
Total liabilities and stockholders’ equity	$	3,960		$	2,142

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

TENFOLDTable CORPORATIONof Contents

~~CONDENSED CONSOLIDATED~~TENFOLD ~~STATEMENTS~~CORPORATION ~~OF CASH FLOWS~~

~~(in~~ CONDENSED ~~thousands)~~STATEMENTS OF OPERATIONS

(~~unaudited~~in thousands, except per share data)

	Three Months EndedMarch 31,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	(206	)	$	6,995
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		97			264
Amortization of deferred compensation		5			25
Gain on retirement of debt		—			(2,206	)
Gain on sale of assets		(61	)		(30	)
Changes in operating assets and liabilities:
Accounts receivable		776			463
Unbilled accounts receivable		48			(29	)
Prepaid expenses and other assets		(4	)		89
Accounts payable		(502	)		389
Income taxes payable		(5	)		(3	)
Accrued liabilities		(934	)		(142	)
Deferred revenues		(382	)		(5,444	)
Other liabilities		—			(53	)
Net cash provided by (used in) operating activities		(1,168	)		318
Cash flows from investing activities:
Proceeds from sale of property and equipment		62			33
Additions to property and equipment		(20	)		(31	)
Decreases to restricted cash		—			32
Net cash provided by investing activities		42			34
Cash flows from financing activities:
Proceeds from employee stock purchase plan stock issuance		100			—
Proceeds from issuance of restricted stock		—			666
Exercise of common stock options		61			1
Principal payments on obligations under capital leases		(1	)		(588	)
Net cash provided by financing activities		160			79
Effect of exchange rate changes		—			—
Net (decrease) increase in cash and cash equivalents		(966	)		431
Cash and cash equivalents at beginning of period		12,236			3,838
Cash and cash equivalents at end of period	$	11,270		$	4,269
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	5		$	13
Cash paid for interest	$	—		$	2
Equipment purchased under capital leases	$	40			—

(unaudited)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues:
License	$	54		$	223		$	141		$	316
Services and other		656			1,478			1,168			2,993

Total revenues		710			1,701			1,309			3,309

Operating expenses:
Cost of revenues		634			757			1,220			1,751
Sales and marketing		270			846			461			1,560
Research and development		1,094			876			2,217			1,819
General and administrative		409			592			1,021			1,223

Total operating expenses		2,407			3,071			4,919			6,353

Loss from operations		(1,697	)		(1,370	)		(3,610	)		(3,044	)

Other income (expense):
Interest income		45			17			53			37
Interest expense		(1	)		(2	)		(20	)		(5	)
Other income		1			5			1			87

Total other income, net		45			20			34			119

Loss before income taxes		(1,652	)		(1,350	)		(3,576	)		(2,925	)
Provision for income taxes		—			6			—			7

Net loss		(1,652	)		(1,356	)		(3,576	)		(2,932	)

Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock		—			—			(1,761	)		—

Net loss applicable to common shareholders	$	(1,652	)	$	(1,356	)	$	(5,337	)	$	(2,932	)

Basic loss per common share	$	(0.04	)	$	(0.03	)	$	(0.11	)	$	(0.06	)

Diluted loss per common share	$	(0.04	)	$	(0.03	)	$	(0.11	)	$	(0.06	)

Weighted average common and common equivalent shares used to calculate loss per share:
Basic		46,502			46,412			46,492			46,406

Diluted		46,502			46,412			46,492			46,406

6The accompanying notes are an integral part of these condensed financial statements.

~~TENFOLD~~5 ~~CORPORATION~~

NOTESTable TO CONDENSEDof CONSOLIDATED FINANCIAL STATEMENTS Contents

1.TENFOLD ~~Basis~~CORPORATION ~~of Presentation~~

~~The accompanying unaudited Condensed Consolidated~~ ~~Financial~~CONDENSED ~~Statements~~STATEMENTS ~~included~~OF ~~herein~~CASH ~~have~~FLOWS been prepared by TenFold Corporation (“TenFold”) pursuant to the rules and regulations of the Securities and Exchange Commission. As used herein, “TenFold,” the “Company,” “we,” “our” and similar terms refer to TenFold Corporation, unless the context indicates otherwise. 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 information required by generally accepted accounting principles has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2004.

~~This report should be read~~ (in ~~conjunction~~thousands) ~~with TenFold’s audited Consolidated Financial Statements for the year ended December 31, 2003 included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission.~~

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

2. Revenue Recognition


	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net loss	$	(3,576	)	$	(2,932	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		120			170
Provision to bad debt reserve		—			(3	)
Amortization of deferred compensation		—			8
Stock-based compensation expense		862			—
Changes in operating assets and liabilities:
Accounts receivable		(41	)		(184	)
Unbilled accounts receivable		(1	)		65
Prepaid expenses and other assets		19			(131	)
Accounts payable		(284	)		53
Income taxes payable		(7	)		(9	)
Accrued liabilities		(243	)		(109	)
Deferred revenues		(398	)		(69	)

Net cash used in operating activities		(3,549	)		(3,141	)

Cash flows from investing activities:
Additions to property and equipment		(15	)		(14	)

Net cash used in investing activities		(15	)		(14	)

Cash flows from financing activities:
Proceeds from employee stock purchase plan stock issuance		10			27
Proceeds from issuance of convertible preferred stock and warrants		6,072			—
Proceeds from issuance of notes payable		500			—
Principal payments on notes payable		(1,100	)		—
Principal payments on obligations under capital leases		(18	)		(16	)

Net cash provided by financing activities		5,464			11

Net increase (decrease) in cash and cash equivalents		1,900			(3,144	)
Cash and cash equivalents at beginning of period		1,344			5,225

Cash and cash equivalents at end of period	$	3,244		$	2,081

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	7		$	16
Cash paid for interest		20			2
Equipment purchased under capital leases		—			16

WeThe ~~derive~~accompanying ~~revenues~~notes ~~from~~are license fees, subscription fees, applications development and implementation services, support, and training services. License revenues consist of fees for licensing EnterpriseTenFold (formerly known as Universal Application) as an ~~applications~~integral ~~development~~part ~~tool, and license fees for applications that we previously developed and resold. Subscription revenue consists~~ of ~~fees for~~these ~~licensing~~condensed ~~EnterpriseTenFold,~~financial ~~licensing new product releases of TenFold ComponentWare, and in certain cases providing related time-and-material consulting, training, and support services during a subscription period~~statements. ~~Service revenues consist of~~ ~~fees for applications development and implementation, support and training. Other revenues include fees for reimbursement of out of pocket expenses incurred for customer projects.~~

We6 follow the provisions of Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions, and Statement of Position (“SOP”) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, in recognizing revenue under each of our contracts.

WeTable generally enter into contracts that involve multiple elements, such as software products, enhancements, post-contract customer support (“PCS”), training, and time-and-material services. We allocate a portion of the contract fee to each undelivered element based on the relative fair values of the elements and allocate the fee for delivered software products using the residual method. The fair values of an element must be based on vendor specific objective evidence (“VSOE”). 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 we charge the customer in future periods. Contents

7TENFOLD CORPORATION

~~For certain contracts, including a subscription to future software products when and if they become~~ ~~available,~~NOTES weTO ~~recognize~~CONDENSED ~~the~~FINANCIAL ~~fees~~STATEMENTS for the software products ratably over the subscription term beginning with delivery of the first software product. For contracts that include a service element for which the fair value is undeterminable, and the contract includes a subscription to new product releases on a “when and if available basis,” we recognize the entire contract fee ratably over the subscription period as subscription revenue.

~~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~~1. ~~Billings~~Basis ~~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.~~ Presentation

WeThe accompanying unaudited ~~recognize~~Condensed ~~support~~Financial ~~revenue~~Statements ~~from~~included ~~contracts~~herein have been prepared by TenFold Corporation (“TenFold”) pursuant to the rules and regulations of the Securities and Exchange Commission. As used herein, “TenFold,” the “Company,” “we,” “our” and similar terms refer to TenFold Corporation, unless the context indicates otherwise. In management’s opinion, the interim financial data presented includes all adjustments necessary for ~~ongoing~~a fair ~~technical~~presentation. ~~support~~Certain information and ~~product~~note ~~updates~~disclosures ~~ratably~~normally ~~over~~included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the ~~support~~company ~~period~~believes that the disclosures made are adequate to make the information not misleading. WeOperating ~~recognize~~results ~~training~~for ~~revenue~~the asthree weand ~~perform~~six months ended June 30, 2006 are not necessarily indicative of the ~~services~~results that may be expected for any future period or for the year ending December 31, 2006.

~~For~~This ~~service~~report ~~revenue~~should ~~accounted~~be ~~for~~read ~~under~~in ~~SOP~~conjunction ~~81-1,~~with weour ~~generally~~audited ~~estimate~~Financial Statements afor ~~profit~~the ~~range~~year ~~and~~ended ~~recognize~~December 31, ~~revenue~~2005 asincluded ~~costs~~in ~~are incurred.~~our WeAnnual ~~adjust~~Report ~~the~~on ~~estimates~~Form as10-K ~~work~~filed ~~progresses~~with ~~under~~ the ~~contract~~Securities and weExchange ~~gain experience~~Commission.

WeThe ~~recognize~~preparation ~~license~~of ~~revenues~~financial ~~from~~statements ~~applications~~in ~~product~~conformity ~~sales~~with ~~and~~accounting ~~EnterpriseTenFold~~principles ~~development~~generally ~~and~~accepted ~~deployment~~in ~~licenses that do not include services or where~~ the ~~related~~United ~~services~~States ~~are~~requires ~~not~~management ~~considered essential~~ to ~~the~~make ~~functionality~~estimates ofand ~~the software~~assumptions, ~~when~~including ~~the~~for ~~following~~example, ~~criteria~~estimated ~~are~~project ~~met:~~costs weand ~~have~~profitability and ~~signed~~accounts areceivable ~~noncancellable~~allowances. ~~license~~These ~~agreement~~assumptions ~~with~~affect ~~nonrefundable fees; we have shipped~~ the ~~software~~reported ~~product;~~amounts ~~there are~~of noassets ~~uncertainties surrounding product acceptance; the fees are fixed~~ and ~~determinable;~~liabilities and ~~collection~~disclosure isof ~~considered~~contingent ~~probable.~~assets ~~This~~and ~~policy~~liabilities ~~applies~~at ~~both when~~ the ~~applications~~date ~~license~~of orthe ~~EnterpriseTenFold~~financial ~~development~~statements orand ~~deployment licenses are sold separately or when an EnterpriseTenFold license is sold with an applications development project. Services relating to~~ the ~~licenses~~reported ~~typically~~amounts ~~only~~of ~~include~~revenues ~~post~~and ~~contract customer support services, or do not add significant functionality, features, or~~expenses ~~significantly~~during ~~alter~~ the ~~software~~reporting period. InActual ~~addition,~~results ~~similar~~could ~~services~~differ ~~are available~~ from ~~other~~these ~~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~~estimates.

~~For~~Our ~~software arrangements~~financial ~~that~~statements ~~include~~have abeen ~~service~~prepared ~~element~~under ~~that is considered essential to~~ the assumption ~~functionality~~that ~~of the software,~~ we ~~recognize~~will ~~license~~continue ~~fees~~as ~~related~~a togoing ~~the~~concern. ~~application,~~The ~~and~~independent ~~the~~auditors’ ~~applications~~opinion ~~development~~on ~~service~~our ~~fees~~December 31, ~~over~~2005 ~~time~~financial ~~as we perform the services~~statements, ~~using~~ ~~the percentage-of-completion method of accounting and following the guidance in Statement of Position (“SOP”) 81-1~~however, ~~Accounting~~includes ~~for~~an ~~Performance~~explanatory ofparagraph ~~Construction-Type~~relating ~~and~~to ~~Certain~~our ~~Production-Type~~ability ~~Contracts. We make adjustments, if necessary,~~ to ~~the~~continue ~~estimates used in the percentage-of-completion method of accounting~~ as ~~work~~a ~~progresses~~going ~~under the contract and as we gain experience~~concern. ~~Fixed-price project revenues are split between license and service based upon the relative fair~~ ~~value of the components.~~

~~For~~As ~~certain~~of ~~projects~~June 30, we2006, ~~limit~~our principal source of liquidity was our cash and cash equivalents of $3.2 million. On March 30, 2006 we ~~revenue~~completed ~~recognition~~a incapital ~~the~~raising ~~period~~transaction tofor ~~the~~gross ~~amount~~proceeds of ~~project~~approximately ~~costs~~$6.3 ~~incurred~~million in(before ~~the~~expenses ~~same~~and ~~period,~~repayment ~~resulting~~of in$1.1 ~~zero~~million ~~profit~~of ~~during~~interim financing obligations). We believe that with the ~~period~~proceeds of this capital transaction, and ~~postpone~~new ~~recognition~~sales that ofwe ~~profits~~believe ~~until~~that ~~results~~we can beclose ~~estimated~~during ~~more~~2006, ~~precisely~~we will have sufficient liquidity for our operations during 2006. However, significant challenges and risks remain:

~~For~~• ~~certain~~We ~~contracts~~have not been able to generate positive cash flow from operations for ~~which~~the ~~reasonably~~three ~~dependable~~years ~~estimates~~ended ~~cannot~~December ~~be made~~31, 2005, or the six months ended June 30, 2006. Our net cash used in operating activities was $4.5 million for ~~which~~the ~~inherent~~year ~~hazards~~ended ~~make~~December ~~estimates~~31, ~~doubtful~~2005, weand ~~recognize~~$3.5 ~~revenue~~million ~~under~~for the ~~completed-contract~~six ~~method~~months ofended ~~contract~~June ~~accounting.~~30, 2006.

We• ~~record~~For ~~billings~~the ~~and~~last ~~cash~~several ~~received~~years, inwe ~~excess~~have ofderived ~~revenue~~a ~~earned~~significant asportion ~~deferred~~of ~~revenue.~~our ~~Our~~cash ~~deferred~~inflows ~~revenue balance generally results~~ from ~~contractual commitments~~time-and-materials ~~made~~consulting byservices ~~customers~~performed tofor ~~pay~~a ~~amounts~~limited tonumber ~~us in advance~~ of ~~revenues~~large ~~earned,~~customers ~~and~~for ~~from~~whom ~~application of the “zero profit” margin methodology described above. Our unbilled accounts receivable represents revenue that~~ we ~~have~~were ~~earned~~completing ~~but which~~enterprise weapplications ~~have~~development ~~not yet billed~~projects. WeAs ~~bill~~these customers ascompleted ~~payments~~their ~~become~~initial ~~due~~projects ~~under~~and ~~the~~became ~~terms~~self-sufficient, ofthey ~~the~~reduced ~~customer’s~~their ~~contract.~~purchases Weof ~~consider~~time-and-materials ~~current~~consulting ~~information~~services ~~and~~(although ~~events~~some ~~regarding~~purchase ~~our~~support ~~customers~~from us and ~~their~~other ~~contracts~~services ~~and~~from ~~establish~~time ~~allowances~~to ~~for~~time). ~~doubtful accounts~~We ~~when~~have itnot isreplaced ~~probable~~these ~~that~~projects wewith ~~will~~similar besized ~~unable~~projects towith ~~collect~~other ~~amounts~~customers. ~~due~~These ~~under~~reductions ~~the~~have ~~terms~~materially ofreduced ~~existing~~our ~~contracts.~~cash inflows.

8• We have experienced difficulty closing substantial new sales, and it is unclear when or if we can expect to predictably close significant sales to new or existing customers, and to achieve and sustain positive cash flow from operations. Under the leadership of our new Chief Executive Officer, Robert W. Felton, we have recently changed our business model to focus on selling larger consulting projects, instead of the smaller prototype application projects that we primarily sold in 2005. Although we expect to be more successful with this new model, we have limited experience with the new model as we have introduced it only recently. And although we have closed some new sales under this model, the amount of such sales is not sufficient to generate positive cash flow from operations. If we do not close significant sales in 2006, the funds from our recent capital raising alone will not be sufficient to fund our operations through all of 2006.

3.7 ~~Earnings (Loss) Per Share~~

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

	Three Months Ended March 31,
	2004			2003
Numerator:
Numerator for basic earnings (loss) per share – net income (loss) available to common stockholders	$	(206	)	$	6,995
Numerator for diluted earnings (loss) per share	$	(206	)	$	6,995
Denominator:
Denominator for basic earnings (loss) per share – weighted average shares		46,015			39,351
Employee stock options		—			277
Denominator for diluted earnings (loss) per share		46,015			39,628
Earnings (loss) per common share:
Basic earnings (loss) per common share	$	(0.00	)	$	0.18
Diluted earnings (loss) per common share	$	(0.00	)	$	0.18

There can be no assurance that we will be successful closing sufficient new sales and these risks may have a materially adverse affect on our future cash flow and operations.

~~Employee stock options of 19,901,145 and 11,022,757 outstanding during the three months ended March 31, 2004 and 2003, respectively, that have a weighted average exercise price of $~~2.17 ~~and~~Revenue $2.24 per share, respectively, and that could potentially dilute 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. Recognition

4We derive revenues from license fees, applications development and implementation consulting services, support, and training services. ~~Restricted~~License ~~Cash~~revenues consist of fees for licensing EnterpriseTenFold (formerly known as Universal Application) as an applications development tool. Service revenues consist of fees for applications development and implementation consulting, support and training. Other revenues include fees for reimbursement of out of pocket expenses incurred for customer projects.

~~Restricted~~We ~~cash~~follow the provisions of ~~$73~~Statement of Position (“SOP”) 97-2,~~000~~ atSoftware ~~March~~Revenue 31Recognition, ~~2004~~as ~~and~~modified ~~December~~by 31SOP 98-9, ~~2003~~Modification of isSOP ~~maintained~~97-2 with Respect to ~~support~~Certain ~~various~~Transactions, ~~accounts~~and ~~payable~~SOP ~~activities~~81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, in recognizing revenue under each of our contracts.

5We generally enter into contracts that involve multiple elements, such as software products, enhancements, post-contract customer support (“PCS”), training, and time-and-material services. ~~Comprehensive~~For ~~Income~~accounting purposes, we allocate a portion of the contract fee to each undelivered element based on the relative fair values of the elements and allocate the fee for delivered software products using the residual method. The fair values of an element must be based on vendor specific objective evidence (~~Loss~~“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 we charge the customer in future periods.

~~Comprehensive~~As ~~income~~a ~~(loss)~~result, ~~for~~ the ~~three~~amounts ~~months~~allocated ~~ended~~to ~~March~~individual 31contract elements (such as license, ~~2004~~consulting, training and ~~2003,~~ ~~ignoring~~support) for accounting purposes may differ from the ~~insignificant~~amounts ~~impact~~stated ofin ~~taxes~~the oncontract ~~foreign~~for ~~currency~~those ~~translation~~individual elements, ~~was~~but asnot ~~follows (~~in ~~thousands):~~total.

	Three Months EndedMarch 31,
	2004			2003
Net income (loss)	$	(206	)	$	6,995
Foreign currency translation		—			—
Comprehensive income (loss)	$	(206	)	$	6,995

For time-and-materials 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-materials contract or when the results can be estimated more precisely.

9We 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.

6.We recognize ~~Stock-Based~~license ~~Compensation~~revenues from EnterpriseTenFold 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

We8 apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—an Interpretation of APB Opinion No. 25 issued in March 2000, to account for our stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123. We have also adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123, into these financial statements and related notes.

HadTable compensationof expense for our stock option plan and the employee stock purchase plan been determined based on the fair value at the grant date for awards or purchase rights under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock Based Compensation, our net income (loss) for the three months ended March 31, 2004 and 2003 would have been as follows (in thousands except per share information): Contents

	Three Months EndedMarch 31,
	2004			2003
Net income (loss) applicable to common stock – as reported	$	(206	)	$	6,995
Add: Stock-based employee compensation expense included inreported net income (loss), net of related tax effects		5			25
Deduct: Total stock-based employee compensation expensedetermined under fair value based method for all awards, net ofrelated tax effects		(5,515	)		(1,191	)
Net income (loss) applicable to common stock – pro forma	$	(5,716	)	$	5,829
Earnings (loss) per common share – as reported:
Basic	$	(0.00	)	$	0.18
Diluted	$	(0.00	)	$	0.18
Earnings (loss) per common share – pro forma:
Basic	$	(0.12	)	$	0.15
Diluted	$	(0.12	)	$	0.15

probable. This policy applies both when the licenses are sold separately or when an EnterpriseTenFold license is sold with an applications development project. Services relating to the licenses typically include post contract customer support services, general time-and-materials consulting, and training; and 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~~For ~~effect~~software ofarrangements ~~SFAS~~that ~~No.~~include a service element that is considered essential to the functionality of the ~~123~~software, onwe ~~pro~~recognize ~~forma~~license ~~net~~fees ~~income~~related ~~(loss)~~to the application, and ~~net~~the ~~income~~applications 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 (~~loss~~“SOP”) ~~per~~81-1, ~~share~~Accounting for ~~the~~Performance ~~three~~of ~~months~~Construction-Type ~~ended~~and ~~March~~Certain 31Production-Type Contracts. We make adjustments, ~~2004~~if ~~and~~necessary, ~~2003~~to ~~may~~the ~~not~~estimates beused ~~representative~~in the percentage-of-completion method of accounting as work progresses under the ~~effects~~contract onand ~~pro~~as ~~forma~~we ~~results~~gain inexperience. ~~future~~Fixed-price ~~periods~~project revenues are split between license and service based upon the relative fair value of the components.

7.For ~~Income~~certain ~~Taxes~~projects, we limit revenue recognition in the period to the amount of project costs incurred in the same period, resulting in zero profit during the period, and postpone recognition of profits until results can be estimated more precisely.

~~There~~For ~~was~~certain nocontracts ~~provision~~ for ~~income taxes for the three months ended March 31, 2004, as no provision was necessary based upon~~which ~~results~~reasonably ~~for~~dependable ~~the~~estimates ~~period.~~cannot ~~The~~be ~~provision~~made ~~for~~or ~~income taxes~~ for ~~the~~which ~~three~~inherent ~~months~~hazards ~~ended~~make ~~March~~estimates 31doubtful, ~~2003~~we ~~relates~~recognize ~~primarily~~revenue tounder ~~foreign~~the ~~taxes~~completed-contract ~~and~~method ~~reversing a portion~~ of ~~our~~contract ~~valuation allowance attributable to the current operating income~~accounting.

~~The~~For ~~valuation~~license ~~allowance~~agreements asthat contain a discount that cannot be determined at the inception of ~~March~~the 31agreement, ~~2004~~we ~~was~~recognize ~~recorded~~the inrelated ~~accordance~~license ~~with~~revenue at the ~~provisions~~end of ~~Statement~~the estimated economic life of ~~Financial~~the ~~Accounting~~release ~~Standards~~of ~~(“SFAS”)~~the Nosoftware version provided to the customer. ~~109,~~We ~~Accounting~~use ~~for~~the ~~Income~~end ~~Taxes,~~of ~~which~~the ~~requires~~estimated ~~that~~economic alife ~~valuation~~to ~~allowance~~recognize bethe ~~established~~revenue when ~~there~~we isdo ~~significant~~not ~~uncertainty~~have asVSOE for the related post-contract customer support, due to the ~~realizability~~discount, and therefore we cannot allocate the revenue until the discount is known at the end of ~~deferred~~ ~~tax~~the ~~assets~~estimated economic life.

10We record billings and cash received in excess of revenue earned as deferred revenue. Our deferred revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. 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.

8.9 ~~Commitments~~

WeTable have commitments under long-term operating leases for office space. Future minimum lease payments under non-cancelable operating lease obligations, in excess of one year and excluding obligations accrued as part of restructurings, at March 31, 2004 are as follows (in thousands): Contents

Year	Amount
Q2-4 2004	$	337
2005		416
2006		427
2007		290
Thereafter		—
Total minimum lease commitments	$	1,470

3.	Loss Per Share

~~Operating~~The ~~lease commitments~~following ~~for~~table ~~properties~~sets ~~that~~forth ~~have~~the computation ~~been~~of ~~restructured~~basic ~~are~~and ~~included~~diluted inloss ~~accounts~~per ~~payable~~common ~~and~~share ~~accrued liabilities~~ (in ~~the~~thousands ~~Condensed~~except ~~Consolidated~~per ~~Balance~~share ~~Sheet~~data): ~~at March 31, 2004. See Note 10 for more information.~~

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Numerator:
Numerator for basic loss per share – net loss applicable to common shareholders	$	(1,652	)	$	(1,356	)	$	(5,337	)	$	(2,932	)

Numerator for diluted loss per share – net loss applicable to common shareholders	$	(1,652	)	$	(1,356	)	$	(5,337	)	$	(2,932	)

Denominator:
Denominator for basic loss per share – weighted average shares		46,502			46,412			46,492			46,406

Employee stock options		—			—			—			—

Denominator for diluted loss per share		46,502			46,412			46,492			46,406

Loss per common share:
Basic loss per common share	$	(0.04	)	$	(0.03	)	$	(0.11	)	$	(0.06	)

Diluted loss per common share	$	(0.04	)	$	(0.03	)	$	(0.11	)	$	(0.06	)

9.Employee ~~Legal~~stock ~~Proceedings~~options that could potentially dilute basic earnings (loss) per share in the future, of which there were 17,136,558 and ~~Contingencies~~23,127,333 outstanding on June 30, 2006 and 2005, respectively, that have a weighted average exercise price of $1.64 and $1.87 per share, respectively, were not included in the computation of diluted loss per share because to do so would have been anti-dilutive for the periods.

~~Coufal~~The ~~Lawsuit~~computation of diluted loss per common share for the three and six months ended June 30, 2006 excludes the assumed conversion of 1,500,000 shares of convertible preferred stock outstanding at June 30, 2006, from our March 2006 capital raising transaction, which are convertible into 20,315,805 shares of common stock, because the impact of the conversion would be anti-dilutive. No convertible preferred stock was outstanding in 2005.

OnWarrants ~~December~~to 1,purchase ~~2003~~10, ~~we were served with a complaint in the matter of Coufal v. Cedars Sinai Medical Center~~157,899 ~~et.~~shares ~~al. The compliant was filed in the Superior Court~~ of ~~the~~common ~~State~~stock ofoutstanding ~~California,~~at ~~County of Los Angeles by the parents of a deceased individual who died on December 15~~June 30, ~~2002~~ ~~while in the care of Cedars Sinai Medical Center. The complaint lists a number of defendants including~~2006, ~~Cedars~~from ~~Sinai~~our ~~Medical~~March ~~Center,~~2006 ~~Perot~~capital ~~Systems~~raising ~~Healthcare Services Group~~transaction, Perot Systems Corporation, PCX Systems, LLC, TenFold Corporation, Steve Chen M.D., Charles Louy M.D., Steven Fowler M.D., Sunshine Aviva Weiss M.D., and Does 1-100, inclusive. The complaint generally alleges that plaintiff’s daughter died following surgery as the result of an overdose of prescription medications. The complaint alleges that the medications were ~~prescribed,~~also ~~ordered~~excluded ~~and/or~~from ~~administered in excess of~~ the ~~levels~~computation ~~acceptable to physicians acting within the standard~~ of ~~care~~diluted ofloss ~~physicians~~per incommon ~~the community, and that the computerized~~share ~~physician~~because ~~order~~to ~~entry~~do ~~system~~so ~~(“PCX”),~~would ~~initially~~have ~~developed~~been byanti-dilutive ~~us,~~for ~~failed to detect~~ the ~~overdose~~period. The ~~complaint~~warrants ~~acknowledges that in April 2001, and pursuant to separate agreements, which are described in reports that we~~ have ~~filed~~an ~~with~~exercise ~~the SEC,~~price ~~responsibility for and ownership~~ of ~~PCX~~$0.62 ~~was~~per ~~assumed~~share. byNo ~~PCX~~warrants ~~Systems,~~were ~~LLC~~outstanding ~~(a wholly owned subsidiary of Cedars Sinai Medical Center), and that~~ in ~~October 2002, Cedars Sinai Medical Center installed PCX for hospital use~~2005. ~~At this point, we do not believe that this lawsuit will have a material adverse impact on our business, results of operations, financial position, or liquidity.~~

~~Insurance~~4. Restricted Cash

WeRestricted ~~have~~cash anof ~~industry-standard~~$74,000 ~~errors~~at June 30, ~~and~~2006 ~~omissions insurance policy. This policy excludes contractual related disputes such as cost~~ and ~~time~~at ~~guarantees~~December 31, ~~and~~ ~~only~~2005 ~~covers~~is ~~software~~maintained ~~errors or omissions that occur after the delivery of software. We believe this policy provides adequate coverage for potential damages related~~ to ~~errors~~support ~~and~~various ~~omissions~~accounts inpayable ~~our delivered software~~activities. ~~We believe our errors and omissions and/or umbrella liability insurance coverage may cover the~~

115. Stock-Based Compensation

~~costs~~Effective January 1, 2006, we adopted Statement of ~~legal~~Financial ~~defense~~Accounting ~~and~~Standards ~~types~~No. 123 of(revised ~~alleged~~2004), ~~damages~~Share-Based ~~claimed~~Payment, in(“SFAS 123(R)”) which requires the ~~Coufal~~measurement ~~dispute~~and ~~noted~~recognition ~~above,~~of ~~subject~~compensation toexpense ~~the~~for all share-based payment awards ~~policy’s~~made ~~total~~to ~~limit,~~employees and directors including employee stock options and employee stock purchases related to the ~~insurance~~Employee ~~carrier’s~~Stock ~~standard~~Purchase ~~reservation~~Plan of(“ESPP”) ~~rights~~based ~~regarding~~on ~~conditions~~estimated orfair ~~findings~~values. ~~that~~In ~~might~~accordance ~~exclude~~to ~~coverage~~this ~~for~~standard, we recognize the compensation cost of all share based awards on a ~~particular~~straight-line ~~matter.~~basis

~~Stockholder~~10 ~~Matters~~

OnTable November 6, 2001, a class action complaint alleging violations of the federal securities laws was filed in the United States District Court for the Southern District of New York naming as defendants TenFold, certain of its officers and directors, and certain underwriters of our initial public offering. An amended complaint was filed on April 24, 2002. TenFold and its officers and directors are named in the suit pursuant to Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act 1934 on the basis of an alleged failure to disclose the underwriters’ alleged compensation and manipulative practices. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998. The individual officer and director defendants entered into tolling agreements and, pursuant to a Court Order dated October 9, 2002, were dismissed from the litigation without prejudice. On February 19, 2003, the Court granted a Motion to Dismiss the Rule 10b-5 claims against 116 defendants, including TenFold. On June 27, 2003, our Board of Directors ratified its committee’s conditional approval of a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of TenFold and of the individual defendants for the conduct alleged in the action to be wrongful in the Amended Complaint. We would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims we may have against our underwriters. Any direct financial impact of the proposed settlement is expected to be borne by our insurers. The committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of our insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the litigation. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation. If there is an unfavorable outcome, there may be a material adverse impact on our business, results of operations, financial position, or liquidity. Contents

~~Indemnifications~~ over the vesting period of the award. Prior to January 1, 2006, we accounted for those plans under the recognition and ~~Warranties~~measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement 123”).

AsWe ~~permitted~~adopted ~~under~~SFAS ~~Delaware~~123(R) ~~law~~using the modified prospective transition method, ~~and~~which asrequires ~~provided~~the ~~in agreements~~application ~~with~~of ~~our~~the ~~officers~~accounting ~~and~~standard ~~Directors~~as of January 1, 2006. weOur ~~have~~Condensed ~~indemnified~~Financial ~~officers~~Statements ~~and~~as ~~Directors~~of and for ~~certain~~the ~~claims~~six ~~asserted~~months ~~against~~ended ~~them~~June 30, in2006, ~~connection~~reflect ~~with~~the ~~their~~impact ~~service~~of asSFAS an123(R). ~~officer~~Under orthat ~~Director~~transition ofmethod, ~~TenFold.~~compensation ~~The~~cost ~~maximum~~recognized ~~potential~~in ~~amount~~the offirst ~~future~~six ~~payments that~~months weof ~~could~~2006 beincludes: (a) amortization ~~required~~related to ~~make~~the ~~under~~compensation ~~these~~cost ~~indemnification~~for ~~provisions~~all isshare-based ~~unlimited.~~payments ~~However~~granted prior to, webut ~~have~~not ~~purchased~~yet ~~Directors’~~vested ~~and~~as ~~Officers’~~of ~~insurance~~January 1, ~~policies~~2006, ~~that~~based ~~reduce~~on ~~our~~the ~~monetary~~grant ~~exposure~~date ~~and~~fair ~~enable~~value usestimated toin ~~recover~~accordance awith ~~portion~~the original provisions of ~~any~~Statement ~~future~~123, ~~amounts~~and ~~paid.~~(b) amortization Asrelated ato ~~result~~compensation ofcost ~~this~~for ~~insurance~~all ~~coverage~~share-based payments granted subsequent to January 1, we2006, ~~believe~~based on the ~~estimated~~grant-date fair value estimated in accordance with the provisions of ~~these~~SFAS ~~indemnification~~123(R). ~~agreements~~Results isfor prior periods have not ~~material~~been restated.

~~Our~~TenFold ~~agreements~~has ~~with~~three ~~customers~~stock-based ~~generally~~employee ~~require~~option usplans toand ~~indemnify~~an ~~the~~ESPP ~~customer~~which ~~against~~are ~~claims~~described ~~that~~more ~~our~~fully ~~software~~in ~~infringes~~Note ~~third~~12 and ~~party~~Note ~~patent~~13, ~~copyright~~respectively, ~~or other~~in ~~proprietary~~our ~~rights~~2005 Annual Report on Form 10-K. ~~Such~~No ~~indemnification~~stock-based ~~obligations~~employee ~~are~~compensation ~~generally~~cost ~~limited~~was recognized in athe ~~variety~~Statement of ~~industry~~Operations for the three-~~standard~~ ~~respects,~~or ~~including~~six-month aperiod ~~right~~ended toJune 30, ~~replace~~2005, anas ~~infringing~~all ~~product~~options orgranted ~~cancel~~under those ~~the~~plans ~~software~~had ~~license~~an ~~and~~exercise ~~return~~price equal to the ~~fees~~market ~~paid~~value byof the ~~customer. To~~underlying ~~date,~~common westock ~~have~~on ~~not~~the ~~incurred~~date ~~costs~~of togrant. ~~defend~~The ~~lawsuits~~ESPP orwas ~~settle~~deemed ~~claims~~noncompensatory ~~related~~under toOpinion ~~these~~25, ~~indemnification~~and, ~~agreements~~therefore, ~~and~~resulted in no ~~such~~compensation ~~claims~~cost. ~~were~~As ~~outstanding~~of atJune 30, ~~March 31~~2006, TenFold ~~2004~~had approximately 17.76 million Asshares aof ~~result,~~common westock ~~have~~reserved ~~not~~for ~~recorded~~future aissuance ~~liability~~under ~~for~~the ~~infringement~~stock ~~costs~~option asplans ~~of March~~and ~~31,~~the ~~2004~~ESPP.

~~Our~~The ~~agreements~~adoption ~~with~~of ~~customers~~SFAS ~~also~~123(R) ~~generally provide~~had a ~~warranty~~significant ~~that~~impact ~~for~~on soour ~~long~~results asof ~~the~~operations. ~~customer~~Our isstatement ~~paying~~of operations for ~~support services, our software will materially conform to~~ the ~~related~~three ~~documentation,~~ and ~~that~~six ~~our~~months ~~software~~ended ~~has~~June 30, ~~been~~2006 ~~developed~~includes inthe afollowing ~~workmanlike~~stock-based ~~manner.~~compensation Toexpense ~~date,~~from westock ~~have not incurred~~options ~~significant~~and ~~warranty~~ESPP: ~~costs. As a result, we have not recorded a liability for warranty costs as of March 31, 2004.~~


(in thousands)	Three Months Ended June 30, 2006		Six Months Ended June 30, 2006
Cost of revenues	$	59	$	118
Sales and marketing		6		11
Research and development		257		519
General and administrative		38		214

Stock-based compensation expense included in operating expenses		360		862
Tax benefit		—		—

Stock-based compensation expense included in net loss	$	360	$	862

10For the year ended December 31, 2005, we recognized estimated severance related charges related to the departure of our prior CEO, including an estimated option modification charge, based upon the anticipated terms at that time. ~~Special~~Upon ~~Charges~~the execution of the Separation Agreement and Release on May 19, 2006, we calculated the actual option modification charge based upon the final terms, and recognized a resulting reduction in our stock-based compensation expense of $133,000, which reduced our general and administrative expenses for the three months ended June 30, 2006.

WeUnrecognized ~~incurred~~stock-based nocompensation ~~special~~expense ~~charges~~expected ~~during~~to ~~the~~be ~~three~~recognized ~~months~~over ~~ended~~an ~~March~~estimated ~~31,~~weighted-average ~~2004,~~amortization ~~and~~period ~~the~~of ~~three~~one ~~months~~year was ~~ended~~$2.9 ~~March~~million 31at June 30, ~~2003~~2006.

~~Restructuring~~Our ~~reserves~~deferred ~~are~~compensation ~~included~~cost ~~in accounts payable and accrued liabilities~~ at ~~March~~ December 31, ~~2004.~~2005 ~~Detail~~ of ~~the~~$6,000, ~~restructuring~~which ~~charges~~was asaccounted ~~of and~~ for ~~the~~under APB ~~three months ended March 31~~25, ~~2004~~was ~~are~~reclassified ~~summarized~~into ~~below~~additional (paid-in ~~thousands):~~capital.

Restructuring Charges:	Balance atDecember 31,2003		NewCharges		Adjustments		Utilized			Balance at March 31,2004
Facilities related	$	531	$	—	$	—	$	(134	)	$	397
	$	531	$	—	$	—	$	(134	)	$	397

The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of Statement 123 to options granted under our stock option

We11 have estimated future sublease income which reduces future facility related charges, including lease obligations. We considered current market conditions including current lease rates in the respective geographic regions, vacancy rates, and costs associated with subleasing when estimating future sublease income. Variances between expected and actual sublease income have previously and may continue to result in restructuring charge adjustments in future periods.

11.Table Operatingof Segments Contents

~~Our~~ plans ~~CEO~~and ~~reviews~~the ~~financial~~employee ~~information~~stock onpurchase aplan ~~consolidated basis, similar~~ in ~~format~~all toperiods ~~the~~presented. ~~accompanying~~For ~~Condensed~~purposes ~~Consolidated Statements~~ of ~~Operations.~~this Wepro-forma ~~consolidate~~disclosure, ~~revenue~~the ~~and~~value ~~expense~~of ~~information~~the ~~for~~options ~~all~~is ~~business~~estimated ~~groups~~using ~~for~~a Black-Scholes ~~internal~~option-pricing ~~and~~formula ~~external reporting~~ and ~~for~~amortized ~~decision-making~~to ~~purposes.~~expense Weover ~~operate~~the inoptions’ avesting ~~single operating segment, which is applications products and services~~periods.

Revenues from customers outside of North America were approximately 47 percent of total revenues for the three months ended March 31, 2004 as compared to 21 percent of total revenues for the same period in 2003. Our long-lived assets are deployed in the United States.


(in thousands, except per share data)	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net loss applicable to common shareholders – as reported	$	(1,356	)	$	(2,932	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects		4			7
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,281	)		(3,734	)

Net loss applicable to common shareholders – pro forma	$	(2,633	)	$	(6,659	)

Loss per common share – as reported:
Basic	$	(0.03	)	$	(0.06	)
Diluted	$	(0.03	)	$	(0.06	)
Loss per common share – pro forma:
Basic	$	(0.06	)	$	(0.14	)
Diluted	$	(0.06	)	$	(0.14	)

~~Two~~Share ~~customers~~Option ~~accounted~~Plans for 42 percent and 39 percent of our total revenues for the three months ended March 31, 2004, compared to three customers accounting for 63 percent, 13 percent, and 11 percent of our total revenues for the same period in 2003. No other single customer accounted for more than 10 percent of our total revenues for the three months ended March 31, 2004 or the same periods in 2003.

12We currently have three stock option plans that allow us to grant nonqualified stock options, stock purchase rights, stock bonus awards, stock appreciation rights, and other equity based awards to employees, including officers and directors, consultants, and non-employee directors. ~~Recent~~Historically, ~~Accounting~~we ~~Pronouncements~~have generally only granted nonqualified stock options. The options generally vest over a four- or five-year period and expire ten years from the date of grant.

~~In December~~Our ~~2003,~~weighted-average ~~the~~assumptions ~~FASB~~used issued Interpretation No. 46 (“FIN 46R”) (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“ARB 51”), which addresses how a business enterprise should evaluate whether it has a controlling interest in ~~an entity though means other than voting rights and accordingly should consolidate~~ the ~~entity. FIN 46R replaces FASB Interpretation No. 46 (“FIN 46”), which~~Black-Scholes ~~was~~valuation ~~issued in January 2003. Before concluding that it is appropriate to apply ARB 51 voting interest consolidation~~ model tofor anequity ~~entity,~~awards anwith ~~enterprise~~time-based ~~must~~vesting ~~first~~provisions ~~determine~~granted ~~that~~during the ~~entity~~three is not a variable interest entity (“VIE”). As of the effective date of FIN 46R, an enterprise must evaluate its involvement with all entities or legal structures created before February 1, 2003, to determine whether consolidation requirements of FIN 46R apply to those entities. There is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after January 31, 2003 and nosix ~~later~~months ~~than~~ended ~~the end of the first reporting period that ends after March 15~~June 30, ~~2004.~~2006 ~~The~~are ~~adoption~~shown ~~of FIN~~below: ~~46 had no effect on our results of operations and financial position.~~


	Three Months Ended June 30, 2006		Six Months Ended June 30, 2006
Expected volatility	162	%	163	%
Expected dividends	0	%	0	%
Expected term	6.11 Years		6.11 Years
Risk-free interest rate	5.16	%	4.50	%

OnThe ~~December~~expected ~~18,~~volatility ~~2003~~rate ~~the~~was ~~SEC~~estimated ~~issued~~based ~~Staff~~on ~~Accounting~~the ~~Bulletin~~historical ~~No.~~volatility ~~104,~~of ~~Revenue~~TenFold ~~Recognition (“SAB~~common ~~104”),~~stock. ~~which~~The ~~supercedes~~expected ~~SAB~~term ~~101,~~was ~~Revenue~~calculated ~~Recognition~~using inthe ~~Financial~~SEC ~~Statements.~~“simplified” ~~SAB~~method ~~104’s~~as ~~primary~~provided ~~purpose~~for isin toStaff ~~rescind~~Accounting ~~accounting~~Bulletin ~~guidance~~No. 107. ~~contained~~The inrisk-free ~~SAB~~interest ~~101~~rates ~~related~~are tothe ~~multiple~~rates ~~element~~provided ~~revenue~~by ~~arrangements,~~the ~~which~~U.S ~~was~~Treasury ~~superceded~~for asDaily ~~a result~~Treasury ofYield ~~the~~Curve Rates ~~issuance~~commonly ofreferred ~~EITF~~to ~~00-21,~~as “~~Accounting~~Constant ~~for~~Maturity ~~Revenue~~Treasury” ~~Arrangements~~rates ~~with~~in ~~Multiple~~effect ~~Deliverables.”~~at ~~SAB~~the ~~104~~time ~~does~~of ~~not~~grant ~~have~~with a ~~material~~remaining ~~impact~~term onequal ~~our~~to ~~financial~~the ~~position~~expected oroption ~~results of operations~~term.

14The pre-vesting forfeiture rate used for the three and six months ended June 30, 2006 was based on historical rates and forward-looking factors. As required under SFAS 123(R), we will adjust the estimated forfeiture rates to our actual experience. Prior to adoption of SFAS 123(R) we accounted for forfeitures as they occurred.

~~Item~~12 ~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

BusinessTable Overviewof Contents

~~TenFold~~A ~~provides~~summary ~~EnterpriseTenFold™, a software applications platform that reduces enterprise applications design, development, deployment, and maintenance timeframes and costs. EnterpriseTenFold automates most~~ of ~~what~~the ~~applications~~time-based ~~programmers~~stock ~~typically~~option ~~do,~~awards ~~and~~as ~~empowers small teams~~ of ~~business people and IT professionals to design~~June 30, ~~build~~2006, ~~test, deploy,~~ and ~~maintain~~changes ~~complex,~~during ~~transaction-intensive~~the ~~applications, with~~six ~~significantly~~months ~~greater~~then ~~speed~~ended, ~~quality~~is ~~and~~as ~~power~~follows: than other applications development approaches, which generally rely on large teams of IT professionals who expend years of effort to design, program, test, change, and deploy enterprise applications. We believe that with EnterpriseTenFold, customers get high-quality, complex enterprise applications into production faster and at significantly lower cost than with other applications development technologies.

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


Stock Option Awards	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (000s)
Outstanding at January 1, 2006	23,450,459		$	1.80
Granted	373,000			0.29
Exercised	—			—
Forfeited or expired	(6,686,901	)		1.51

Outstanding at June 30, 2006	17,136,558		$	1.64	6.58	$	305

Exercisable at June 30, 2006	14,829,152		$	1.67	6.35	$	260

~~Our~~The ~~business~~weighted-average ~~model~~grant-date ~~focuses~~fair onvalue ~~providing EnterpriseTenFold~~of stock options granted during the three and ~~our~~six months ~~assistance~~ended ~~through~~June 30, ~~time~~2006 was $0.28. Stock-based compensation expense related to stock options recognized under SFAS 123(R) for the three and~~-materials~~ ~~consulting~~six months ended June 30, ~~training~~2006 was $357,000 and ~~support~~$855,000, torespectively. ~~customers~~At ~~who~~June 30, ~~use~~2006, there ~~their~~was ~~own~~$2.9 ~~business~~million ~~teams~~of ~~and~~unrecognized ~~our~~stock-based ~~services~~compensation ~~partners~~expense related to ~~build~~non-vested ~~and~~options, ~~maintain~~which ~~applications~~is expected to be recognized over a weighted-average period of one year.

~~Business~~Employee ~~History~~Stock Purchase Plan

WeOur 1999 ~~founded~~Employee ~~TenFold~~Stock Purchase Plan (“ESPP”) was adopted by our Board of Directors and approved by our stockholders in ~~1993~~March 1999. WeThe ~~spent~~ESPP, which is intended to qualify under Section 423 of the ~~first~~Internal ~~several~~Revenue ~~years~~Code, ~~primarily~~has ~~developing~~two ~~our~~six-month offering ~~patented~~periods ~~EnterpriseTenFold~~each ~~technology~~year, with new offering periods commencing on February 1 and August 1 of each year. In ~~1996~~Eligible full-time employees, wethrough ~~began~~payroll ~~using~~deductions, ~~EnterpriseTenFold~~are allowed to ~~build~~purchase ~~applications~~a limited number of shares of our common stock during each offering period at 85% of the fair market value at the lower of either the date of enrollment or the date of purchase. We account for ~~customers~~the ESPP as a compensatory plan and recorded compensation expense for the three and six months ended June 30, 2006 of $2,600 and $6,200, respectively, in accordance with SFAS 123(R).

InThe ~~1999,~~fair wevalue ~~completed~~of ~~our~~issuances ~~initial~~under ~~public~~the ~~offering.~~purchase Inplan is ~~1999~~estimated ~~and~~on ~~early~~the ~~2000,~~issuance wedate ~~tested~~by aapplying ~~new~~the ~~business~~principles ~~model~~of ~~which~~FASB ~~included~~Technical ~~selling~~Bulletin ~~large custom application development projects with a unique~~97-~~in-the-industry “money-back guarantee”~~1, ~~and~~Accounting ~~simultaneously~~under ~~structuring~~Statement ~~the~~123 ~~company~~for toCertain ~~launch~~Employee ~~and~~Stock ~~build~~Purchase onPlans anwith ~~accelerated~~a ~~time~~Look-Back ~~frame~~Option, ~~eight~~and ~~separate~~using ~~vertical~~the ~~market~~Black-Scholes ~~facing~~valuation ~~applications product companies~~model. ~~Beginning in 2000, we experienced several difficult~~Our ~~quarters~~weighted-average ~~and~~assumptions ~~faced~~used ~~significant financial, legal, and operational issues. Starting~~ in ~~late 2000 and continuing through 2003, we took steps to refocus TenFold to its roots as a software applications platform technology company, resolve~~ the ~~financial and~~Black-Scholes ~~legal~~valuation ~~liabilities~~model ~~that~~for ~~arose~~our asESPP agrants ~~result~~during of the ~~interim~~six ~~business~~months ~~model~~ended June 30, ~~and~~2006 ~~restore~~are ~~the~~shown ~~company~~below: ~~to sound business health.~~

We raised capital twice during 2003. In February 2003, Robert W. Felton, a long-time TenFold director, made an investment of $700,000 in TenFold, by acquiring restricted TenFold common stock. In December 2003, we closed a private placement of 5 million shares of restricted TenFold common stock, with no warrants, which we sold at $2.00 per share (before related fees and expenses). This strengthened our balance sheet and provided an opportunity for a new group of investors to obtain a meaningful investment in TenFold.


	Six Months Ended June 30, 2006
Expected volatility	106	%
Expected dividends	0	%
Expected term	0.5 Years
Risk-free interest rate	4.6	%

15The expected volatility rate was estimated based on the historical volatility of TenFold common stock over a six-month period. The expected term is the same as the requisite service period. The risk-free interest rates are the rates provided by the U.S Treasury for Daily Treasury Yield Curve Rates commonly referred to as “Constant Maturity Treasury” rates in effect at the time of grant with a remaining term equal to the expected term.

~~Additionally~~During the quarters ended June 30, ~~during~~2006, ~~2003~~and 2005, weno ~~continued~~shares toof ~~put~~common instock ~~place~~were purchased under the ~~foundation~~ESPP ~~for~~as ~~future~~there ~~growth~~is ~~through~~not ~~three complementary~~an ~~sales~~ESPP ~~and~~purchase ~~marketing~~date in our second quarter. As of June 30, 2006, there was $900 of total unrecognized compensation costs related ~~initiatives:~~to employee stock plan purchases. These costs are expected to be recognized over a weighted average period of one month.

•13 ~~First, continuing to establish alliance relationships with distributors such as VARs.~~

•Table Second, using a small direct sales force to prototype a new sales model focusing on selling small, paid VersionOne projects as a low-risk first step for potential customers to test EnterpriseTenFold. VersionOne is our one- to two-week interactive consulting project during which one or two TenFold SpeedTeam members work with one or two customer developers to design, build, test, and demonstrate a complete, running, initial-version of a complex application. We intend the VersionOne to be an initial proof-statement project, including only limited services and small development licenses, which introduces new customers to TenFold, and provides an opportunity for TenFold to then penetrate and radiate into the account.Contents

• Third, initiating internet access to TenFold technology through Tsunami, our first major new product, a single user PC version of EnterpriseTenFold available over the internet without charge during its Beta program6. ~~Tsunami~~Income includes a script that lets a person who follows the script both learn Tsunami and build an enterprise application in as little as a few hours. In time, we expect internet distribution of Tsunami to become an important, low-cost, marketing and sales channel for us.Taxes

OnNo ~~September~~provision ~~30,~~for ~~2003,~~income wetaxes ~~announced~~was required ~~the~~for ~~release of~~ the ~~next~~three ~~generation of our EnterpriseTenFold product. EnterpriseTenFold is a portable, multi-user applications development~~ and ~~deployment~~six ~~platform~~months ~~that~~ended ~~contains Tsunami technologies~~June 30, ~~including the user-interface enhancements that enable a customer to use this technology productively with little training, as well as all prior EnterpriseTenFold technologies~~2006. ~~EnterpriseTenFold~~The ~~introduces~~provisions tofor the ~~industry~~three ~~an innovative~~and ~~capability~~six tomonths ~~automatically~~ended ~~produce complete applications documentation that matches the application~~June 30, at2005 ~~any time, at the click~~ of ~~a mouse. We added to EnterpriseTenFold multiple forms of XML support~~$6,000 ~~Web~~and ~~services~~$7, ~~Citrix MetaFrame support~~000, ~~Sun Java Virtual Machine support~~respectively, ~~performance~~relates ~~improvements~~primarily ~~for~~to ~~browser-based~~foreign ~~applications, and many more features described in detailed, accompanying EnterpriseTenFold ReleaseNotes~~taxes.

~~Year-~~At June 30, 2006, management has recognized a valuation allowance for the net deferred tax assets related to~~-Date~~ ~~2004~~temporary ~~Highlights~~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 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.

~~During Q1 2004, we focused principally on three initiatives intended to position TenFold as a growth software infrastructure company~~7. Commitments

~~Tuning~~We ~~our~~lease ~~marketing~~office space and ~~sales~~equipment under ~~engine~~non-cancelable lease agreements, which expire at various dates through 2007. Future minimum lease payments under non-cancelable operating and capital lease obligations, in excess of one year, at June 30, 2006 are as follows (in thousands):

We are steadily tuning our marketing and sales engine to begin momentum and leverage our experiences to convince people that our technology does what we claim and help them realize the implications of our value proposition. We are defining and validating a leverageable and replicable process for introducing new customers to TenFold and closing software license business. Currently, we have two standard ways of introducing customers to TenFold. The first is through a VersionOne, which is a one to two week consulting engagement during which one or two TenFold SpeedTeam staff build an application alongside one or two customer staff. The second is through a RequirementsNow! project, which is a one week consulting engagement in which we provide an initial project road map that the customer can then use to accelerate its application development project.


	Total		Operating		Capital
2006	$	283	$	265	$	18
2007		337		327		10
Thereafter		—		—		—

Total minimum lease payments	$	620	$	592		28

Less: Amount representing interest						(1	)

Present value of net minimum capital lease payments						27
Less: Current installments of obligations under capital leases						(26	)

Obligations under capital leases, excluding current installments					$	1

~~During Q1, we completed two VersionOne projects and also initiated a RequirementsNow! project~~8. ~~With~~Notes ~~growing~~Payable ~~confidence~~– ~~that~~Related we can sell, manage, and deliver successful VersionOne and RequirementsNow! projects, we have begun to recruit, train, and deploy additional sales and delivery resources. We increased our SpeedTeam staffing; recruited a Vice President of Product Marketing with substantial experience building, testing, deploying and maintaining a complex TenFold-powered enterprise application; recruited a Vice President of Sales; and, began recruiting additional direct sales staff. Parties

16On December 23, 2005, we executed a Promissory Note due to Robert W. Felton, our Chairman, President, and Chief Executive Officer, in the amount of $200,000.

~~Broadening~~On ~~awareness~~December 23, of2005, ~~and~~we ~~interest~~executed ina Promissory Note due to Wasatch Investments LLC, an investment entity associated with TenFold ~~technology~~Director Robert E. Parsons, Jr., in the amount of $200,000.

WeOn ~~are~~December 28, ~~broadening~~2005, ~~awareness~~we ofexecuted ~~and~~a ~~interest~~Promissory inNote ~~TenFold~~due ~~technology through increased marketing efforts. We are seeking~~ to ~~reach~~First ~~the~~Media ~~“Tipping~~TF ~~Point”~~Holdings ~~where awareness of TenFold is such that everyone who is interested in complex~~LLC, ~~database-intensive~~an ~~applications~~investment ~~understands~~entity ~~that:~~associated 1)with TenFold ~~exists;~~Director 2)Ralph W. ~~TenFold~~Hardy ~~has proven~~Jr., ~~disruptive~~in ~~applications~~the ~~development~~amount ~~technology; 3) TenFold lowers applications development time and cost by an order~~ of ~~magnitude; 4) others have successfully used TenFold; and~~$200, ~~5) TenFold cannot be ignored~~000.

AOn ~~cornerstone~~February 23, of2006, ~~our~~TenFold ~~Tipping~~executed ~~Point~~a ~~strategy~~Promissory isNote ~~our~~due ~~Tsunami~~to ~~product~~Mr. Felton, We encourage business people and IT professionals to continue to install Tsunami over the internet and to follow our SuperCRM script to build a complete enterprise-scale Customer Relationship Management (CRM) application in ~~as little as a few hours~~the ~~with~~amount ~~no prior training. Hundreds~~ of ~~individuals have installed Tsunami from the internet. Tsunami introduces people to TenFold technology~~$250, ~~lets them understand our new metaphors for applications development, and demonstrates our Speed, Quality and Power benefits in just a few hours~~000.

~~Tsunami~~On ~~has~~March 15, ~~broadened interest~~2006, in TenFold ~~technology~~executed ~~more~~a ~~generally.~~Promissory ~~TenFold~~Note ~~was~~due ~~invited~~ to ~~present at the Sixth Annual Needham Growth Conference in January after a senior Needham software analyst tried out Tsunami~~Mr. Felton, ~~TenFold has been selected as a finalist for the Software and Information Industry Association (SIIA) Codie Awards~~ in ~~two categories – Best Business Software Product or Service and Best Distributed Computing Solution. Tsunami has been nominated for~~ the ~~Stoel~~amount ~~Rives Utah Innovation awards. Tsunami is also nominated for a Best~~ of ~~Utah technology award~~$250,000.

We14 are testing various other approaches to move TenFold toward the Tipping Point. For example, during Q1, we produced and published a print ad that highlights TenFold technology as a viable alternative to the “hell” of outsourcing that many companies have felt forced to adopt. Additionally, we have aggressive telemarketing activities underway and frequently publish press releases to spread the word about TenFold.

WeTable expect that achieving the Tipping Point will launch TenFold as a high-growth software infrastructure company because we believe broad recognition of our value proposition will generate demand for our products and services. Contents

~~Identifying~~These identical Promissory Notes were intended to provide interim financing to TenFold while we sought to secure equity financing. The Promissory Notes were senior to other TenFold indebtedness and ~~establishing~~equity, ~~business~~bore ~~practices~~interest at 10% and ~~resources~~were ~~for~~due ~~handling~~upon ~~future~~the ~~growth~~earlier to occur of March 31, 2006, the closing of equity financing of $2 million or more, or a liquidation event. We repaid all of these Promissory Notes in full in March 2006, upon completing the equity financing transaction described in Note 13.

WeAll ~~are~~disinterested ~~identifying~~members and establishing business practices and resources to enable TenFold to manage the high future growth we seek to achieve. We believe that most TenFold operational areas can achieve better-than-industry-standard productivity, lower cost per deliverable, and consequently higher margin contribution, if we use TenFold-powered applications to automate them. During Q1, our Support organization designed, built, and took into stable production a custom CRM application, CustomerManager, tailored to our business, able to use customer-related information from other TenFold systems, and incorporating advanced application features such as compliance management and proactive tracking of ~~assignments. During Q1, we began updating the educational programs provided by TenFold University,~~ our ~~education division,~~Board to incorporate the important lessons we have learned during our VersionOne projects, including how best to introduce first time users to our technology. TenFold University developed new training materials, designed new curriculum and piloted a brand new TenFold Paradigm class – the basic introductory course we recommend to all our users. TenFold University also identified and began preparing the next tier of ~~new~~Directors ~~courses~~approved –these Maximizing Your Data, Testing Strategies, Managing Areas, Managing Production – intended to accelerate and deepen customer understanding of how to most effectively use EnterpriseTenFold for building and managing their own TenFold-powered applicationstransactions.

179. Legal Proceedings and Contingencies

~~Customers~~Unresolved ~~using TenFold-powered applications in production today include, among others, Abbey National~~Stockholder ~~Bank,~~Matter Allstate Insurance, Barclays Global Investors, Cedars-Sinai Medical Center, Deutsche Bank, Dresdner Bank, Franklin Templeton, iplan networks, JP Morgan Chase, MedCath, Rand Technology, Trinity, and Vertex (a subsidiary of United Utilities). Customer progress during Q1 toward full deployment of new or continuing applications development projects includes:

•On ~~JPMorgan~~November 6, ~~Chase~~2001, ~~continued~~a class action complaint alleging violations of the ~~rollout~~federal securities laws was filed in the United States District Court for the Southern District of ~~its~~New York naming as defendants TenFold~~-powered~~, ~~global~~certain ~~securities~~of ~~lending~~our ~~application~~officers and directors, ~~SecuritiesLendingExpress~~and certain underwriters of our initial public offering. An amended complaint was filed on April 24, 2002. TenFold and certain of our officers and directors are named in the suit pursuant to Section 11 of the Securities Act of 1933 and Section 10(~~SLX~~b) of the Securities Exchange Act 1934 on the basis of an alleged failure to disclose the underwriters’ alleged compensation and manipulative practices. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998. The individual officer and director defendants entered into tolling agreements and, ~~expanding~~pursuant ~~production~~to a Court Order dated October 9, 2002, were dismissed from the ~~international~~litigation ~~traders~~without prejudice. On February 19, 2003, the Court granted a Motion to ~~domestic~~Dismiss ~~trading~~the Rule 10b-5 claims against 116 defendants, including TenFold. ~~Recently~~On June 27, as2003, ~~part~~our Board of ~~their~~Directors ~~merger~~approved ~~underway~~a proposed partial settlement with ~~BankOne~~the plaintiffs in this matter. The settlement would provide, ~~JPMorgan~~among ~~Chase~~other ~~determined~~things, toa ~~focus~~release ~~its~~of ~~SLX~~TenFold ~~application~~and ~~development~~of ~~efforts~~the onindividual ~~customer~~defendants ~~facing~~for the ~~enhancements~~alleged wrongful conduct in the Amended Complaint. We agreed to ~~SLX~~undertake ~~and~~other ~~integration~~responsibilities ofunder ~~existing~~the ~~legacy~~partial ~~backend~~settlement, ~~systems~~including agreeing to ~~SLX.~~assign ~~During~~away, Q1not assert, or release certain potential claims we ~~reached~~may ~~agreement~~have onagainst ~~the~~our underwriters. ~~key~~In ~~terms~~June 2004, a motion for preliminary approval of the ~~transfer~~settlement was filed with the Court. The underwriters filed a memorandum with the Court opposing preliminary approval of the ~~ownership~~settlement. The Court granted preliminary approval of the ~~SLX~~settlement on February 15, 2005, subject to ~~JPMorgan~~certain ~~Chase~~modifications. ~~and~~On August 31, 2005, the ~~provision~~Court ofissued ~~continuing~~a ~~time-~~preliminary order further approving the modifications to the settlement and~~-materials~~ ~~consulting~~certifying ~~services~~the settlement classes. AsThe weCourt ~~help~~also appointed ~~them~~the ~~become~~Notice ~~more~~Administrator ~~self-reliant~~for ~~maintaining~~the ~~SLX~~settlement inand ~~production,~~ordered wethat ~~expect~~notice ~~them~~of the settlement be distributed to ~~gradually~~all ~~reduce~~settlement ~~their~~class ~~use~~members ofbeginning ~~time-and-materials~~on ~~consulting~~November 15, ~~services~~2005. ~~and~~A ~~complete~~settlement fairness hearing was held on April 24, 2006, however no ruling has been issued yet by the ~~SLX~~Court. ~~development~~If the Court determines that the settlement is fair to the class members, the settlement will be approved. There can be no assurance that this proposed settlement would be approved and ~~implementation~~implemented in ~~project~~its ~~during~~current form, or at all. Any direct financial impact of the ~~fourth~~proposed ~~quarter~~settlement is expected to be borne by our insurers. At this point, we do not believe that this lawsuit will have a material adverse impact on our business, results of operations, ~~2004~~financial position, or liquidity. Accordingly, no related losses have been provided for in our accompanying financial statements.

•Assessing litigation Vertex, a UK-based utility sector customer management and billing company, took its TenFold-powered replacement customer management and billing application, Generic Billing System (GBS), into production for its initial water company customer and began the process of converting customer billing to this new system. We provide time-and-materials consulting services to Vertex’s project through our UK reseller, youDevise Limited, which augments the team supplied by global systems integrator Sapient. We expect to complete our consulting services on this project during the third quarter of 2004.

•We ~~Cedars-Sinai~~review ~~Medical~~litigation ~~Center~~claims ~~and~~each ~~Perot~~quarter ~~Health~~to ~~Systems~~determine ~~amended~~the ~~their~~likelihood ~~working~~that ~~relationships~~the ~~such~~claim ~~that~~will ~~Perot~~result ~~took~~in ~~greater~~a ~~responsibility~~loss. ~~for~~Due to the inherent ~~completion~~uncertainties of litigation, predicting the ~~Patient~~ultimate ~~Care~~outcome ~~Expert~~of ~~(PCX)~~litigation ~~application,~~is ~~including~~very ~~assuming~~difficult. Significant management judgment is required to conclude on the ~~staff~~likely outcome of ~~Cedars~~outstanding ~~PCX~~litigation. ~~Systems,~~As ~~LLC~~part ~~subsidiary.~~of Wethat ~~continue~~review, towe ~~provide~~consider ~~Perot~~our available ~~Health~~insurance ~~Systems~~coverage. ~~and~~Such ~~Cedars-Sinai~~coverage ~~Medical~~is ~~Center~~subject ~~with~~to ~~support~~the ~~for~~particular ~~EnterpriseTenFold,~~policy’s ~~and~~total ~~periodically~~limit, ~~time-~~and~~-materials~~ ~~consulting~~typically ~~services~~subject to ~~assist~~the ~~Perot~~insurer’s ~~Health~~standard ~~Systems~~reservation asof itrights ~~provides~~regarding ~~applications~~conditions ~~development~~or ~~and~~findings ~~production~~that ~~support~~might toexclude ~~Cedars-Sinai~~coverage ~~Medical Center~~ for ~~the~~a particular ~~PCX application~~matter.

•If ~~VERITAS~~a ~~Software~~loss ~~took~~is ~~its~~considered ~~TenFold-powered~~probable ~~ProductCompatibility~~on ~~application~~a ~~into~~litigation ~~production~~claim, management estimates the loss and we accrue the estimated loss. If a loss is considered probable but cannot be reasonably estimated, we

~~During~~15 ~~Q1, our development organization released an all Open Source EnterpriseTenFold platform consisting of the RedHat Linux operating system, MySQL database, and Apache web server.~~

18Table of Contents

~~Results~~ disclose the contingency in these notes to our financial statements. Losses may however result on litigation claims that are not considered probable or are not estimable at the current time, potentially having a material adverse impact on our future business, results of ~~Operations~~operations, financial position, or liquidity.

~~We had first quarter 2004 revenues of $3.6 million~~Indemnifications, anWarranties ~~operating loss of $313,000,~~ and aInsurance ~~net loss of $206,000. This compares to revenues of $9.4 million, operating income of $4.7 million, and net income of $7.0 million for the same period of 2003.~~

~~The~~As ~~following~~permitted ~~table~~under ~~sets~~Delaware ~~forth~~law, ~~for~~and ~~the~~as ~~periods~~provided ~~indicated~~in agreements with our officers and Directors, ~~the~~we ~~percentage~~have ~~relationship~~indemnified ofofficers ~~selected~~and ~~items~~Directors ~~from~~for certain claims asserted against them in connection with their service as an officer or Director of TenFold’s. ~~statements~~The maximum potential amount of ~~operations~~future payments that we could be required to make ~~total~~under ~~revenues~~these indemnification provisions is unlimited. However, we have purchased Directors’ and Officers’ insurance policies that reduce our monetary exposure and enable us to recover a portion of any future amounts paid. As a result of this insurance coverage, we believe the estimated fair value of these indemnification agreements is not material.

	Three Months endedMarch 31,
	2004		2003
Revenues:
License	4	%	—
Subscription	—		65	%
Services and other	96	%	35	%
Total revenues	100	%	100	%
Operating expenses:
Cost of revenues	61	%	24	%
Sales and marketing	9	%	3	%
Research and development	23	%	10	%
General and administrative	16	%	13	%
Special charges	—		—
Total operating expenses	109	%	50	%
Income (loss) from operations	(9	)%	50	%
Total other income, net	3	%	25	%
Income (loss) before income taxes	(6	)%	75	%
Provision (benefit) for income taxes	—		—
Net income (loss)	(6	)%	75	%

Our agreements with customers generally require us to indemnify the customer against claims that our software infringes third party patent, copyright, or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including a right to replace an infringing product or cancel the software license and return the fees paid by the customer. To date, we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements, and no such claims were outstanding at June 30, 2006. As a result, we have not recorded a liability for infringement costs as of June 30, 2006.

~~Revenues~~Our agreements with customers also generally provide a warranty that for so long as the customer is paying for support services, our software will materially conform to the related documentation, and that our software has been developed in a workmanlike manner. To date, we have not incurred significant warranty costs. As a result, we have not recorded a liability for warranty costs as of June 30, 2006.

~~Total~~We ~~revenues~~have ~~decreased~~an ~~$5.8 million~~industry-standard, orerrors 62and ~~percent,~~omissions ~~to $3~~insurance policy.6 ~~million~~This ~~for~~policy ~~the~~excludes ~~three~~contractual ~~months~~related ~~ended~~disputes ~~March~~such ~~31, 2004,~~ as ~~compared~~cost toand ~~$9.4~~time ~~million~~guarantees, and ~~for~~only ~~the~~covers ~~same~~software ~~period~~errors inor ~~2003.~~omissions ~~The~~that ~~decrease~~occur inafter ~~revenues is primarily due to~~ the ~~completion~~delivery of ~~the~~software. ~~amortization~~We ofbelieve ~~our~~this ~~deferred~~policy ~~subscription~~provides ~~revenues~~adequate ~~during~~coverage ~~the~~for ~~second quarter~~potential ofdamages ~~2003,~~related ~~when~~to ~~our~~errors ~~existing~~and ~~subscription~~omissions ~~contracts~~in ~~reached~~our ~~the~~delivered ~~end of their subscription periods~~software.

~~License revenues increased $149,000 to $152,000 for the three months ended March 31, 2004, as compared to $3,000 for the same period in 2003~~10. Operating Segments

WeOur ~~had~~CEO noreviews ~~subscription revenues for the three months ended March 31, 2004,~~financial asinformation ~~compared to $6.0 million for the same period in 2003. Subscription revenues represent revenue from contracts that include a subscription to new product releases~~ on a ~~“when~~consolidated ~~and if available”~~ basis~~. For certain contracts~~, ~~including~~similar ~~a subscription~~in format to ~~future software products when and if they become available, we recognize~~ the ~~fees~~accompanying ~~for~~Statements ~~the software products ratably over the subscription term beginning with delivery~~ of ~~the first software product~~Operations. ~~For~~We ~~contracts~~consolidate ~~that~~revenue ~~include~~and ~~a service~~expense ~~element~~information for ~~which~~all ~~the~~business ~~fair~~groups ~~value~~for isinternal ~~undeterminable,~~ and ~~the~~external ~~contract~~reporting ~~includes a subscription to new product releases on a “when~~ and iffor ~~available~~decision-making ~~basis,”~~purposes. ~~we recognize the entire contract fee ratably over the subscription period as~~We ~~subscription~~operate ~~revenue.~~in ~~During~~a ~~the~~single ~~quarter~~operating ~~ended June 30~~segment, ~~2003,~~which ~~our~~is ~~existing~~applications ~~subscription~~products ~~contracts reached the end of their subscription periods,~~ and ~~we recognized the final remaining subscription revenue for these contracts~~services.

~~Services~~Revenues ~~and~~from ~~other~~customers ~~revenues~~outside ~~increased~~of ~~$126,000,~~North orAmerica 4were approximately 14 percent of total revenues for the three months ended June 30, 2006 as compared to ~~$3.4~~10 ~~million~~ percent of total revenues for the ~~three~~same period in 2005. For the six months ended ~~March~~June 30, 312006, ~~2004~~revenues from customers outside of North America were approximately 15 percent of total revenues as compared to ~~$3.3~~11 ~~million~~percent of total revenues for the same period in ~~2003~~2005. Our long-lived assets are deployed in the United States.

~~Revenues~~Two ~~from~~ customers ~~outside~~accounted offor ~~North~~a ~~America~~total ~~were~~of ~~approximately~~35 47 percent of ~~total~~our revenues for the three months ended ~~March~~June 30, 312006 (individually 21 percent, ~~2004~~and as14 percent of our total revenues, respectively) compared to 21 two customers accounting for a total of 55 percent of our total revenues for the same period in ~~2003~~2005 (individually 39 percent and 16 percent of our total revenues, respectively). ~~Our~~Two ~~long-lived~~customers accounted ~~assets~~for ~~are~~a ~~deployed~~total inof 32 percent of our revenues for the ~~United~~six ~~States~~months ended June 30, 2006 (individually 20 percent and 12 percent of our total revenues, respectively) compared to three customers accounting for a total of 55 percent of our revenues for the same period in 2005 (individually 24 percent, 21 percent, and 10 percent). No other single customer accounted for

1916

TwoTable customers accounted for 42 percent and 39 percent of our total revenues for the three months ended March 31, 2004, compared to three customers accounting for 63 percent, 13 percent, and 11 percent of our total revenues for the same period in 2003. No other single customer accounted for more than 10 percent of our total revenues for the three months ended March 31, 2004 or the same periods in 2003. We expect the customers accounting for 42 and 39 percent of our total revenues for the three months ended March 31, 2004 to account for a significant percentage of our revenues for 2004. Our time-and-materials consulting services revenue from these customer projects will decrease over time during the remainder of 2004 as these customers complete their current application development projects and become more self-sufficient. We expect our staff levels on these two projects to decline over time and for the projects to be completed during the third and fourth quarters of 2004, respectively. We staff the first project using subcontractor staff. We expect to reassign our employees working on the second project to various billable and non-billable activities as our business needs warrant. Contents

We more ~~continue~~than to10 ~~actively~~percent ~~seek~~of ~~sales~~our tototal ~~new~~revenues ~~customers.~~for ~~However,~~the wethree ~~continue~~and tosix ~~face~~months aended ~~challenging sales environment~~June 30, ~~and~~2006 itor isthe ~~unclear~~same ~~when~~period wein ~~can expect to achieve significant sales to new customers~~2005.

~~Operating~~Our customer accounting for 16 percent of our total revenues for the three months ended June 30, 2005, is a related party. See Note 12 for more ~~Expenses~~information.

~~Cost of Revenues~~11. ~~Cost~~Recent ofAccounting revenues consists primarily of compensation and other related costs of personnel to provide applications development and implementation, support, and training services. Cost of revenues decreased $88,000, or 4 percent, to $2.2 million for the three months ended March 31, 2004 compared to $2.3 million for the same period in 2003. Pronouncements

~~Sales~~On January 1, ~~and~~2006, ~~Marketing.~~we ~~Sales~~adopted ~~and~~SFAS ~~marketing~~123(R), ~~expenses~~which ~~consist~~requires ~~primarily~~the ofmeasurement ~~compensation, travel,~~ and ~~other~~recognition ~~related~~of ~~expenses~~compensation expense for ~~sales~~all ~~and~~share-based ~~marketing~~payment ~~personnel,~~awards asmade ~~well~~to asour ~~advertising~~employees and ~~other~~directors, ~~marketing expenses.~~including ~~Sales~~employee ~~and~~stock ~~marketing~~options ~~expenses~~and ~~increased~~employee ~~$90,000,~~stock purchases orrelated ~~40 percent,~~ to ~~$315,000 for~~ the ~~three~~Employee ~~months~~Stock ~~ended~~Purchase ~~March 31~~Plan, ~~2004~~based ason ~~compared~~estimated tofair ~~$225,000 for the same period in 2003~~values. ~~The~~See ~~increase~~Note in5 ~~sales~~above ~~and~~for ~~marketing~~more ~~expenses was primarily due to expanding sales and marketing efforts and staffing~~information.

~~Research~~On January 1, 2006, we adopted SFAS No. 154, Accounting Changes and ~~Development~~Error Corrections. ~~Research~~SFAS No. 154 is a replacement of APB No. 20, Accounting Changes, and ~~development~~SFAS ~~expenses~~No. 3, ~~consist~~Reporting ~~primarily~~Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of ~~compensation~~accounting changes and ~~other~~error ~~related~~corrections. ~~costs~~It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of ~~personnel~~a ~~dedicated~~change toin ~~research~~accounting principle is impracticable and ~~development~~how ~~activities~~to report a change in such circumstances. ~~Research~~SFAS ~~and~~No. 154 ~~development~~also ~~expenses~~provides ~~decreased~~that a change in ~~$91,000,~~method of depreciating or 10amortizing ~~percent,~~a tolong-lived ~~$824,000~~non-financial asset be accounted for ~~the~~as ~~three~~a ~~months~~change ~~ended~~in ~~March~~estimate ~~31,~~effected ~~2004,~~by asa ~~compared~~change toin ~~$915~~accounting principle,~~000~~ and also provides that correction of errors in previously issued financial statements should be termed a “restatement.” SFAS No. 154 is effective for ~~the~~accounting ~~same~~changes ~~period~~and corrections of errors made in ~~2003~~fiscal years beginning after December 15, 2005.

~~General~~In ~~and~~February ~~Administrative.~~2006, ~~General~~the ~~and~~FASB ~~administrative~~issued ~~expenses~~SFAS ~~consist~~No. 155, ~~primarily~~Accounting offor ~~the~~Certain ~~costs~~Hybrid ofInstruments, ~~executive~~which ~~management~~amends SFAS No. 133, ~~finance~~Accounting ~~and~~for ~~administrative~~Derivative ~~staff,~~Instruments ~~recruiting,~~and ~~business~~Hedging ~~insurance~~Activities, and ~~professional~~SFAS ~~fees~~No. 140 ~~General~~Accounting for Transfers and ~~administrative~~Servicing ~~expenses~~of ~~decreased~~Financial ~~$663,000,~~Assets orand 53Extinguishments ~~percent,~~of Liabilities. SFAS No. 155 allows financial instruments that have embedded derivatives to ~~$578,000~~be accounted for as a whole (eliminating the ~~three~~need ~~months~~to ~~ended~~bifurcate ~~March~~the ~~31,~~derivative ~~2004~~from asits ~~compared~~host) toif ~~$1.2~~the ~~million~~holder elects to account for the ~~same~~whole ~~period~~instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in ~~2003~~financial years beginning after September 15, 2006. ~~General~~We ~~and~~do ~~administrative~~not ~~expenses~~expect ~~decreased~~our ~~due~~adoption of this new standard to have ~~lower~~a ~~variable~~material ~~compensation~~impact ~~accruals~~on our financial position, ~~and~~results ~~lower~~of ~~legal~~operations ~~expenses~~or cash flows.

~~During~~In March 2006, the ~~quarter~~FASB ~~ended~~issued ~~March~~SFAS 31No. 156, Accounting ~~2004~~for Servicing of Financial Assets to simplify accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, weAccounting ~~reduced~~for ~~some~~Transfers ~~variable~~and ~~compensation~~Servicing ~~accrued~~of ~~during~~Financial Assets ~~2003~~and Extinguishments of Liabilities. Additionally, SFAS No. 156 applies to ~~lower~~all ~~levels~~separately ~~that~~recognized weservicing ~~believe~~assets ~~better~~and ~~reflect~~liabilities ~~our~~acquired or issued after the beginning of an entity’s fiscal year that begins after ~~estimates.~~September 15, ~~This~~2006, ~~reduced~~although ~~operating~~early ~~expenses~~adoption ~~for~~is ~~the~~permitted. ~~first~~We ~~quarter~~do not expect our adoption of ~~2004~~this bynew ~~$219~~standard to have a material impact on our financial position,~~000~~ results of operations or cash flows.

~~Total~~In ~~Other~~July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”) which prescribes a recognition threshold and measurement attribute, ~~net~~as well as criteria for subsequently recognizing, de-recognizing and measuring uncertain tax positions for financial statement purposes. FIN 48 also requires expanded disclosure with respect to the uncertainty in income tax assets and liabilities. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be recognized as a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. We are currently evaluating the impact of adopting the provisions of FIN 48.

~~Net~~17 total other income was $107,000 for the three months ended March 31, 2004, as compared to $2.3 million for the same period in 2003. Net total other income for the three months ended March 31, 2003 included a gain of approximately $2.2 million that we recognized on the retirement of capital lease obligations at a significant discount to their carrying value.

20Table of Contents

~~Provision~~12. ~~for~~Related ~~Income~~Party ~~Taxes~~ Transactions

NoDuring ~~provision~~2005, ~~for~~we ~~income~~entered into ~~taxes~~agreements ~~was~~with ~~required~~a ~~for~~new ~~the~~customer, ~~three~~DevonWay, ~~months~~to ~~ended~~provide ~~March~~licenses, 31consulting services, ~~2004.~~technical ~~The~~support ~~$12~~services,~~000~~ ~~provision~~and ~~for~~training. ~~the~~Our ~~three months~~Chairman, ~~ended~~CEO ~~March~~and 31President, ~~2003~~Robert ~~relates~~W. ~~primarily~~Felton, tois ~~foreign~~the ~~taxes~~founder and ~~reversing~~majority ashareholder ~~portion~~of DevonWay. All disinterested members of our ~~valuation~~Board ~~allowance~~of ~~attributable~~Directors toapproved ~~the~~of ~~current~~these ~~operating~~related ~~income~~party transactions and our general ongoing business relationship with DevonWay.

AtOur ~~March~~revenues ~~31,~~from ~~2004,~~DevonWay ~~management has recognized a valuation allowance~~ for the ~~net~~three ~~deferred~~and ~~tax~~six ~~assets~~months ~~related~~ended toJune 30, ~~temporary differences~~2006, ~~foreign~~are ~~tax~~$14,600 ~~credit carryforwards~~ and ~~net~~$37,900, ~~operating loss carryforwards~~respectively. ~~The~~For ~~valuation~~the ~~allowance~~three ~~was~~and ~~recorded~~six inmonths ~~accordance~~ended ~~with~~June 30, ~~the~~2005 ~~provisions~~we ofrecognized ~~Statement~~revenues of ~~Financial~~$277,000. ~~Accounting~~As ~~Standards~~of June 30, ~~(“SFAS”)~~2006 ~~No.~~and ~~109~~December 31, ~~Accounting~~2005, ~~for~~we ~~Income~~had ~~Taxes,~~accounts ~~which~~receivable ~~requires that~~due afrom ~~valuation~~DevonWay ~~allowance~~of be$5,600, ~~established~~and ~~when~~$24,500, ~~there~~respectively. isFor ~~significant~~the ~~uncertainty~~three asand tosix ~~the~~months ~~realizability~~ended ofJune 30, ~~the~~2006, ~~deferred~~we ~~tax~~received ~~assets.~~cash ~~Based~~inflows onfrom aDevonWay ~~number~~ of ~~factors~~$34,000, ~~the~~and ~~currently available~~$66,000, respectively. ~~objective~~For ~~evidence~~the ~~indicates~~three ~~that~~and itsix ismonths ~~more~~ended ~~likely~~June 30, ~~than~~2005, ~~not that~~we ~~the~~received ~~net~~cash ~~deferred~~inflows ~~tax~~from ~~assets~~this ~~will~~customer ~~not~~of ~~be realized~~$202,000.

~~Critical~~Although ~~Accounting~~we ~~Policies~~received a $1 million license payment from DevonWay in August 2005, for accounting purposes we have deferred recognition of this revenue until the end of the estimated economic life of the release of EnterpriseTenFold provided to DevonWay, because the license agreement contains a discount that cannot be determined at inception of the agreement. We are using the end of the estimated economic life to recognize the revenue because we do not have vendor specific objective evidence of fair value (“VSOE”) for the related post-contract customer support, due to the discount, and therefore we cannot allocate the revenue until the discount is known at the end of the estimated economic life. For accounting purposes, management estimates that the economic life is 16 months, and as a result no revenue will be recognized from this license until it is all recognized in a lump sum in the latter part of 2006.

~~The~~During ~~fundamental~~late ~~objective~~2005 ofand ~~financial~~continuing ~~reporting is~~into to2006, ~~provide~~DevonWay ~~useful~~provided ~~information~~some ~~that~~marketing ~~allows~~services ~~a reader~~ to ~~comprehend our business activities~~us. ToFor ~~aid in that understanding, management has identified~~ the ~~“critical~~three ~~accounting~~and ~~policies”~~six ~~below.~~months ~~These~~ended ~~policies~~June 30, ~~have~~2006, ~~the~~we ~~potential~~made payments to ~~have~~DevonWay aof ~~more significant~~$7,600 ~~impact~~and on$17,000, ~~our financial statements~~respectively, ~~either~~for such ~~because~~services. ofAs ~~the significance~~ of ~~the~~June 30, ~~financial statement item to which they relate~~2006, orwe ~~because~~had ~~they~~accounts ~~require~~payable ~~judgment and estimation~~ due to ~~the~~DevonWay ~~uncertainty~~of ~~involved in measuring~~$8, ~~at a specific point in time, events which are continuous in nature~~800.

~~Revenue~~See ~~Recognition~~Note ~~and~~8 ~~Project~~for ~~Profitability~~information about Promissory Notes we entered into with members of our Board of Directors (or entities associated with them).

WeSee ~~believe~~Note ~~risks~~13 ~~relating~~for toinformation ~~revenue~~about ~~recognition~~our capital ~~primarily~~raising ~~include~~transaction ~~the~~completed ~~judgment required to determine project profit or loss projections on time-and-material contracts. We recognize time-and-materials revenue at the lowest point~~ in ~~the range~~March ~~of estimated profit margin~~2006, ~~which~~that ~~represents~~included ~~our~~the ~~best~~sale ~~estimate~~ of ~~the~~stock ~~profit~~ to bemembers achieved. Variances may occur if we are unable to collect time-and-material billings or if we grant concessions to time-and-material customers in order to sell additional business or collect cash under the contract. These variances between management’s estimate of ~~the~~our ~~lowest~~Board ~~point in the range~~ of ~~estimated~~Directors ~~profit margin~~ and ~~actual~~Executive ~~results~~Officers ~~may~~(or ~~result~~entities inassociated awith ~~significant adjustment to our results of operations and financial position~~them).

~~Litigation~~13. ~~Reserves~~ Capital Stock

WeOn ~~review~~March 29, ~~asserted~~2006, ~~litigation~~we ~~claims~~entered into ~~each~~a ~~quarter~~Securities ~~to determine~~Purchase ~~the~~Agreement ~~likelihood~~for ~~that~~ the ~~claim~~sale ~~will~~of ~~result~~1,500,000 inshares aof ~~loss.~~unregistered ~~Significant~~convertible ~~management~~preferred ~~judgment~~stock isand ~~required~~warrants. toThe ~~conclude~~preferred onshares ~~the~~are ~~likely~~convertible ~~outcome~~into 20,315,805 shares of ~~outstanding~~common ~~litigation~~stock. IfThe awarrants ~~loss~~are isto ~~probable~~purchase ~~on a litigation claim~~10,157,899 shares ~~management~~of ~~estimates~~common ~~the~~stock ~~loss~~at ~~and~~an ~~we accrue~~exercise ~~the~~price ~~estimated~~of ~~loss~~$0.62 Ifper ashare, ~~loss~~with isa ~~considered~~5 ~~probable~~year ~~but~~term. ~~cannot~~The betransaction ~~reasonably~~generated ~~estimated,~~gross weproceeds ~~disclose~~of ~~the~~approximately ~~contingency~~$6.3 inmillion ~~the~~(before ~~notes~~expenses toand ~~our~~repayment ~~financial~~of ~~statements~~$1.1 ~~Losses~~million ~~may~~of ~~result~~interim onfinancing ~~litigation~~obligations). ~~claims~~Several members ~~that~~of ~~are~~our ~~not~~Board ~~considered~~of ~~probable~~Directors (or ~~are~~investment ~~not estimable~~entities atassociated ~~the~~with ~~current~~them) ~~time,~~and ~~potentially~~an ~~having~~Executive aOfficer ~~significant~~participated ~~impact~~in onthe ~~future~~transaction, ~~financial~~providing ~~results~~a total of approximately $4.7 million of the gross proceeds raised:

~~Restructuring~~• ~~Charges~~Robert W. Felton Trust invested $2 million. We repaid $709,000 of interim financing to Mr. Felton, our Chairman, President, and Chief Executive Officer, from the proceeds of the capital raising.

We• ~~recognize~~First ~~restructuring~~Media ~~charges~~TF ~~consistent~~Holdings ~~with EITF 94-3~~LLC, ~~prior~~an toinvestment ~~January~~entity 1,associated ~~2003 and consistent~~ with ~~SFAS~~TenFold ~~146~~Director ~~beginning~~Ralph ~~on January 1, 2003~~W. ~~For amounts~~Hardy ~~accrued at December 31~~Jr., ~~2002,~~invested we$2 ~~reduce current charges for abandoned facilities with sublease income~~million. ~~Management~~We ~~analyzes~~repaid ~~current~~$205,000 ~~market~~of ~~conditions~~interim ~~including~~financing ~~current~~to ~~lease~~First ~~rates~~Media inTF ~~the~~Holdings ~~respective~~LLC ~~geographic~~from ~~regions, vacancy rates, and costs associated with subleasing when evaluating~~ the ~~reasonableness~~proceeds of ~~future~~the ~~sublease~~capital ~~income~~raising. Significant management judgments and estimates must be made and used in calculating future sublease income. Variances between expected and actual sublease income have previously and may continue to result in restructuring charge adjustments in future periods.

21• TenFold Director Steven H. Coltrin invested $500,000. We used approximately $206,000 of the

~~Liquidity~~18 ~~and Capital Resources~~

AsTable of March 31, 2004, our principal source of liquidity was our cash and cash equivalents of $11.3 million. During the three months ended March 31, 2004, we funded purchases of computer equipment of $40,000 with capital leases. Contents

~~Net~~proceeds ~~cash~~of ~~used by operating activities was $1.2 million for~~ the ~~three~~capital ~~months~~raising ~~ended~~to ~~March~~pay ~~31,~~accounts ~~2004~~payable asdue ~~compared~~ to ~~net~~his ~~cash~~firm, ~~provided~~Coltrin by& ~~operating activities of $318~~Associates,~~000~~ for ~~the~~marketing ~~same~~and ~~period~~public inrelations ~~2003.~~work ~~The decrease in cash flow~~ provided ~~by operating activities results primarily from payments we made~~ to ~~reduce~~TenFold ~~some older accounts payable and accrued liability items accrued~~ in earlier ~~quarters, including amounts due to our United Kingdom subcontractor for its work on a large project~~periods.

~~Net~~• ~~cash~~Samer ~~provided~~Diab, byVice ~~investing activities was $42~~President,~~000~~ ~~for~~Customer ~~the three months ended March 31~~Services, ~~2004~~invested ~~as compared to~~ $34230,000 ~~for the same period in 2003~~.

~~Net~~We ~~cash~~also ~~provided~~repaid ~~by financing activities was~~ $~~160~~205,000 ~~for~~of ~~the~~interim ~~three~~financing ~~months~~to ~~ended~~Wasatch ~~March~~Investments 31LLC, ~~2004~~an asinvestment ~~compared~~entity toassociated ~~$79,000~~with ~~for the~~TenFold ~~same~~Director ~~period~~Robert ~~in 2003~~E. ~~Net cash provided by financing activities for the three months ended March 31~~Parsons, ~~2004 included $100~~Jr.,~~000~~ ~~of proceeds~~ from ~~employee stock purchase plan stock issuances, and $61,000 from employee stock option exercises. Net cash provided by financing activities for~~ the ~~three months ended March 31, 2003 included net cash~~ proceeds of ~~$666,000 from~~ the ~~sale of 3,888,889 shares of restricted common stock to a member of our Board of Directors. During the three months ended March 31, 2003 we made payments of approximately $588,000 to retire~~ capital ~~lease obligations at a significant discount~~raising.

~~Our~~As ~~deferred~~a ~~revenue~~result ~~balance~~of ~~generally~~the ~~results~~warrants ~~from~~sold ~~contractual~~with ~~commitments~~the ~~made~~convertible bypreferred ~~customers~~stock toand ~~pay~~the ~~amounts~~beneficial toconversion usfeature inherent in ~~advance~~the ofconversion ~~revenues~~rights ~~earned. We had~~and ~~deferred~~preferences ~~revenues balances~~ of ~~$7.2~~the ~~million~~convertible atpreferred ~~March 31~~stock, ~~2004~~we ~~and~~recognized ~~$7.6~~a ~~million~~non-cash atdeemed ~~December~~dividend 31of $1,761,000 ~~2003.~~during ~~When~~the ~~over~~six ~~time~~months weended ~~recognize~~June 30, ~~these~~2006. ~~deferred~~This ~~revenue~~deemed ~~balances~~dividend aswas ~~revenues~~calculated inbased on the ~~statement~~conversion ofprice ~~operations,~~compared weto ~~will~~the ~~not~~market ~~have~~price ~~corresponding increases in~~on ~~cash,~~the asdates ~~the~~of ~~related~~issuance ~~cash~~of ~~amounts~~the ~~have~~convertible ~~previously~~preferred ~~been~~shares. ~~received~~Because bywe ~~us.~~have ~~Our~~an ~~unbilled~~accumulated ~~accounts~~deficit, ~~receivable~~the ~~represents~~deemed ~~revenue~~dividend ~~that~~was werecorded ~~have~~as ~~earned~~additional ~~but~~paid-in-capital ~~which~~and wehad ~~have~~no ~~not~~affect ~~yet~~on ~~billed~~that account.

We19 believe we have solidly strengthened our financial foundation, and that our existing cash and expected continuing cash flows from existing customers will provide us with sufficient resources for this year. However, some challenges and risks remain:

•Table We have derived, and over the near term we expect to continue to derive, a significant portion of our cash inflows from a limited number of large customers. We expect some of these customers to reduce their purchases of our time and materials consulting services over time as they complete projects and become more self-sufficient. The loss of a large customer could materially and adversely affect our business, results of operations, financial position and liquidity.Contents

•Item We2. ~~continue~~Management’s toDiscussion ~~face a challenging sales environment,~~ and itAnalysis isof ~~unclear~~Financial ~~when~~Condition ~~we can expect to achieve significant sales to new customers,~~ and ~~sustain~~Results ~~positive~~of ~~cash flow from operations~~Operations.

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

~~See~~TenFold provides services and technology for building complex, Service Oriented Architecture (“~~Factors~~SOA”)-compliant, ~~that~~mission-critical ~~May~~applications ~~Affect~~in ~~Future~~significantly ~~Results~~less time and ~~Market~~cost ~~Price~~that ofit ~~Stock”~~would ~~for~~otherwise ~~more~~take ~~information~~using ~~about~~traditional ~~risks~~development technologies. We ~~facing~~believe that with TenFold.’s technology, EnterpriseTenFold, customers will also experience significantly reduced ongoing applications maintenance and enhancement costs compared to what they generally experience with legacy applications.

22Our business model focuses on providing applications development services and our EnterpriseTenFold technology, support and training, to customers who can use a TenFold team or their own business teams to build and maintain applications.

~~Disclosure~~At ~~about~~the ~~Contractual~~end ~~Obligations~~of 2005, we replaced our former Chief Executive Officer with long-time TenFold director and shareholder, Robert W. Felton. Under his leadership, we have recently changed our business model to focus on selling larger consulting projects, instead of the smaller prototype application projects that we primarily sold in 2005. We believe that providing larger consulting projects (that include the full breadth of applications consulting from applications design through production implementation) will be a more successful model for both us and our customers. We believe that some of our customers would have been more successful with their projects with more consulting assistance than they chose to purchase under our prior business model. Although we expect to be more successful with this new model, we have limited experience with the new model as we have introduced it only recently. And although we have closed some new sales under this model, the amount of such sales is not sufficient to generate positive cash flow or profitability. As a result, it is unclear if or when we can expect to close significant sales to new or existing customers, and until we do so we are likely to continue to experience negative cash flow from operations and losses.

~~The~~On ~~following~~March 30, ~~table~~2006, ~~sets~~we ~~forth~~completed ~~certain~~a ~~contractual~~capital ~~obligations~~raising ~~recorded~~transaction infor the ~~condensed~~sale ~~consolidated~~of ~~financial~~1,500,000 ~~statements~~shares of unregistered convertible preferred stock and aswarrants. The preferred shares are convertible into 20,315,805 shares of ~~March~~common 31stock. The warrants are to purchase 10,157,899 ~~2004~~shares of common stock at an exercise price of $0.62 per share, with a 5 year term. The transaction generated gross proceeds of approximately $6.3 million (before expenses and ~~summary~~repayment ~~information~~of is$1.1 ~~presented~~million inof ~~the~~interim ~~following~~financing ~~table~~obligations). Several members of our Board of Directors (inor ~~thousands~~investment entities associated with them) and an Executive Officer participated in the transaction, providing a total of approximately $4.7 million of the gross proceeds raised:

Contractual Obligations	Total		Lessthan 1year		1-3years		4-5years		Morethan 5years
Long-Term Debt		—		—		—		—	—
Capital Lease Obligations (including interest)	$	43		15		28		—	—
Operating Leases		2,250		1,160		909		181	—
Purchase Obligations		198		198		—		—	—
Other Long Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		—		—		—		—	—
Total	$	2,491	$	1,373	$	937	$	181	—

•

Robert W. Felton Trust invested $2 million. We repaid $709,000 of interim financing to Mr. Felton, our Chairman, President, and Chief Executive Officer, from the proceeds of the capital raising.

~~The~~• ~~real~~First ~~estate operating~~Media ~~leases~~TF ~~above~~Holdings ~~include $800~~LLC,~~000~~ ofan ~~restructured~~investment ~~real~~entity ~~estate~~associated ~~lease~~with ~~obligations~~TenFold ~~which~~Director ~~have~~Ralph ~~not~~W. ~~been~~Hardy ~~reduced~~Jr., byinvested ~~sublease income of~~ $~~344,000~~2 ~~due from sublease tenants~~million. InWe ~~the~~repaid ~~Condensed Consolidated Balance Sheet at March 31~~$205,000 ~~2004,~~of ~~these obligations~~interim ~~are~~financing ~~included~~to inFirst ~~accounts~~Media ~~payable~~TF ~~and~~Holdings ~~accrued~~LLC ~~liabilities,~~from ~~net of~~ the ~~related~~proceeds ~~sublease income. See Note 10~~ of ~~Notes~~the tocapital ~~Condensed Consolidated Financial Statements for more information~~raising.

We• ~~have~~TenFold ~~purchase~~Director ~~obligations~~Steven toH. ~~our~~Coltrin ~~United~~invested ~~Kingdom distributor~~$500,000. ~~youDevise Limited~~We ~~(formerly~~used ~~TenFold~~approximately ~~Systems UK Limited)~~$206,000 ~~reflected~~of in the ~~table~~proceeds ~~above, for the provision~~ of ~~consulting staff for a project we have underway in~~ the ~~United~~capital ~~Kingdom.~~raising Weto ~~can~~pay ~~reduce~~accounts orpayable ~~terminate~~due ~~our~~to ~~obligation~~his ~~if our customer~~firm, ~~under~~Coltrin ~~certain circumstances~~& Associates, ~~reduces~~for ~~its~~marketing ~~purchase~~and ofpublic ~~consulting~~relations ~~staff~~work ~~for~~provided ~~the~~to ~~project~~TenFold ~~from~~in ~~us.~~earlier periods.

In• ~~addition~~Samer ~~to the items shown in the table above~~Diab, weVice ~~have at March 31~~President, ~~2004,~~Customer one remaining contract subject to a guarantee. We have received cash payments under this contract totaling $9.5 million that are subject to potential refund under the related guarantee. We have a deferred revenue balance of $5.7 million related to this contractServices, ~~and~~invested $~~2.7 million in accrued liabilities under a related contract~~230, ~~included in the accompanying Condensed Consolidated Balance Sheet at March 31, 2004~~000. ~~We believe that the application and required deliveries under the contract will comply with the contractual terms of our customer agreement; however, this guarantee represents a risk to us.~~

InWe ~~addition~~also torepaid ~~the items shown in the table above, we have a potential~~ $~~625~~205,000 liability to a customer which we have included in deferred revenue in the accompanying Condensed Consolidated Balance Sheet at March 31, 2004. During the quarter ended March 31, 2004, we reached agreement with an existing customer on the key terms for our sale to them of ~~the~~interim ~~ownership~~financing ~~rights~~ to anWasatch ~~application~~Investments ~~that we previously developed for them~~LLC, ~~and~~an ~~for~~investment ~~the~~entity ~~provision~~associated ofwith ~~consulting~~TenFold ~~services~~Director ~~over~~Robert ~~the~~E. ~~remainder of 2004; and received an initial payment of $625~~Parsons,~~000.~~ ~~We subsequently completed the definitive agreements for this transaction~~Jr., ~~We recognized no revenue~~ from ~~this~~the ~~transaction~~proceeds ~~during~~of the ~~quarter~~capital ~~ended March 31, 2004~~raising.

~~Recent~~For ~~Accounting~~the ~~Pronouncements~~first half of 2006, we had revenues of $1.3 million, an operating loss of $3.6 million, a net loss of $3.6 million, and a net loss applicable to common shareholders of $5.3 million. This

In20 December 2003, the FASB issued Interpretation No. 46 (“FIN 46R”) (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“ARB 51”), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity though means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (“FIN 46”), which was issued

23Table of Contents

in compares ~~January 2003. Before concluding that it is appropriate~~ to ~~apply~~revenues ~~ARB~~of ~~51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity (“VIE”)~~$3.3 ~~As of the effective date of FIN 46R~~million, an ~~enterprise~~operating ~~must~~loss ~~evaluate its involvement with all entities or legal structures created before February 1, 2003, to determine whether consolidation requirements~~ of ~~FIN 46R apply to those entities~~$3.0 ~~There is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after January 31~~million, ~~2003~~ and noa ~~later~~net ~~than~~loss ~~the end~~ of ~~the first reporting period that ends after March 15, 2004~~$2.9 ~~The~~million ~~adoption~~for ofthe ~~FIN~~same 46period ~~had no effect on our results~~ of ~~operations and financial position~~2005.

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

~~Factors~~The ~~that~~following table ~~May~~sets ~~Affect~~forth, ~~Future~~for ~~Results~~the ~~and~~periods ~~Market~~indicated, ~~Price~~the percentage relationship of ~~Stock~~selected items from our statements of operations to total revenues.

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.


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Revenues:
License	8	%	13	%	11	%	10	%
Services and other	92	%	87	%	89	%	90	%

Total revenues	100	%	100	%	100	%	100	%
Operating expenses:
Cost of revenues	89	%	44	%	93	%	53	%
Sales and marketing	38	%	50	%	35	%	47	%
Research and development	154	%	52	%	170	%	55	%
General and administrative	58	%	35	%	78	%	37	%

Total operating expenses	339	%	181	%	376	%	192	%

Loss from operations	(239	%)	(81	%)	(276	%)	(92	%)
Total other income, net	6	%	1	%	3	%	3	%

Loss before income taxes	(233	%)	(80	%)	(273	%)	(89	%)
Provision for income taxes	—		—		—		—

Net loss	(233	%)	(80	%)	(273	% )	(89	%)

Deemed dividend related to warrants issued with Preferred stock and beneficial conversion feature on preferred stock	—		—		(135	%)	—

Net loss applicable to common shareholders	(233	%)	(80	%)	(408	%)	(89	%)

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

~~Our~~Total ~~business~~revenues ~~model~~decreased ~~relies upon generating new sales to existing and new customers~~$1.0 ~~We have improved our operating cash flow over the last several years and in December 2003 closed a private placement in which we sold 5~~ million ~~shares of restricted common stock~~, ~~with~~or no58 ~~warrants~~percent, atto $~~2.00 per share~~710,000 tofor ~~strengthen~~the ~~our~~three ~~financial~~months ~~position.~~ended WeJune 30, ~~believe that our existing cash and expected continuing cash flows from existing customers will provide us with sufficient resources for this year. However~~2006, ifas ~~longer-term~~compared ~~we do not generate sufficient new sales~~ to ~~existing~~$1.7 ~~and~~million ~~new~~for ~~customers,~~the wesame ~~would~~period bein ~~required~~2005. toFor ~~pursue one or a combination of~~ the ~~following~~six ~~remedies:~~months ~~seek~~ended ~~additional~~June 30, ~~sources of financing~~2006, total ~~further~~revenues ~~reduce~~decreased ~~operating~~$2.0 ~~expenses~~million, ~~sell part~~ or ~~all~~60 ~~of our assets~~percent, orto ~~terminate operations~~$1.3 ~~There~~million ~~can~~as becompared noto ~~assurance~~$3.3 ~~that~~million wefor ~~will~~the besame ~~successful~~period ~~achieving~~in ~~sufficient cash flow~~2005.

~~Our~~Services and ~~future~~other ~~prospects~~revenues ~~are~~decreased ~~difficult~~$822,000, or 56 percent, to ~~evaluate~~$656,000 for the three months ended June 30, 2006 as compared to $1.5 million for the same period in 2005. For the six months ended June 30, 2006, services and other revenues decreased $1.8 million, or 61 percent, to $1.2 million as compared to $3.0 million for the same period in 2005. The decrease in services and other revenues is primarily due to decreases in revenues from certain customers who purchased less time-and-materials consulting from us over time as they completed their application development projects and became more self-sufficient. We have not replaced these projects with similar sized projects with other customers.

InLicense ~~light~~revenues ofdecreased ~~our~~$169,000, ~~operating~~or ~~results~~76 ~~for~~percent, ~~recent~~to ~~periods~~$54,000 ~~and~~for the ~~continued difficult~~three ~~sales~~months ~~environment~~ended inJune 30, ~~the technology sector~~2006, itas iscompared ~~difficult~~ to ~~evaluate~~$223,000 ~~our~~for ~~future prospects. There can be no assurance that we will be able to successfully complete current or new projects. In~~ the ~~past~~same ~~we received customer complaints~~period ~~concerning~~in ~~some of our projects~~2005. ~~Although~~For ~~we have substantially changed~~ the ~~business~~six ~~model~~months ~~under~~ended ~~which~~June 30, we2006, ~~sold~~license ~~and~~revenues ~~delivered~~decreased ~~business~~$175,000, ~~that~~or ~~generated~~55 ~~customer complaints~~percent, weto ~~cannot~~$141,000 beas ~~certain~~compared ~~that~~to we$316,000 ~~will~~for ~~not~~the ~~receive~~same ~~more~~period ~~customer complaints~~ in ~~the future~~2005. ~~Additionally,~~The ~~our~~decrease ~~failure~~in tolicense ~~successfully~~revenue ~~complete~~is ~~any~~due ~~current~~primarily orto ~~new~~smaller ~~projects~~sized ~~may~~license sales ~~have~~in a2006 ~~material~~than ~~adverse~~in ~~impact~~the onsame ~~our~~period ~~financial~~in ~~position and results of operations~~2005. ~~We cannot be certain that our business strategy will succeed.~~

WeRevenues ~~continue~~from customers outside of North America were approximately 14 percent of total revenues for the three months ended June 30, 2006 as compared to ~~experience~~10 ~~difficulty~~percent of total revenues for the same period in ~~securing~~2005. ~~future~~For ~~customer~~the ~~revenue~~six months ended June 30, 2006, revenues from customers

~~There~~21 is no assurance that we will be able to convince prospective customers to purchase products or services from us or that any customer revenue that is achieved can be sustained. If we are unable to obtain future customer revenue, our operations, financial condition, liquidity, and prospects will be materially and adversely affected, and we will be required to pursue one or a combination of the following remedies: seek additional sources of financing, further reduce operating expenses, sell part or all of our assets, or terminate operations. There can be no assurance that additional financing sources will be available to us when needed or that we will be able to execute the other potential remedies sufficiently to continue operations.

24Table of Contents

~~Our~~ outside ~~sales~~of ~~cycle~~North isAmerica ~~lengthy~~were ~~and~~approximately ~~subject~~15 percent of total revenues as compared to ~~delays~~11 ~~and~~percent ~~these~~of ~~delays~~total ~~could~~revenues ~~cause~~for ~~our~~the ~~operating~~same ~~results~~period toin ~~suffer~~2005. Our long-lived assets are deployed in the United States.

WeTwo ~~believe~~customers ~~that~~accounted afor ~~customer’s decision to purchase significant products or services from us involves~~ a ~~significant~~total ~~commitment~~ of ~~resources~~35 ~~and~~percent isof ~~influenced~~our byrevenues ~~customer~~for ~~budget~~the ~~cycles.~~three months Toended ~~successfully~~June 30, ~~sell~~2006 ~~our~~(individually ~~products~~21 ~~and services~~percent, ~~we generally must educate our potential customers regarding the use~~ and ~~benefit~~14 percent of our ~~products~~total ~~and services. Historically~~revenues, ~~this~~respectively) ~~has~~compared ~~required~~to ~~significant~~two ~~time~~customers ~~and~~accounting ~~resources.~~for ~~Consequently,~~a ~~the~~total ~~period~~of ~~between~~55 ~~initial~~percent ~~contact and the purchase~~ of our ~~products~~total orrevenues ~~services~~for ~~can~~the besame ~~long~~period ~~and~~in ~~subject~~2005 to(individually ~~delays~~39 ~~associated with~~percent ~~the lengthy budgeting, approval,~~ and ~~competitive~~16 ~~evaluation~~percent ~~processes~~of ~~that~~our ~~typically~~total ~~accompany~~revenues, ~~significant capital expenditures~~respectively). ~~Historically,~~Two ~~our~~customers ~~sales~~accounted ~~cycles~~for ~~have~~a ~~been~~total ~~lengthy~~of ~~and~~32 ~~variable,~~percent ~~typically~~of ~~ranging~~our ~~between~~revenues ~~three~~for tothe ~~twelve~~six months ~~from initial~~ended ~~contact~~June 30, ~~with~~2006 a(individually ~~potential~~20 ~~customer~~percent toand ~~the~~12 ~~signing~~percent of aour ~~contract.~~total ~~In addition~~revenues, ~~the~~respectively) ~~national~~compared to ~~economic~~three ~~downturn has caused current and potential~~ customers toaccounting ~~delay~~for ora ~~change~~total ~~their~~of ~~purchasing~~55 ~~decisions.~~percent ~~Sales~~of ~~delays~~our ~~could~~revenues ~~cause~~for ~~our~~the ~~operating results~~same toperiod ~~vary~~in ~~widely.~~2005 ~~There~~(individually ~~can~~24 bepercent, no21 ~~assurance~~percent, ~~that~~and we10 ~~will~~percent). ~~not~~No ~~experience~~other ~~sales~~single ~~delays~~customer inaccounted ~~the~~for ~~future.~~more Inthan ~~addition,~~10 wepercent ~~face~~of aour ~~challenging~~total ~~sales~~revenues ~~environment~~for the three and ~~there~~six ~~can~~months beended noJune 30, ~~assurance~~2006 ~~that~~or wethe ~~will~~same ~~have~~periods ~~sales~~ in ~~the future~~2005.

We ~~are~~continue ~~substantially~~to ~~dependent~~actively onmarket to new and existing customers. However, we continue to face a ~~small~~challenging ~~number~~sales ofenvironment. ~~large~~As ~~customers~~a ~~and~~result, ~~the~~it ~~loss~~is ofunclear ~~one~~if or ~~more~~ ofwhen ~~these~~we ~~customers~~can ~~may~~expect ~~cause~~to ~~revenues~~close significant sales to new or existing customers, and until we do so we are likely to continue to experience negative cash flow from tooperations ~~decline~~and losses.

WeOperating ~~have~~Expenses derived, and over the near term we expect to continue to derive, a significant portion of our revenues and cash flow from a limited number of large customers. For example, for the three months ended March 31, 2004, one customer accounted for 42 percent, and another accounted for 39 percent. Significant reductions in the amount of business they conduct with us could materially and adversely affect our business, results of operations, financial position and liquidity. Replacing the loss of a large customer is unpredictable. In the future, revenues from a single customer or a few large customers may constitute a significant portion of our total revenues and cash inflows in a particular period. The volume of work performed for specific customers is likely to vary from period to period, and a major customer in one period may not continue to purchase licenses or services from us in a subsequent period. We expect the customers accounting for 42 and 39 percent of our total revenues for the three months ended March 31, 2004 to account for a significant percentage of our revenues for 2004. We expect that the revenues (and cash flow) from these customer projects will decrease over time during the remainder of 2004 as these projects are completed during the third and fourth quarters of 2004 and the customers become more self-sufficient. We staff the first project using subcontractor staff. We expect to reassign our employees working on the second project to various billable and non-billable activities as our business needs warrant.

WeCost ~~have~~of ~~previously~~Revenues. ~~recognized~~Cost ~~significant~~of ~~deferred~~revenues ~~subscription~~consists primarily of compensation and other related costs of personnel and contractors to provide applications development and implementation, support, and training services. Cost of revenues ~~which~~decreased ~~will~~$123,000, ~~not~~or be16 ~~available~~percent, to $634,000 for the three months ended June 30, 2006 compared to $757,000 for the same period in ~~future~~2005. ~~periods~~For the six months ended June 30, 2006, cost of revenues decreased $531,000, or 30 percent, to $1.2 million as compared to $1.8 million for the same period in 2005. The decreases in cost of revenues are primarily due to having fewer staff working on customer projects.

~~Our~~Sales ~~deferred~~and ~~revenue~~Marketing. ~~balance~~Sales ~~generally~~and ~~results~~marketing ~~from~~expenses ~~contractual~~consist ~~commitments~~primarily ~~made~~of bycompensation, ~~customers~~travel, toand ~~pay~~other ~~amounts~~related toexpenses usfor ~~in advance of revenues earned. We~~sales ~~had~~and ~~deferred~~marketing ~~revenue~~personnel; ~~balances~~and ofmarketing ~~$7.6~~seminars, ~~million~~public ~~at December 31~~relations, ~~2003~~advertising and ~~$20.3~~other ~~million~~marketing ~~at December 31, 2002~~expenses. ~~The~~Sales ~~decrease~~and inmarketing ~~deferred~~expenses ~~revenues~~decreased ~~from~~$576,000, ~~December~~or 3168 percent, ~~2002~~ to ~~December 31~~$270,000 ~~2003~~for ~~was~~the ~~primarily~~three amonths ~~result~~ended ofJune 30, ~~our~~2006 ~~recognizing~~ as ~~revenues~~compared ~~the~~to ~~remaining~~$846,000 ~~previously~~for ~~deferred subscription revenues from our existing subscription contracts as these contracts reached~~ the ~~end~~same ofperiod ~~their~~in ~~subscription~~2005. ~~periods~~For ~~during~~ the ~~quarter~~six months ended June 30, ~~2003.~~2006, Wesales ~~had~~and amarketing ~~deferred~~expenses ~~revenue~~decreased ~~balance of~~ $71.21 million ~~at March 31~~, ~~2004~~or ~~that~~70 wepercent, ~~expect~~ to ~~recognize~~$461,000 as ~~revenues~~compared into ~~future~~$1.6 ~~periods,~~million ~~but~~for the ~~timing~~same ofperiod ~~recognition~~in ~~is uncertain~~2005. AsThe adecreases ~~result,~~in wesales doand marketing ~~not~~expenses ~~expect~~are due to ~~recognize~~our ~~revenues~~discontinuing ormost ~~profits~~discretionary ~~from~~marketing ~~deferred~~programs ~~revenues~~in ~~during~~late ~~2004~~2005 atin connection with the ~~same~~change ~~levels~~in ~~that~~sales ~~we experienced~~focus ~~during~~under ~~2003~~our new Chief Executive Officer, ~~and~~Robert ~~may~~W. ~~experience~~Felton, ~~lower~~and ~~profitability~~to orconserve aour ~~loss~~financial ifresources; ~~this~~as ~~decrease~~well as isfrom ~~not~~a ~~offset~~decrease byin ~~revenue~~sales ~~from~~and ~~other~~marketing ~~sources~~headcount.

Research and Development. Research and development expenses consist primarily of compensation and other related costs of personnel dedicated to research and development activities. Research and development expenses increased $218,000, or 25 percent, to $1.1 million for the three months ended June 30, 2006, as compared to $876,000 for the same period in 2005. For the six months ended June 30, 2006, research and development increased $398,000, or 22 percent, to $2.2 million as compared to $1.8 million for the same period in 2005. The increases in research and development are primarily due to recognition of stock-based compensation expense in 2006 as a result of SFAS 123(R) (see Note 5 of Notes to Condensed Financial Statements for more information).

~~Our~~General ~~growth~~and Administrative. General and ~~success~~administrative ~~depends~~expenses onconsist ~~our~~primarily ~~ability~~of tothe ~~license~~costs ~~EnterpriseTenFold~~of executive management, finance and administrative ~~other~~staff, ~~software~~business ~~products;~~insurance, ~~however~~and professional fees. General and administrative expenses decreased $183,000, weor 31 percent, to $409,000 for the three months ended June 30, 2006 as compared to $592,000 for the same period in 2005. ~~have~~For ~~limited~~the ~~experience~~six ~~licensing~~months ~~EnterpriseTenFold~~ended June 30, 2006, general and administrative expenses decreased $202,000, or ~~other~~17 ~~products~~percent, to ~~date~~$1.0 million as compared to $1.2 million for the same period in 2005.

As22 we change our business strategy to licensing EnterpriseTenFold and other software products, the success of our business is dependent, in part, upon our ability to license those products. If our strategy for marketing EnterpriseTenFold and our other products is unsuccessful, or if we are unable to license EnterpriseTenFold and/or other products successfully, or within the time frames anticipated, our revenues and operating results will suffer.

OurTable historicalof quarterly operating results have varied significantly and our future operating results could vary Contents

~~Historically,~~The ~~our quarterly~~decrease ~~operating~~is ~~results~~primarily ~~have~~due ~~varied~~to ~~significantly~~revision of an earlier estimated option modification charge. For ~~example,~~the ~~during~~year ~~some~~ended December 31, ~~years~~2005, we ~~have~~recognized ~~had~~estimated ~~quarterly~~severance ~~profits~~related ~~followed~~charges byrelated ~~losses~~to inthe ~~subsequent~~departure ~~quarters.~~of ~~Our~~our ~~future~~prior ~~operating~~CEO, ~~results~~including ~~may~~an ~~continue~~estimated tooption ~~vary~~modification ~~significantly~~charge, based upon the anticipated terms at that time. ~~Furthermore,~~Upon ~~there~~the ~~can~~execution of the beSeparation noAgreement ~~assurance~~and ~~that~~Release on May 19, 2006, we ~~will~~calculated ~~not~~the ~~continue~~actual tooption ~~suffer~~modification ~~losses~~charge based upon the final terms, and recognized a resulting reduction in our stock-based compensation expense of $133,000, which reduced our general and administrative expenses for the ~~future~~three months ended June 30, 2006. General and administrative expenses for the three months ended June 30, 2006 also decreased from the reduction in our estimate of costs related to our March 2006 capital raising transaction by approximately $50,000.

IfTotal ~~our~~Other ~~software contains defects or other limitations~~Income, wenet ~~could face product liability exposure~~

~~Because~~Net oftotal ~~our~~other ~~limited~~income ~~operating~~was ~~history~~income ~~and our small number~~ of ~~customers~~$45,000 wefor ~~have~~the ~~completed~~three amonths ~~limited~~ended ~~number of projects that are now in production. As a result~~June 30, ~~there may be undiscovered material defects in our products or technology. Furthermore~~2006, ~~complex~~as ~~software~~compared ~~products~~to ~~often contain errors or defects~~$20,000 ~~particularly~~of ~~when~~income ~~first~~for ~~introduced~~the orsame ~~when~~period ~~new~~in ~~versions or enhancements are released~~2005. ~~Despite~~ ~~internal~~Net ~~testing~~total ~~and~~other ~~testing~~income bywas ~~current and potential customers~~$34,000 ~~our~~for ~~current~~the ~~and~~six ~~future~~months ~~products~~ended ~~may~~June 30, ~~contain~~2006, ~~serious~~as ~~defects.~~compared ~~Serious~~to ~~defects~~$119,000 orfor ~~errors~~the ~~could~~same ~~result~~period in ~~lost revenues or a delay in market acceptance, which would damage our reputation and business~~2005.

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

~~Our~~No ~~errors~~provision for income taxes was required for the three and ~~omissions~~six ~~coverage~~months ~~may~~ended ~~not~~June 30, 2006. ~~cover~~The ~~contractual~~provisions ~~disputes~~for income taxes for the three and six months ended June 30, 2005 of $6,000 and $7,000, respectively, relate to foreign taxes.

~~While~~At weJune 30, ~~maintain~~2006, ~~errors~~management ~~and~~has ~~omissions~~recognized ~~insurance~~a ~~coverage~~valuation allowance for ~~claims~~the ~~related to~~net ~~customer~~deferred ~~contract~~tax ~~disputes~~assets ~~within~~related ~~the~~to ~~coverage~~temporary ~~scope and term~~differences, ~~given~~foreign ~~the~~tax ~~nature~~credit carryforwards and ~~complexity~~net ofoperating ~~the~~loss ~~factors~~carryforwards. ~~affecting~~The valuation ~~the~~allowance ~~estimated~~was ~~liabilities,~~recorded ~~actual~~in ~~liabilities~~accordance ~~may~~with ~~exceed~~the orprovisions beof ~~outside~~SFAS ~~the~~No. 109, ~~scope~~Accounting offor ~~our~~Income ~~current~~Taxes, ~~errors~~which ~~and~~requires ~~omissions~~that ~~coverage. We~~a ~~can~~valuation ~~give~~allowance nobe ~~assurance~~established ~~that~~when ~~our~~there ~~insurance~~is ~~carrier~~significant ~~will~~uncertainty ~~extend~~as ~~coverage~~ to ~~current~~the orrealizability ~~future~~of the ~~claims.~~deferred Intax ~~addition,~~assets. noBased ~~assurance~~on ~~can~~a benumber ~~given~~of ~~that~~factors, wethe ~~will~~currently ~~not~~available, beobjective ~~subject~~evidence toindicates ~~material~~that ~~additional~~it ~~liabilities~~is ~~and~~more ~~significant~~likely ~~additional~~than ~~litigation relating~~not tothat ~~errors~~the ~~and~~net ~~omissions~~deferred ~~for~~tax ~~existing~~assets ~~claims~~will ~~and~~not ~~future~~be ~~claims~~realized.

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

26As a result of the warrants sold with the convertible preferred stock and the beneficial conversion feature inherent in the conversion rights and preferences of the convertible preferred stock, we recognized a non-cash deemed dividend of $1,761,000 during the six months ended June 30, 2006. This deemed dividend was calculated based on the conversion price compared to the market price on the date of issuance of the convertible preferred shares.

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

WeThe ~~have~~fundamental ~~been~~objective ~~recently~~of ~~involved~~financial inreporting ~~litigation~~is ~~with~~to aprovide ~~former~~useful ~~customer~~information ~~(in~~that ~~July~~allows ~~2003,~~a ~~the~~reader ~~U.S.~~to ~~District~~comprehend ~~Court~~our ~~dismissed~~business ~~the~~activities. ~~case~~To ~~without~~aid ~~prejudice) and~~ in ~~a class~~that ~~action~~understanding, ~~suit~~management ~~against~~has ~~more~~identified ~~than 300 issuers involving~~ the ~~underwriters~~“critical ofaccounting policies” ~~those issuer’s initial public offerings~~below. WeThese ~~were~~policies ~~also~~have ~~recently~~the ~~named~~potential asto ~~one~~have ofa ~~many~~more ~~defendants~~significant inimpact aon ~~lawsuit~~our ~~related~~financial tostatements, ~~the~~either ~~death~~because of athe ~~patient~~significance ~~at Cedars-Sinai Medical Center, one~~ of ~~our customers. We may in~~ the ~~future~~financial ~~face~~statement ~~other~~item ~~litigation~~to orwhich ~~disputes~~they ~~with customers~~relate, ~~employees, business partners, stockholders,~~ or ~~other~~because ~~third~~they ~~parties.~~require ~~Such~~judgment ~~litigation or disputes could result in substantial costs~~ and ~~diversion of~~ ~~resources~~estimation ~~that~~due ~~would~~to ~~harm~~the ~~our~~uncertainty ~~business.~~involved Anin ~~unfavorable~~measuring, ~~outcome~~at ~~of these matters may have~~ a ~~material~~specific ~~adverse~~point ~~impact~~in ~~on our business~~time, ~~results~~events ofwhich ~~operations,~~are ~~financial~~continuous ~~position,~~in ~~or liquidity~~nature. ~~See “Legal Proceedings” generally for more information concerning our litigation and disputes.~~

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

~~Although~~We webelieve ~~have~~risks ~~settled~~relating ~~our~~to ~~disputes~~revenue ~~with~~recognition ~~Perot~~include ~~Systems~~the ~~and~~judgment ~~Cedars-Sinai,~~required to determine ~~our~~project ~~settlements~~profit ~~require~~or ~~that~~loss weprojections ~~perform~~on time-and-material ~~meet~~contracts. ~~certain~~We ~~obligations.~~recognize Iftime-and-materials werevenue ~~are~~at ~~unable~~the tolowest orpoint doin ~~not~~the ~~perform~~range orof ~~meet~~estimated ~~these~~profit ~~obligations~~margin, ~~Perot~~which ~~Systems~~represents ~~and~~our ~~Cedars-Sinai~~best ~~may~~estimate ~~re-instate~~of orthe ~~re-assert~~profit ~~their~~to ~~respective~~be ~~claims against us~~achieved. IfVariances ~~either Perot~~may ~~Systems~~occur orif ~~Cedars-Sinai~~we ~~were~~are unable to recollect time-~~instate~~and-materials billings or ~~re-assert~~if ~~their~~we ~~respective~~grant ~~claims,~~concessions anto ~~unfavorable~~time-and-materials ~~outcome~~customers ofin ~~the~~order ~~matter~~to ~~may~~sell ~~have~~additional abusiness ~~material~~or ~~adverse~~collect ~~impact~~cash onunder ~~our~~the ~~business,~~contract. ~~results~~As ofwe ~~operations,~~occasionally ~~financial~~provide ~~position,~~services oron ~~liquidity.~~a

If23 ~~we fail to adequately anticipate employee and resource utilization rates, our operating results could suffer~~

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

A fixed ~~loss~~price ofbasis, ~~Nancy~~risks M.relating ~~Harvey,~~to ~~Jeffrey~~revenue L.recognition also include the judgment and estimation required to determine fixed-price project completion ~~Walker~~percentages, and fixed-price project profit or ~~any~~loss ~~other~~projections. ~~key~~Variances ~~employee~~between ~~could~~management’s ~~impair~~estimates and actual results may result in significant adjustments to our ~~business~~results of operations and financial position.

~~Our~~For ~~industry~~a islicense ~~competitive~~agreement ~~and~~that we ~~are~~executed ~~substantially~~in ~~dependent~~August ~~upon~~2005 ~~the~~that ~~continued~~contains ~~service~~a ofdiscount ~~our~~that ~~existing~~cannot ~~executive~~be ~~personnel,~~determined ~~especially~~at ~~Nancy~~the M.inception ~~Harvey,~~of ~~President~~the agreement, ~~Chief~~we ~~Executive~~expect to ~~Officer~~recognize ~~and~~the ~~Chief~~related ~~Financial~~license ~~Officer.~~revenue ~~Furthermore,~~at ~~our products~~the ~~and~~end ~~technologies~~of ~~are~~the ~~complex~~estimated ~~and~~economic welife ~~are~~of ~~substantially dependent upon~~ the ~~continued~~release ~~service~~ of ~~our~~EnterpriseTenFold ~~senior~~provided ~~technical~~to ~~staff,~~the ~~including Jeffrey L~~customer. ~~Walker,~~We ~~Chairman~~are ofusing the ~~Board~~end of ~~Directors,~~the ~~Executive~~estimated ~~Vice~~economic ~~President,~~life ~~and~~to ~~Chief~~recognize ~~Technology Officer.~~the Ifrevenue abecause ~~key~~we ~~employee~~do ~~resigns~~not tohave vendor ~~join~~specific aobjective ~~competitor~~evidence orof tofair ~~form~~value a(“VSOE”) ~~competing~~for ~~company,~~ the ~~loss~~related ofpost-contract ~~the~~customer ~~employee~~support, ~~and~~due ~~any~~to ~~resulting~~the ~~loss~~discount, ofand ~~existing~~therefore orwe ~~potential~~cannot ~~customers~~allocate to the ~~competing~~revenue ~~company~~until ~~would~~the ~~harm~~discount ~~our~~is ~~business.~~known Weat dothe ~~not~~end ~~carry~~of ~~key-man~~the ~~life~~estimated economic ~~insurance~~life. onFor ~~any~~accounting ofpurposes, ~~our~~management ~~key~~estimates ~~employees.~~that Wethe ~~have~~economic ~~entered~~life ~~into~~is an16 ~~employment~~months ~~agreement~~after ~~with~~considering ~~our~~factors ~~President,~~such ~~Chief~~as ~~Executive~~the ~~Officer,~~rapid ~~and~~pace ~~Chief~~of ~~Financial~~technological ~~Officer,~~change ~~Nancy~~in ~~M. Harvey. However,~~ the ~~agreement~~software ~~does~~industry ~~not~~generally ~~ensure~~and ~~continued~~particularly ~~service~~in to TenFold.’s In market, the ~~event~~pace at ofwhich ~~the~~TenFold ~~loss~~produces ofnew ~~key~~releases ~~personnel,~~of ~~there~~TenFold ~~can~~technology bewith nosubstantial ~~assurance~~technological ~~that~~improvements, weand ~~would~~the bepace ~~able~~at towhich ~~prevent~~TenFold’s ~~their~~customers ~~unauthorized~~adopt ~~disclosure~~new orreleases ~~use~~ of ~~our~~TenFold ~~technical knowledge, practices, or procedures~~technology.

27Stock-Based Compensation

~~Our~~In accordance ~~failure~~with SFAS 123(R), we measure compensation cost for stock awards at fair value and recognize compensation over the service period for awards expected to ~~attract~~vest. The estimation of stock awards that will ultimately vest requires judgment, and to ~~retain~~the ~~highly~~extent ~~skilled~~actual ~~employees~~results or updated estimates differ from our current estimates, ~~particularly~~such ~~project~~amounts ~~managers~~will ~~and~~be ~~other~~recorded ~~senior~~as ~~technical~~a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, ~~personnel~~including types of awards, ~~could~~employee ~~impair~~roles, ~~our~~and ~~ability~~historical toexperience. ~~complete~~Actual ~~projects~~results, and ~~expand~~future changes in estimates, may differ substantially from our ~~business~~current estimates. See Note 5 of Notes to Condensed Financial Statements for more information.

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

We review asserted litigation claims each quarter to determine the likelihood that the claim will result in a loss. Significant management judgment is required to conclude on the likely outcome of outstanding litigation. If a loss is probable on a litigation claim, management estimates the loss and we ~~cannot~~accrue ~~protect~~the orestimated ~~enforce~~loss. ~~our~~If ~~intellectual~~a ~~property~~loss ~~rights,~~is ~~our~~considered ~~competitive~~probable ~~position~~but ~~would~~cannot be ~~impaired~~reasonably ~~and~~estimated, we ~~may~~disclose ~~become~~the ~~involved~~contingency in ~~costly~~the ~~and~~notes ~~time-consuming~~to our financial statements. Losses may result on litigation claims that are not considered probable or are not estimable at the current time, potentially having a significant impact on future financial results.

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

ToNet ~~date,~~cash weused ~~have~~in ~~not~~operating ~~been~~activities ~~notified~~was ~~that~~$3.5 ~~our~~million ~~products~~for ~~infringe~~ the ~~proprietary~~six ~~rights~~months ofended ~~third parties~~June 30, ~~but~~2006 ~~there~~as ~~can~~compared ~~be no assurance that third parties will not claim infringement by us with respect~~ to ~~current or future products~~$3.1 Wemillion ~~expect~~for ~~software developers will increasingly be subject to infringement claims as~~ the ~~number of~~same ~~products~~period ~~and competitors~~ in ~~our industry segment grows and the functionality of products in different industry segments overlaps~~2005. 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.

IfNet wecash ~~fail~~used toin ~~successfully~~investing ~~compete~~activities was $15,000 for ~~our~~the ~~revenues~~six ~~and~~months ~~market~~ended ~~share~~June 30, ~~will~~2006 beas ~~adversely~~compared ~~affected~~to $14,000 for the same period in 2005.

~~The~~Net ~~market~~cash ~~for~~provided ~~our~~by ~~products~~financing ~~and~~activities was ~~services~~$5.5 ismillion ~~highly~~for ~~competitive,~~the ~~and~~six ifmonths ~~we are~~ended ~~not~~June 30, ~~successful~~2006 inas ~~competing~~compared into ~~this market~~$11,000 ~~our~~for ~~revenues~~the ~~and~~same ~~market~~period ~~share~~in ~~will suffer~~2005. ~~Many~~Net ofcash ~~our~~provided ~~competitors~~by ~~have~~financing ~~significantly~~activities ~~greater~~for ~~financial,~~the ~~technical~~six ~~and~~months ~~marketing~~ended ~~resources~~June 30, ~~generate~~2006 ~~greater~~included ~~revenues,~~$6.1 ~~and~~million ~~have~~of ~~greater~~net ~~name~~proceeds ~~recognition~~from the ~~than~~sale weof ~~do.~~convertible Inpreferred ~~addition~~stock and warrants, ~~there~~$500,000 ~~are~~from ~~relatively~~issuance ~~low~~of ~~barriers~~notes topayable, ~~entry~~less ~~into~~$1.1 ~~our~~million ~~markets~~in ~~and~~principal wepayments ~~have~~on ~~faced,~~notes ~~and~~payable ~~expect~~which towere ~~continue~~repaid toin ~~face,~~full ~~additional~~upon ~~competition~~closing ~~from~~our ~~new~~capital ~~entrants~~raising ~~into~~transaction ~~our~~in ~~markets~~March 2006.

28Our deferred revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. We had deferred revenue balances of $1.8 million at June 30, 2006 and $2.2 million at December 31, 2005. When over time

~~International~~24 ~~political and economic uncertainty could have an adverse impact on our business and on our operating results~~

RevenuesTable from customers outside of North America were 47 percent of total revenues for the three months ended March 31, 2004. The international political and economic uncertainty caused by the ongoing war on terrorism may adversely impact our ability to continue existing relationships with our foreign customers and to develop new business abroad. Contents

~~Our~~ we ~~stock~~recognize ~~price~~these ~~may~~deferred revenue balances as revenues in the statement of operations, we will not have corresponding increases in cash, as the related ~~continue~~cash toamounts behave ~~volatile~~previously been received by us. Our unbilled accounts receivable represents revenue that we have earned but which we have not yet billed.

~~Our~~As ~~stock~~of ~~price~~June 30, ~~has~~2006, ~~fluctuated widely in the past and could continue to do so in the future. Your investment in~~ our ~~stock~~principal ~~could~~source ~~lose value. Some~~ of ~~the~~liquidity ~~factors~~was ~~that~~our ~~could~~cash ~~significantly~~and ~~affect~~cash ~~the~~equivalents ~~market price~~ of ~~our~~$3.2 ~~stock~~million. ~~include:~~On ~~variations~~March 30, in2006 ~~our~~we ~~quarterly~~completed ~~financial~~a ~~results; changes~~capital inraising ~~our~~transaction ~~revenue;~~for ~~changes~~gross inproceeds ~~our customer base including the loss~~ of aapproximately ~~major customer; changes in management; reports or earnings estimates published by financial analysts; changes in political, economic and market conditions either generally~~$6.3 ormillion ~~specifically~~(before toexpenses ~~particular industries;~~ and ~~fluctuations~~repayment inof ~~stock~~$1.1 ~~prices~~million ~~generally,~~of ~~particularly~~interim ~~with~~financing ~~respect to the stock prices for other technology companies~~obligations). AWe ~~significant~~believe ~~drop~~that inwith ~~our stock price could expose us to~~ the ~~risk~~proceeds of ~~securities~~this ~~class action~~capital ~~lawsuits.~~transaction, ~~Defending against such lawsuits could result in substantial costs~~ and ~~divert~~new ~~management’s~~sales ~~attention~~that ~~and~~we ~~resources.~~believe Anthat ~~unfavorable~~we ~~outcome~~can ofclose ~~such~~during a2006, ~~matter~~we ~~may~~will have asufficient ~~material~~liquidity for ~~adverse~~our ~~impact~~operations onduring ~~our~~2006. ~~business~~However, ~~results~~significant ~~of operations,~~challenges ~~financial~~and ~~position,~~risks orremain: ~~liquidity.~~

If• weWe ~~elected~~have tonot orbeen ~~were required~~able to ~~account~~generate positive cash flow from operations for ~~employee~~the ~~stock~~three ~~option~~years ~~and~~ended ~~employee~~December ~~stock~~31, ~~purchase~~2005, ~~plans~~or ~~using~~the six months ended June 30, 2006. Our net cash used in operating activities was $4.5 million for the ~~fair~~year ~~value~~ended ~~method~~December 31, it2005, ~~could~~and ~~significantly~~$3.5 ~~reduce~~million ~~our~~for ~~net~~the ~~income~~six months ended June 30, 2006.

~~There~~• ~~has~~For ~~been~~the ~~ongoing~~last ~~public~~several ~~debate whether employee stock option and employee stock purchase plans shares should be treated as a compensation expense and~~years, ~~if so, how to properly value such charges. Although~~ we ~~are not currently required to record compensation expense using the fair value method in connection with option grants that~~ have anderived ~~exercise~~a ~~price~~significant atportion orof ~~above~~our ~~fair~~cash ~~market~~inflows ~~value~~from attime-and-materials ~~the~~consulting ~~grant date~~services ~~and~~performed for ~~shares issued under our employee stock purchase plan, it is possible that future accounting pronouncements, including~~ a ~~recently~~limited ~~proposed~~number ~~accounting~~of ~~pronouncement,~~large ~~will~~customers ~~require~~for uswhom ~~to treat all stock-based compensation as an expense using the fair value method. If~~ we ~~elected to or~~ were ~~required~~completing toenterprise ~~record~~applications ~~expenses~~development ~~for~~projects. ~~option~~As ~~awards~~these ~~under~~customers ~~our~~completed ~~option~~their orinitial ~~employee~~projects ~~stock~~and ~~purchase~~became ~~plans using the fair value method~~self-sufficient, wethey ~~could~~reduced ~~have~~their ~~significant~~purchases ~~charges.~~of ~~For~~time-and-materials ~~the~~consulting ~~quarter~~services ~~ended~~(although ~~March~~some ~~31, 2004,~~purchase ~~had~~support wefrom ~~accounted~~us ~~for~~and ~~stock-based~~other ~~compensation~~services ~~plans~~from ~~using~~time ~~the~~to ~~fair-value method prescribed in FASB Statement No~~time). ~~123~~We ashave ~~amended~~not byreplaced ~~Statement~~these ~~148,~~projects ~~net~~with ~~loss~~similar ~~would~~sized ~~have~~projects ~~been~~with ~~increased~~other ~~by $5~~customers.5 ~~million.~~These ~~See~~reductions ~~Note~~have 6materially ofreduced ~~Notes~~our tocash ~~Condensed Consolidated Financial Statements for more information~~inflows.

No• ~~corporate~~We ~~actions~~have ~~requiring stockholder~~experienced ~~approval~~difficulty closing substantial new sales, and it is unclear when or if we can ~~take~~expect ~~place~~to ~~without~~predictably close significant sales to new or existing customers, and to achieve and sustain positive cash flow from operations. Under the ~~approval~~leadership of our ~~controlling~~new ~~stockholders~~Chief Executive Officer, Robert W. Felton, we have recently changed our business model to focus on selling larger consulting projects, instead of the smaller prototype application projects that we primarily sold in 2005. Although we expect to be more successful with this new model, we have limited experience with the new model as we have introduced it only recently. And although we have closed some new sales under this model, the amount of such sales is not sufficient to generate positive cash flow from operations. If we do not close significant sales in 2006, the funds from our recent capital raising alone will not be sufficient to fund our operations through all of 2006.

~~The~~There ~~executive~~can ~~officers,~~be ~~directors,~~no ~~and~~assurance ~~entities~~that ~~affiliated~~we ~~with~~will ~~them,~~be insuccessful ~~the~~closing ~~aggregate,~~sufficient ~~beneficially~~new ~~own~~sales ~~approximately 52 percent of our outstanding common stock. Jeffrey L. Walker, Chairman, Executive Vice President~~ and Chief Technology Officer, and the Walker Children’s Trust, in the aggregate, currently beneficially own approximately 39 percent of our outstanding common stock. Mr. Walker, acting with others, would be able to decide or significantlythese ~~influence~~risks ~~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~~ ormaterially ~~other~~adverse ~~business~~affect ~~combination~~on ~~transaction,~~our ~~even~~future ifcash ~~the~~flow ~~transaction~~and ~~would be beneficial to our other stockholders~~operations.

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

~~Provisions~~The offollowing ~~our~~table ~~certificate~~sets offorth ~~incorporation,~~certain ~~bylaws,~~contractual ~~stock~~obligations ~~incentive plans~~recorded ~~and~~in ~~Delaware~~the ~~law~~condensed ~~may~~financial ~~discourage,~~statements ~~delay,~~as orof ~~prevent~~June 30, a2006 and ~~merger~~summary orinformation ~~acquisition~~is ~~that~~presented ain ~~stockholder~~the ~~may~~following ~~consider~~table ~~favorable.~~(in thousands):


Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Long-term debt	$	—	$	—	$	—	$	—	$	—
Capital lease obligations		28		27		1		—		—
Operating lease obligations		592		517		75		—		—
Purchase obligations		164		164		—		—		—
Other long term liabilities reflected on the registrant’s Balance Sheet under GAAP		—		—		—		—		—

Total	$	784	$	708	$	76	$	—	$	—

~~Item~~25 ~~3. Quantitative and Qualitative Disclosures About Market Risk.~~

ReferenceTable is made to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” appearing on page 45 of TenFold’s 2003 Annual Report on Form 10-K for information relating to TenFold’s interest rate and currency rate risks. There have been no material changes in such risks through March 31, 2004. Contents

~~Item~~Related 4.Party ~~Controls~~Transactions ~~and Procedures~~

AnDuring ~~evaluation~~2005, ~~was~~we ~~performed~~entered ~~under~~into ~~the~~agreements ~~supervision and~~ with ~~the~~a ~~participation~~new ofcustomer, ~~the Company’s management~~DevonWay, ~~including~~to ~~Nancy~~provide ~~Harvey~~licenses, ~~(Chief~~consulting ~~Executive~~services, ~~Officer~~technical ~~and~~support ~~Chief Financial Officer)~~services, ~~of the effectiveness of the design~~ and ~~operation of~~training. ~~the~~Our ~~Company’s~~Chairman, ~~disclosure~~CEO ~~controls~~ and ~~procedures as of March 31~~President, ~~2004~~Robert W. ~~Based on that evaluation~~Felton, ~~Ms.~~is ~~Harvey concluded that~~ the ~~Company’s~~founder ~~disclosure controls~~ and ~~procedures~~majority ~~are~~shareholder ~~effective~~of inDevonWay. ~~ensuring~~All ~~that~~disinterested ~~information~~members ~~required~~of toour beBoard ~~disclosed by~~of ~~the~~Directors ~~Company~~approved ~~in reports it files or submits under the Securities Exchange Act~~ of ~~1934,~~these asrelated ~~amended,~~party istransactions ~~recorded, processed, summarized~~ and ~~reported~~our asgeneral ~~specified~~ongoing inbusiness ~~the rules and forms of the Securities and Exchange Commission. There have been no~~relationship ~~material~~with changes in the Company’s internal controls over financial reporting or in other factors reasonably likely to affect the internal controls over financial reporting during the quarter ended March 31, 2004DevonWay.

Our revenues from DevonWay for the three and six months ended June 30, 2006, are $14,600 and $37,900, respectively. For the three and six months ended June 30, 2005 we recognized revenues of $277,000. As of June 30, 2006, and December 31, 2005, we had accounts receivable due from DevonWay of $5,600, and $24,500, respectively. For the three and six months ended June 30, 2006, we received cash inflows from DevonWay of $34,000, and $66,000, respectively. For the three and six months ended June 30, 2005, we received cash inflows from this customer of $202,000.

Although we received a $1 million license payment from DevonWay in August 2005, for accounting purposes we have deferred recognition of this revenue ~~PART~~until IIthe end of the estimated economic life of the release of EnterpriseTenFold provided to DevonWay, because the license agreement contains a discount that cannot be determined at inception of the agreement. ~~OTHER~~We ~~INFORMATION~~are using the end of the estimated economic life to recognize the revenue because we do not have vendor specific objective evidence of fair value (“VSOE”) for the related post-contract customer support, due to the discount, and therefore we cannot allocate the revenue until the discount is known at the end of the estimated economic life. For accounting purposes, management estimates that the economic life is 16 months, and as a result no revenue will be recognized from this license until it is all recognized in a lump sum in the latter part of 2006.

During late 2005 and continuing into 2006, DevonWay provided some marketing services to us. For the three ~~Item~~and 1six months ended June 30, 2006, we made payments to DevonWay of $7,600 and $17,000, respectively, for such services. ~~Legal~~As ~~Proceedings~~of June 30, 2006, we had accounts payable due to DevonWay of $8,800.

See ~~Part~~ ~~I, Item 1,~~ Note 98 of Notes to Condensed ~~Consolidated~~ Financial Statements for amore ~~description~~information about Promissory Notes we entered into with members of ~~legal~~our ~~proceedings~~Board of Directors (or entities associated with them).

See Note 13 of Notes to Condensed Financial Statements for information about our capital raising ~~Item~~transaction 6.completed ~~Exhibits~~in March 2006, that included the sale of stock to members of our Board of Directors and ~~Reports~~Executive onOfficers ~~Form~~(or ~~8-K~~entities associated with them).

~~(a)~~Recent ~~Exhibits~~Accounting Pronouncements

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

On January 1, 2006, we adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values. See Note 5 of Notes to Condensed Financial Statements for more information.

*On ~~Incorporated~~January 1, by2006, ~~reference~~we toadopted ~~“Notes~~SFAS No. 154, toAccounting ~~Condensed~~Changes ~~Consolidated~~and Error Corrections. SFAS No. 154 is a replacement of APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements”. ~~herein~~SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and how to report a change in such circumstances. SFAS No. 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate effected by a change in accounting

~~(b)~~26 ~~Reports on Form 8-K~~

OnTable Januaryof 12, 2004, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission discussing in Item 12 the Company’s year-end 2003 cash balances and reaffirming the Company’s earnings guidance for Q4 2003. Contents

~~On February 17~~ principle, ~~2004,~~and ~~the~~also ~~Company~~provides ~~filed~~that acorrection ~~Current~~of ~~Report~~errors onin ~~Form~~previously ~~8-K~~issued ~~with~~financial ~~the~~statements ~~Securities~~should ~~and~~be ~~Exchange~~termed ~~Commission~~a ~~discussing~~“restatement.” inSFAS No. 154 ~~Item~~is 12effective ~~the~~for ~~Company’s~~accounting Q4changes and ~~year-end~~corrections ~~2003~~of ~~financial~~errors ~~results.~~made in fiscal years beginning after December 15, 2005

31In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in financial years beginning after September 15, 2006. We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets to simplify accounting for separately recognized ~~SIGNATURES~~servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, although early adoption is permitted. We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

~~Pursuant~~In toJuly 2006, the FASB issued Interpretation ~~requirements~~No. 48, ofAccounting ~~the~~for ~~Securities~~Uncertainty ~~Exchange~~in ~~Act~~Income Taxes – an interpretation of ~~1934~~FASB Statement No. 109 (“FIN 48”) which prescribes a recognition threshold and measurement attribute, as well as criteria for subsequently recognizing, de-recognizing and measuring uncertain tax positions for financial statement purposes. FIN 48 also requires expanded disclosure with respect to the ~~Registrant~~uncertainty ~~has~~in ~~duly~~income ~~caused~~tax ~~this~~assets ~~report~~and liabilities. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be ~~signed~~recognized onas ~~its~~a ~~behalf~~change byin accounting principle through a cumulative-effect adjustment to retained earnings as of the ~~undersigned~~beginning ~~thereunto~~of ~~duly~~the ~~authorized~~year of adoption. We are currently evaluating the impact of adopting the provisions of FIN 48.

~~TenFold~~27 ~~Corporation /s/ Nancy M. Harvey Nancy M. Harvey President, Chief Executive Officer, and Chief Financial Officer April 29, 2004~~

32Table of Contents

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Reference is made to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” appearing on page 40 of TenFold’s 2005 Annual Report on Form 10-K for information relating to TenFold’s interest rate and currency rate risks. There have been no material changes in such risks through June 30, 2006.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Except as listed below, other items in Part II are omitted because the items are inapplicable or require no response.

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

Reference is made to Part I, Item 1A “Risk Factors,” appearing on page 18 of TenFold’s 2005 Annual Report on Form 10-K for information relating to TenFold’s risk factors. There have been no material changes in such risks through June 30, 2006, except that the settlement discussions with our prior CEO described in the Risk Factor on page 21 of TenFold’s 2005 Annual Report on Form 10-K were concluded and the parties executed a Separation Agreement and Release on May 19, 2006, which was reported in a Form 8-K filed by TenFold on May 25, 2006.

The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, results of operations or cash flows.

Item 4.

Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Stockholders on June 27, 2006, in Sandy, Utah. A total of 55,063,289 shares (approximately 82 percent of all shares entitled to vote at the meeting) were represented by proxy or ballot at the meeting. The matters voted upon at the meeting, and the votes cast with respect to each were:

•

Election of three directors to hold office until the 2008 Annual Meeting of Stockholders: Stephen H. Coltrin – 54,741,071 shares cast for election and 322,218 shares withheld; Robert W. Felton – 54,702,124 shares cast for election and 361,165 shares withheld; and Ralph W. Hardy, Jr. – 54,720,271 shares cast for election and 343,018 shares withheld. The terms of the following other existing directors continued after the meeting: Richard H. Bennett, Jr., Robert E. Parsons, Jr., and Jeffrey L. Walker.

•

Ratification of the selection of Tanner LC as registered independent public accounting firm of TenFold for the fiscal year ended December 31, 2006 – 54,987,749 shares cast for ratification, 53,688 shares cast against ratification, and 21,852 shares abstained.

Item 6.

Exhibits

(a)

Exhibits


Number		Description

10.20		Separation Agreement and Release, dated as of May 19, 2006, between TenFold Corporation and Nancy M. Harvey. (+)

11*		Computation of Shares used in Computing Basic and Diluted Net Loss Per Share.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Incorporated by reference to “Notes to Financial Statements” herein

+	Incorporated by reference to Exhibit 10.20 to the Current Report on Form 8-K filed by TenFold Corporation on May 25, 2006.

SIGNATURES

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

TenFold Corporation

/s/ Robert W. Felton

Robert W. Felton

Chairman of the Board of Directors, President, and

Chief Executive Officer

August 1, 2006

/s/ Robert P. Hughes

Robert P. Hughes

Chief Financial Officer and Chief of Staff

August 1, 2006

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