UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2007

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

For the transition period from to

Commission file number 000-25661

TenFold Corporation

(Exact name of registrant as specified in its charter)


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

698 West 10000 South

South Jordan, Utah 84095

(Address of principal executive offices, including zip code)

(801) 495-1010

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer x

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

Yes ¨ No x

As of September 30, 2007, there were 47,650,431 shares of the registrant’s Common Stock outstanding.

INDEX


			Page
		Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION

	Item 1.	Condensed Financial Statements

		Condensed Balance Sheets at September 30, 2007 and December 31, 2006	4

		Condensed Statements of Operations for the three and nine months ended September 30, 2007 and September 30, 2006	5

		Condensed Statements of Cash Flows for the nine months ended September 30, 2007 and September 30, 2006	6

		Notes to Condensed Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	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	29

	Item 6.	Exhibits	30

Signatures			31

FORWARD-LOOKING STATEMENTS

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 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.” 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 risks described in this Quarterly Report, and those referenced in Part II, Item 1A “Risk Factors” to our Annual Report on Form 10-K for the year ended December 31, 2006; and those risks described from time to time in our future reports filed with the Securities and Exchange Commission.

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

TENFOLD CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	September 30, 2007			December 31, 2006
Assets
Current assets:
Cash and cash equivalents	$	1,787		$	3,601
Accounts receivable, (net of allowances for doubtful accounts of $8 and $0, respectively)		663			680
Unbilled accounts receivable, (net of allowances for doubtful accounts of $0 and $0, respectively)		7			34
Prepaid expenses and other assets		158			146

Total current assets		2,615			4,461

Restricted cash		65			74
Property and equipment, net		244			141

Total assets	$	2,924		$	4,676

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	101		$	172
Income taxes payable		5			8
Accrued liabilities		791			1,142
Deferred revenue		1,671			1,446
Current installments of obligations under capital leases .		21			10

Total current liabilities		2,589			2,778

Long-term liabilities
Obligations under capital leases, excluding current installments		43			—

Total long-term liabilities		43			—

Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value:
Authorized: 4,000,000 shares
Issued and outstanding shares: 1,740,009 shares at September 30, 2007 and 1,812,009 shares at December 31, 2006		2			2
Common stock, $0.001 par value:
Authorized: 220,000,000 shares
Issued and outstanding shares: 47,650,431 shares at September 30, 2007 and 46,557,745 shares at December 31, 2006		48			47
Additional paid-in capital		88,028			86,429
Accumulated deficit		(87,786	)		(84,580	)

Total stockholders’ equity		292			1,898

Total liabilities and stockholders’ equity	$	2,924		$	4,676

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

TENFOLD CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues:
License	$	77		$	176		$	239		$	317
Services and other		1,487			931			4,728			2,099

Total revenues		1,564			1,107			4,967			2,416

Operating expenses:
Cost of revenues		989			704			2,978			1,924
Sales and marketing		283			216			724			677
Research and development		829			1,073			2,701			3,290
General and administrative		546			1,207			1,848			2,228

Total operating expenses		2,647			3,200			8,251			8,119

Loss from operations		(1,083	)		(2,093	)		(3,284	)		(5,703	)

Other income (expense):
Interest income		18			29			87			82
Interest expense		(2	)		—			(2	)		(20	)
Other		—			(1	)		—			—

Total other income, net		16			28			85			62

Loss before income taxes		(1,067	)		(2,065	)		(3,199	)		(5,641	)
Provision for income taxes		—			—			7			—

Net loss	$	(1,067	)	$	(2,065	)	$	(3,206	)	$	(5,641	)

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

Net loss applicable to common shareholders	$	(1,067	)	$	(2,065	)	$	(3,206	)	$	(7,402	)

Basic loss per common share	$	(0.02	)	$	(0.04	)	$	(0.07	)	$	(0.16	)

Diluted loss per common share	$	(0.02	)	$	(0.04	)	$	(0.07	)	$	(0.16	)

Weighted average common and common equivalent shares used to calculate loss per share:
Basic		47,440			46,535			47,040			46,507

Diluted		47,440			46,535			47,040			46,507

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

TENFOLD CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(3,206	)	$	(5,641	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		104			181
Provision for doubtful accounts receivable		8			—
Stock-based compensation expense		1,571			2,104
Changes in operating assets and liabilities:
Accounts receivable		9			(179	)
Unbilled accounts receivable		27			(4	)
Prepaid expenses and other assets		(12	)		(14	)
Accounts payable		(71	)		(343	)
Income taxes payable		(3	)		(7	)
Accrued liabilities		(351	)		(303	)
Deferred revenues		225			(207	)

Net cash used in operating activities		(1,699	)		(4,413	)

Cash flows from investing activities:
Decrease in restricted cash		9			—
Additions to property and equipment		(207	)		(24	)

Net cash used in investing activities		(198	)		(24	)

Cash flows from financing activities:
Proceeds from employee stock purchase plan stock issuance		29			20
Equipment purchased under capital lease		68			—
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		(14	)		(26	)

Net cash provided by financing activities		83			5,466

Net increase (decrease) in cash and cash equivalents		(1,814	)		1,029
Cash and cash equivalents at beginning of period		3,601			1,344

Cash and cash equivalents at end of period	$	1,787		$	2,373

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2		$	7
Cash paid for interest		2			20
Equipment purchased under capital leases		68			—

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

TENFOLD CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

1.	Basis of Presentation

The accompanying unaudited Condensed Financial Statements included 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 a fair presentation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2007.

This report should be read in conjunction with our audited Financial Statements for the year ended December 31, 2006 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. 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.

Our financial statements have been prepared under the assumption that we will continue as a going concern. The independent auditors’ opinion on our December 31, 2006 financial statements, however, includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

As of September 30, 2007, our principal source of liquidity was our cash and cash equivalents of $1.8 million. Although we have generally made progress closing new sales to both existing and new customers in 2006 and 2007, our overall sales have not been sufficient or consistent enough to generate sustained positive cash flow from operations, or profitability. As a result, significant challenges and risks remain:

•

We have not been able to generate positive cash flow from operations for the four years ended December 31, 2006, or the nine months ended September 30, 2007. Our net cash used in operating activities was $1.7 million for the nine months ended September 30, 2007, and $4.4 million for the nine months ended September 30, 2006.

•

We have experienced some difficulty in closing substantial new sales, and it is unclear when or if we can expect to predictably close sufficient significant sales to new or existing customers to consistently achieve and sustain positive cash flow from operations. Under the leadership of our Chief Executive Officer, Robert W. Felton, we 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 have generally made progress closing new sales to both existing and new customers and began new consulting projects in 2006 and 2007. After a significant decline in sales closed during the quarter ended June 30, 2007 compared to the quarter ended March 31, 2007, we increased sales significantly during the quarter ended September 30, 2007, and achieved positive cash flow from operations of $122,000 for the quarter ended September 30, 2007. However, our overall sales have not been sufficient or consistent enough to generate sustained positive cash flow from operations, or profitability. If we do not close sufficient significant future sales in the near-term, our existing cash resources and existing ongoing contracts will not be sufficient to fund our operations beyond 2007.

2.	Revenue Recognition

We derive revenues from license fees, applications development and implementation consulting services, support, and training services. License 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.

We 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 SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, in recognizing revenue under each of our contracts.

We enter into contracts that generally involve multiple elements, such as software products, post-contract customer support (“PCS”), training, and time-and-material services. For 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 (“VSOE”). We establish VSOE based on the price charged when the same element is sold separately. For consulting services, we base VSOE on the rates charged when the services are sold separately under time-and-materials contracts. We base VSOE for training on the rates charged when 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.

As a result, the amounts allocated to individual contract elements (such as license, consulting, training and support) for accounting purposes may differ from the amounts stated in the contract for those individual elements, but not in total.

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.

For fixed-price contracts, we recognize revenue using the percentage-of-completion method of accounting and following the guidance in Statement of Position (“SOP”) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We make adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses under the contract and as we gain experience.

We recognize support revenue from contracts for ongoing technical support and unspecified product updates ratably over the support period.

We recognize training revenue as we perform the services.

We recognize license 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 delivered the software product; there are no uncertainties surrounding product acceptance; the fees are fixed and determinable; and collection is considered probable. This policy applies either 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.

For software arrangements that include a service element that is considered essential to the functionality of the software, we recognize license fees related to the application, and the 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 (“SOP”) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We make adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses under the contract and as we gain experience. Fixed-price project revenues are split between license and service based upon the relative fair value of the components.

For certain 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.

For certain contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates doubtful, we recognize revenue under the completed-contract method of contract accounting.

For license agreements that contain a discount that cannot be determined at the inception of the agreement, we recognize the related license revenue at the end of the estimated economic life of the release of the software version provided to the customer. We use the end of the estimated economic life to recognize the revenue when we do not have 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.

We 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.

In our statements of operations, we present revenue net of sales taxes and any similar assessments.

3.	Loss Per Share

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Numerator:
Numerator for basic loss per share – net loss applicable to common shareholders	$	(1,067	)	$	(2,065	)	$	(3,206	)	$	(7,402	)

Numerator for diluted loss per share – net loss applicable to common shareholders	$	(1,067	)	$	(2,065	)	$	(3,206	)	$	(7,402	)

Denominator:
Denominator for basic loss per share – weighted average shares		47,440			46,535			47,040			46,507

Stock options and other dilutive securities		—			—			—			—

Denominator for diluted loss per share		47,440			46,535			47,040			46,507

Loss per common share:
Basic loss per common share	$	(0.02	)	$	(0.04	)	$	(0.07	)	$	(0.16	)

Diluted loss per common share	$	(0.02	)	$	(0.04	)	$	(0.07	)	$	(0.16	)

Employee stock options that could potentially dilute basic earnings (loss) per share in the future, of which there were 22,067,696 and 22,720,226 outstanding on September 30, 2007 and 2006, respectively, that have a weighted average exercise price of $1.25 and $1.29 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.

The computation of diluted loss per common share for the three and nine months ended September 30, 2007 and 2006 excludes the assumed conversion of 1,740,009 and 1,500,000 shares, respectively, of convertible preferred stock outstanding at September 30, 2007, and 2006, respectively, from our 2006 capital raising transactions, which are convertible into 23,566,450 and 20,315,802 shares, respectively, of common stock, because the impact of the conversion would be anti-dilutive.

Warrants to purchase 12,270,803 and 10,157,899 shares of common stock outstanding at September 30, 2007 and 2006, respectively, from our 2006 capital raising transactions, were also excluded from the computation of diluted loss per common share because to do so would have been anti-dilutive for the period. The warrants have an exercise price of $0.62 per share.

4.	Restricted Cash

Restricted cash of $65,000 at September 30, 2007, and $74,000 at December 31, 2006, is maintained to support various accounts payable activities.

5.	Stock-Based Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“ESPP”) based on estimated fair values. In accordance with this standard, we recognize the compensation cost

of all share based awards on a straight-line basis over the vesting period of the award. Prior to January 1, 2006, we accounted for those plans under the recognition and 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”).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. Our Condensed Financial Statements as of and for the three and nine months ended September 30, 2007, and 2006, reflect the impact of SFAS 123(R). Under that transition method, compensation cost recognized in the first nine months of 2007 and 2006 includes: (a) amortization related to the compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) amortization related to compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

We have three stock-based employee option plans and an ESPP which are described more fully in Note 12 and Note 13, respectively, in our 2006 Annual Report on Form 10-K. As of September 30, 2007, we had approximately 12.5 million shares of common stock reserved for future issuance under the stock option plans and the ESPP.

The adoption of SFAS 123(R) had a significant impact on our results of operations. Our statements of operations for the three and nine months ended September 30, 2007 and 2006 include the following stock-based compensation expense from stock options and ESPP:


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2007		2006		2007		2006
Cost of revenues	$	29	$	60	$	131	$	178
Sales and marketing		6		7		18		18
Research and development		196		337		707		856
General and administrative		202		838		715		1,052

Stock-based compensation expense included in operating expenses		433		1,242		1,571		2,104
Tax benefit		—		—		—		—

Stock-based compensation expense included in net loss	$	433	$	1,242	$	1,571	$	2,104

During the three months ended September 30, 2006, we granted 5,000,000 options to our CEO, with half vesting immediately and the other half vesting quarterly in 2007. This grant accounts for $620,000 of the stock-based compensation expense for the three and nine months ended September 30, 2006.

For 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. Upon 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 nine months ended September 30, 2006.

Unrecognized stock-based compensation expense expected to be recognized over an estimated weighted-average amortization period of 0.6 year, was $808,000, at September 30, 2007.

Share Option Plans

We 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. Historically, we 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.

Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the three and nine months ended September 30, 2007, and 2006 are shown below:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
Expected volatility	153%	158%	155%	158%
Expected dividends	0%	0%	0%	0%
Expected term	6.11 Years	5.25 Years	6.11 Years	5.30 Years
Risk-free interest rate	4.94%	4.86%	4.67%	4.83%

The expected volatility rate was estimated based on the historical volatility of our common stock. The expected term was calculated using the SEC “simplified” method as provided for in Staff Accounting Bulletin No. 107. 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 option term.

The pre-vesting forfeiture rates used for the three and nine months ended September 30, 2007, and September 30 2006, were 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.

A summary of the time-based stock option awards as of September 30, 2007, and changes during the nine months then ended, is as follows:


Stock Option Awards	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (000s)
Outstanding at January 1, 2007	22,168,871		$	1.28
Granted	295,000			0.38
Exercised	—			—
Forfeited or expired	(396,175	)		1.85

Outstanding at September 30, 2007	22,067,696		$	1.25	6.30	$	315

Exercisable at September 30, 2007	20,413,431		$	1.30	6.14	$	295

The weighted-average grant-date fair value of stock options granted during the three and nine months ended September 30, 2007, was $0.31 and $0.36, respectively, and during the three and nine months ended September 30, 2006, was $0.22. Stock-based compensation expense related to stock options recognized under SFAS 123(R) for the three and nine months ended September 30, 2007 was $431,000 and $1.6 million, respectively, and for the three and nine months ended September 30, 2006 was $1.2 million and $2.1 million, respectively. At September 30, 2007, there was $802,000 of unrecognized stock-based compensation expense related to non-vested options, which is expected to be recognized over a weighted-average period of 0.6 year.

Employee Stock Purchase Plan

Our 1999 Employee Stock Purchase Plan (“ESPP”) was adopted by our Board of Directors and approved by our stockholders in March 1999. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, has two six-month offering periods each year, with new offering periods commencing on February 1 and August 1 of each year. Eligible full-time employees, through payroll deductions, are allowed to purchase 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 the ESPP as a compensatory plan and recorded compensation expense for the three and nine months ended September 30, 2007 of $1,700 and $16,400, respectively, and for the three and nine months ended September 30, 2006 of $2,900 and $9,100, respectively, in accordance with SFAS 123(R).

The fair value of issuances under the purchase plan is estimated on the issuance date by applying the principles of FASB Technical Bulletin 97-1, Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back Option, and using the Black-Scholes valuation model. Our weighted-average assumptions used in the Black-Scholes valuation model for our ESPP grants during the three and nine months ended September 30, 2007 and 2006 are shown below:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
Expected volatility	112%	166%	126%	136%
Expected dividends	0%	0%	0%	0%
Expected term	0.5 Years	0.5 Years	0.5 Years	0.5 Years
Risk-free interest rate	4.96%	5.18%	5.05%	4.89%

The expected volatility rate was estimated based on the historical volatility of our 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.

During the quarters ended September 30, 2007, and 2006, 55,275 and 49,732 shares of common stock were purchased under the ESPP at an average price of $0.26 and $0.19 per share, respectively. As of September 30, 2007, there was $6,000 of total unrecognized compensation costs related to employee stock plan purchases. These costs are expected to be recognized over a weighted average period of 2.5 months.

6.	Income Taxes

The provision for income taxes for the nine months ended September 30, 2007 of $7,000, relates to foreign withholding taxes. No provision for income taxes was required for the three months ended September 30, 2007, or the three and nine months ended September 30, 2006.

At September 30, 2007, management has recognized a valuation allowance for the net deferred tax assets related to temporary differences, foreign tax credit carryforwards and net operating loss carryforwards. The valuation allowance was recorded in accordance with the provisions of Statement of Financial Accounting Standards 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.

7.	Commitments

We lease office space and equipment under non-cancelable lease agreements, which expire at various dates through 2012. Future minimum lease payments under non-cancelable operating and capital lease obligations, in excess of one year, at September 30, 2007, are as follows (in thousands):


	Total		Operating		Capital
2007	$	147	$	140	$	7
2008		513		487		26
2009		487		461		26
Thereafter		1,296		1,282		14

Total minimum lease payments	$	2,443	$	2,370		73

Less: Amount representing interest						(9	)

Present value of net minimum capital lease payments						64
Less: Current installments of obligations under capital leases						(21	)

Obligations under capital leases, excluding current installments					$	43

8.	Legal Proceedings and Contingencies

Unresolved Stockholder Matter

On November 6, 2001, a class action complaint alleging violations of the federal securities laws was filed in the United States District Court for the Southern District of New York naming as defendants TenFold, certain of our officers and directors, 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(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 approved a proposed partial settlement with the plaintiffs in this matter. While the motion for approval of the settlement was pending before the district court, the court directed that the litigation proceed within a number of “focus cases” rather than in all of the 310 cases that have been consolidated. Our case is not one of these focus cases. On October 13, 2004, the district court certified the focus cases as class actions. The underwriter defendants appealed that ruling, and on December 5, 2006, the Court of Appeals for the Second Circuit reversed the district court’s class certification decision. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light of the Second Circuit opinion regarding class certification, we did not believe the proposed settlement could be approved by the district court because the defined settlement class, like the litigation class, could not be certified; and on June 25, 2007, the district court entered an order formally denying the motion for final approval of the settlement agreement. On August 14, 2007, the plaintiffs filed their second consolidated amended class action complaints against the focus cases and on September 27, 2007, again moved for class certification. We intend to continue to vigorously defend TenFold against these claims. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter.

Assessing litigation

We review litigation claims each quarter to determine the likelihood that the claim will result in a loss. Due to the inherent uncertainties of litigation, predicting the ultimate outcome of litigation is very difficult. Significant management judgment is required to conclude on the likely outcome of outstanding litigation. As part of that review, we consider our available insurance coverage. Such coverage is subject to the particular policy’s total limit, and typically subject to the insurer’s standard reservation of rights regarding conditions or findings that might exclude coverage for a particular matter.

If a loss is considered probable on a litigation claim, management estimates the loss and we accrue the estimated loss. If a loss is considered probable but cannot be reasonably estimated, we disclose the contingency in 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, financial position, or liquidity.

Indemnifications, Warranties, Complaints and Insurance

As permitted under Delaware law, and as provided in agreements with our officers and Directors, we have indemnified officers and Directors for certain claims asserted against them in connection with their service as an officer or Director of TenFold. The maximum potential amount of future payments that we could be required to make under 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.

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 September 30, 2007. As a result, we have not recorded a liability for infringement costs as of September 30, 2007.

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 September 30, 2007.

We are subject to various customer complaints or disputes that arise in the ordinary course of business from time-to-time. We do not believe that the ultimate liability, if any, to resolve currently outstanding complaints or disputes will have a material impact on our future business, results of operations, financial position, or liquidity.

We have an industry-standard, errors and omissions insurance policy. This policy excludes contractual related disputes such as cost and time guarantees, and only covers software errors or omissions that occur after the delivery of software. We believe this policy provides adequate coverage for potential damages related to errors and omissions in our delivered software.

9.	Operating Segments

Our CEO reviews financial information on a consolidated basis, similar in format to the accompanying Statements of Operations. We consolidate revenue and expense information for all business groups for internal and external reporting and for decision-making purposes. We operate in a single operating segment, which is applications products and services.

Revenues from customers outside of North America were approximately 10 percent of total revenues for the three months ended September 30, 2007 as compared to 9 percent of total revenues for the same period in 2006. For the nine months ended September 30, 2007, revenues from customers outside of North America were approximately 8 percent of total revenues as compared to 13 percent of total revenues for the same period in 2006. Our long-lived assets are deployed in the United States.

Five customers accounted for a total of 59 percent of our revenues for the three months ended September 30, 2007 (individually 13 percent, 13 percent, 11 percent, 11 percent, and 11 percent of our total revenues) compared to four customers accounting for a total of 51 percent of our total revenues for the same period in 2006 (individually 15 percent, 15 percent, 11 percent, and 10 percent of our total revenues). Five customers accounted for a total of 59 percent of our revenues for the nine months ended September 30, 2007 (individually 15 percent, 13 percent, 11 percent, 10 percent, and 10 percent of our total revenues, respectively) compared to one customer accounting for a total of 18 percent of our revenues for the same period in 2006. No other single customer accounted for more than 10 percent of our total revenues for the three and nine months ended September 30, 2007 or the same period in 2006.

The customer accounting for 11 percent and 10 percent of our total revenues for the three and nine months ended September 30, 2007, respectively, accounted for 28 percent and 18 percent of our cash inflows for the three and nine months ended September 30, 2007, respectively.

10.

Recent Accounting Pronouncements

On January 1, 2007, we adopted 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. Our adoption of this new standard has not had a material impact on our financial position, results of operations or cash flows.

On January 1, 2007, we adopted SFAS No. 156, Accounting for Servicing of Financial Assets to simplify accounting for separately recognized 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. Our adoption of this new standard has not had a material impact on our financial position, results of operations or cash flows.

On January 1, 2007, we adopted Emerging Issues Task Force Issue, or EITF, No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation). EITF No. 06-3 requires that, for interim and annual reporting periods beginning after December 15, 2006, we disclose our policy related to the presentation of sales taxes and similar assessments related to our revenue transactions. Early adoption is permitted. EITF No. 06-3 has had no effect on our financial position and results of operations.

On January 1, 2007, we adopted FASB 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, 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. Our adoption of this new standard has had no impact on our financial position, results of operations or cash flows.

On January 1, 2007, we adopted SFAS No. 157 Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Our adoption of this new standard has not had a material impact on our financial position, results of operations or cash flows.

On January 1, 2007, we adopted SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R). SFAS No. 158 requires an employer to recognize in its statement of financial position an asset for a plan’s over funded status or a liability for a plan’s under funded status, measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions), and recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. As we do not have any defined benefit postretirement plans, our adoption of this new standard has not had a material impact on our financial position, results of operations or cash flows.

On January 1, 2007, we adopted FASB Staff Position (FSP) Emerging Issues Task Force (“EITF”) 00-19-2, “Accounting for Registration Payment Arrangements,” which requires an issuer to account for a contingent obligation to transfer consideration under a registration payment arrangement in accordance with FASB Statement No. 5, Accounting for Contingencies and FASB Interpretation 14, Reasonable Estimation of the Amount of Loss. Registration payment arrangements are frequently entered into in connection with issuance of unregistered financial instruments, such as equity shares or warrants. A registration payment arrangement contingently obligates the issuer to make future payments or otherwise transfer consideration to another party if the issuer fails to file a registration statement with the SEC for the resale of specified financial instruments or fails to have the registration statement declared effective within a specific period. The FSP requires issuers to make certain disclosures for each registration payment arrangement or group of similar arrangements. The FSP is effective immediately for registration payment arrangements and financial instruments entered into or modified after the FSP’s issuance date. For previously issued registration payment arrangements and financial instruments subject to those arrangements, the FSP is effective for financial statements issued for fiscal years beginning after December 15, 2006. Our adoption of this new standard has not had a material impact on our financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). Unrealized gains and losses on items for which the fair value option has been elected are to be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting the provisions of SFAS No. 159.

11.

Related Person Transactions

During 2005, we entered into agreements with a new customer, DevonWay, to provide licenses, consulting services, technical support services, and training. Our Chairman, CEO and President, Robert W. Felton, is the founder and majority shareholder of DevonWay. All disinterested members of our Board of Directors approved of the related party transactions and general ongoing business relationship with DevonWay.

Our revenues from DevonWay for the three and nine months ended September 30, 2007, were $8,500 and $25,200, respectively. For the three and nine months ended September 30, 2006, our revenues from DevonWay were $8,800 and $46,700, respectively. For the three and nine months ended September 30, 2007, we received cash inflows from DevonWay of $0 and $34,100, respectively. For the three and nine months ended September 30, 2006, we received cash inflows from DevonWay of $5,900, and $71,800, respectively. As of September 30, 2007 and December 31, 2006, we had no accounts receivable due from DevonWay. For the three and nine months ended September 30, 2007, we paid fees to DevonWay of $0 and $53,800, respectively, for consulting services and marketing-related services. For the three and nine months ended September 30, 2006, we paid fees to DevonWay of $14,800 and $31,800, respectively, for marketing-related services. As of September 30, 2007, and December 31, 2006, we had accounts payable due to DevonWay of $2,800 and $21,000, respectively.

12.

Capital Stock

During the three months ended September 30, 2007, the number of shares of common stock outstanding increased by 380,327, from the conversion of 24,000 shares of convertible preferred stock into 325,052 shares of common stock, and from 55,275 common shares issued under our Employee Stock Purchase Plan. During the nine months ended September 30, 2007, the number of shares of common stock outstanding increased by 1,092,686, from the conversion of 72,000 shares of convertible preferred stock into 975,156 shares of common stock, and from 117,530 common shares issued under our Employee Stock Purchase Plan.

Item 2.

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

Business Overview

TenFold provides services and technology for building complex, Service Oriented Architecture (“SOA”)-compliant, enterprise-scale applications in significantly less time and cost than it would otherwise take using traditional development technologies. We believe that with our technology, EnterpriseTenFold SOA, customers will also experience significantly reduced ongoing applications maintenance and enhancement costs compared to what they generally experience with legacy applications.

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

At the end of 2005, we replaced our former Chief Executive Officer, with long-time TenFold director and shareholder, Robert W. Felton. Under his leadership, we have 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 our customers and us. We believe that some of our earlier customers would have been more successful with their projects with more consulting assistance than they chose to purchase under our prior business model. During 2006 and into 2007, we have generally made progress closing new sales to both existing and new customers and began new consulting projects. Such sales have been a source of ongoing business as some of these customers expanded their use of our services. After a significant decline in sales closed during the quarter ended June 30, 2007 compared to the quarter ended March 31, 2007, we increased sales significantly during the quarter ended September 30, 2007, and achieved positive cash flow from operations of $122,000 for the quarter ended September 30, 2007. However, our overall sales have not been sufficient or consistent enough to generate sustained positive cash flow from operations, or profitability. If we do not close sufficient significant future sales in the near-term, our existing cash resources and existing ongoing contracts will not be sufficient to fund our operations beyond 2007.

Results of Operations

For the first nine months of 2007, we had revenues of $5.0 million, an operating loss of $3.3 million, and a net loss of $3.2 million. This compares to revenues of $2.4 million, an operating loss of $5.7 million, a net loss of $5.6 million, and a net loss applicable to common shareholders of $7.4 million for the same period in 2006.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Revenues:
License	5	%	16	%	5	%	13	%
Services and other	95	%	84	%	95	%	87	%

Total revenues	100	%	100	%	100	%	100	%
Operating expenses:
Cost of revenues	63	%	64	%	60	%	80	%
Sales and marketing	18	%	19	%	15	%	28	%
Research and development	53	%	97	%	54	%	136	%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
General and administrative	35	%	109	%	37	%	92	%

Total operating expenses	169	%	289	%	166	%	336	%

Loss from operations	(69	%)	(189	%)	(66	%)	(236	%)
Total other income, net	1	%	2	%	2	%	3	%

Loss before income taxes	(68	%)	(187	%)	(64	%)	(233	%)

Provision for income taxes	—		—		—		—

Net loss	(68	%)	(187	%)	(64	%)	(233	%)

Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock	—		—		—		(73	%)

Net loss applicable to common shareholders	(68	%)	(187	%)	(64	%)	(306	%)

Revenues

Total revenues increased $457,000, or 41 percent, to $1.6 million for the three months ended September 30, 2007, as compared to $1.1 million for the same period in 2006. For the nine months ended September 30, 2007, total revenues increased $2.6 million, or 106 percent, to $5.0 million as compared to $2.4 million for the same period in 2006.

Services and other revenues increased $556,000, or 60 percent, to $1.5 million for the three months ended September 30, 2007 as compared to $931,000 for the same period in 2006. For the nine months ended September 30, 2007, services and other revenues increased $2.6 million, or 125 percent, to $4.7 million as compared to $2.1 million for the same period in 2006. The increases in services and other revenues are primarily due to our providing more time-and-materials consulting services during the three and nine months ended September 30, 2007, than in the same periods in 2006, resulting from our sales of new consulting projects during the latter part of 2006 and into 2007.

We continue to market actively to new and existing customers. We have generally made progress closing new sales to both existing and new customers and began new consulting projects in 2006 and 2007. Such sales have been a source of ongoing business as some of these customers expanded their use of our services. However, our overall sales have not been sufficient or consistent

enough to generate sustained positive cash flow from operations or profitability. As a result, it is unclear if or when we can expect to close sufficient significant sales to new or existing customers, and until we repeatedly do so we are likely to continue to experience negative cash flow from operations and losses.

Operating Expenses

Total operating expenses decreased $553,000, or 17 percent, to $2.6 million for the three months ended September 30, 2007 compared to $3.2 million for the same period in 2006. The decrease in total operating expenses for the three months ended September 30, 2007 compared to the same period in 2006, is generally due to higher stock-based compensation expense in 2006, primarily for option grants to our CEO during the three months ended September 30, 2006. This decrease was partially offset by an increase in average headcount from 2006 to 2007. For the nine months ended September 30, 2007, total operating expenses increased $132,000, or 2 percent, to $8.3 million as compared to $8.1 million for the same period in 2006. The increase for the nine month period was due to an increase in average headcount from 2006 to 2007, and from an increase in employee benefit expenses from some unexpectedly large medical claims in 2007, offset in part by a decrease in stock-based compensation expense from 2006 to 2007.

Cost of Revenues. Cost of revenues consists primarily of compensation and other related costs of personnel and contractors to provide applications development and implementation consulting, support, and training services. Cost of revenues increased $285,000, or 40 percent, to $989,000 for the three months ended September 30, 2007 compared to $704,000 for the same period in 2006. For the nine months ended September 30, 2007, cost of revenues increased $1.1 million, or 55 percent, to $3.0 million as compared to $1.9 million for the same period in 2006. The increases in cost of revenues are due primarily to having more staff working on more customer projects in 2007. The significant improvement in gross margin percentage reflects benefit from our increased revenues and greater utilization of our existing staff.

Sales and Marketing. Sales and marketing expenses consist primarily of compensation, travel, and other related expenses for sales and marketing personnel and contractors; and the cost of website development, collateral production and other marketing activities. Sales and marketing expenses increased $67,000, or 31 percent, to $283,000 for the three months ended September 30, 2007 as compared to $216,000 for the same period in 2006. For the nine months ended September 30, 2007, sales and marketing expenses increased $47,000, or 7 percent, to $724,000 as compared to $677,000 for the same period in 2006.

Research and Development. Research and development expenses consist primarily of compensation and other related costs of personnel dedicated to research and development activities. Research and development expenses decreased $244,000, or 23 percent, to $829,000 for the three months ended September 30, 2007, as compared to $1.1 million for the same period in 2006. The decrease is due primarily to higher stock-based compensation expense for the three months ended September 30, 2006, than for the same period in 2007.In addition, more costs were allocated out of research and development to cost of revenues for the three months ended September 30, 2007, than for the same period in 2006, as more research and development staff worked on billable projects during the three months ended September 30, 2007 than for the same period in 2006. For the nine months ended September 30, 2007, research and development decreased $589,000, or 18 percent, to $2.7 million as compared to $3.3 million for the same period in 2006. The decrease in research and development expenses for the nine month period is due primarily to more costs being allocated out of research and development to cost of revenues as more research and development staff worked on billable projects during 2007, than in the same period in 2006. Additionally, stock-based compensation expense for the nine-month period decreased from 2006 to 2007.

General and Administrative. General and administrative expenses consist primarily of the costs of executive management, finance and administrative staff, business insurance, and professional fees. General and administrative expenses decreased $661,000, or 55 percent, to $546,000 for the three months ended September 30, 2007 as compared to $1.2 million for the same period in 2006.

For the nine months ended September 30, 2007, general and administrative expenses decreased $380,000, or 17 percent, to $1.8 million as compared to $2.2 million for the same period in 2006. The decreases are primarily due to higher stock-based compensation expense in 2006 primarily for option grants to our CEO during the three months ended September 30, 2006. See Note 5 of Notes to Condensed Financial Statements for more information on stock-based compensation expenses.

Total Other Income, net

Net total other income was income of $16,000 for the three months ended September 30, 2007, as compared to $28,000 of income for the same period in 2006. Net total other income was income of $85,000 for the nine months ended September 30, 2007, as compared $62,000 of income for the same period in 2006.

Provision for Income Taxes

Deemed dividend related to convertible preferred stock

As 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 issued in March 2006, we recognized a non-cash deemed dividend of $1,761,000 during the nine months ended September 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.

Balance Sheet Items

Property and equipment, net. Property and equipment (net) increased $103,000, or 73 percent, to $244,000 at September 30, 2007, from $141,000 at December 31, 2006. The increase is due to additions primarily for computer equipment of $207,000, exceeding depreciation expense of $104,000.

Accrued liabilities. Accrued liabilities decreased $351,000, or 31 percent, to $791,000 at September 30, 2007, from $1.1 million at December 31, 2006. The decrease is primarily due to the final cash severance payment made in January 2007 to our prior CEO, required under the Separation Agreement and Release dated May 19, 2006.

Deferred revenue. Deferred revenue increased $225,000, or 16 percent, to $1.7 million at September 30, 2007, from $1.4 million at December 31, 2006. The increase is primarily due to payments received and amounts invoiced for sales during the three months ended September 30, 2007 for licenses, consulting, support, and training, not yet recognized as revenue, including some prepayments received in exchange for our discounting certain customers’ time-and-materials consulting rate.

Additional paid-in capital. Additional paid in capital increased by $1.6 million, or 2 percent, to $88.0 million at September 30, 2007, from $86.4 million at December 31, 2006. The increase is primarily due to stock-based compensation expense of $1.6 million. See Note 5 of Notes to Condensed Financial Statements for more information.

Critical Accounting Policies

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, management has identified the “critical accounting policies” below. These policies have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.

Revenue Recognition and Project Profitability

We believe risks relating to revenue recognition include the judgment required to determine project profit or loss projections on time-and-material contracts. We recognize time-and-materials revenue at the lowest point in the range of estimated profit margin, which represents our best estimate of the profit to be achieved. Variances may occur if we are unable to collect time-and-materials billings or if we grant concessions to time-and-materials customers in order to sell additional business or collect cash under the contract. As we occasionally provide services on a fixed price basis, risks relating to revenue recognition also include the judgment and estimation required to determine fixed-price project completion percentages, and fixed-price project profit or loss projections. Variances between management’s estimates and actual results may result in significant adjustments to our results of operations and financial position.

Stock-Based Compensation

In accordance 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 vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee roles, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates. See Note 5 of Notes to Condensed Financial Statements for more information.

Litigation Reserves

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

Liquidity and Capital Resources

Net cash used in operating activities was $1.7 million for the nine months ended September 30, 2007 as compared to $4.4 million for the same period in 2006. The decrease in net cash used in operating activities was primarily due to increases in cash inflows resulting from increased sales.

Net cash used in investing activities was $198,000 for the nine months ended September 30, 2007 as compared to $24,000 for the same period in 2006. The increase in net cash used in investing activities is primarily due to purchases made to replace aging computer equipment.

Net cash provided by financing activities was $83,000 for the nine months ended September 30, 2007 as compared to $5.5 million for the same period in 2006. Net cash provided by financing activities for the nine months ended September 30, 2006 included $6.1 million of net proceeds from the sale of convertible preferred stock and warrants, $500,000 from issuance of notes payable, less $1.1 million in principal payments on notes payable which were repaid in full upon closing our capital raising transaction in March 2006.

Our deferred revenue balance generally results from contractual commitments made by customers to pay amounts to us in advance of revenues earned. We had deferred revenue balances of $1.7 million at September 30, 2007 and $1.4 million at December 31, 2006. When, over time, we recognize these deferred revenue balances as revenues in the statement of operations, we will not have corresponding increases in cash, as the related cash amounts have previously been received by us. Our unbilled accounts receivable represents revenue that we have earned but which we have not yet billed.

•

Disclosure about Contractual Obligations

The following table sets forth certain contractual obligations recorded in the condensed financial statements as of September 30, 2007 and summary information is presented in the following table (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		73		26		47		—		—
Operating lease obligations		2,370		512		1,408		450		—
Purchase obligations		35		35		—		—		—
Other long term liabilities reflected on the registrant’s Balance Sheet under GAAP		—		—		—		—		—

Total	$	2,478	$	573	$	1,455	$	450	$	—

Related Person Transactions

Recent Accounting Pronouncements

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 our 2006 Annual Report on Form 10-K for information relating to our interest rate and currency rate risks. There have been no material changes in such risks through September 30, 2007.

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 8 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,” beginning on page 18 of TenFold’s 2006 Annual Report on Form 10-K for information relating to TenFold’s risk factors. There have been no material changes in such risks through September 30, 2007.

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 July 18, 2007, in Sandy, Utah. A total of 61,284,445 shares (approximately 86 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 two directors to hold office until the 2009 Annual Meeting of Stockholders: Robert E. Parsons, Jr. – 60,803,862 shares cast for election and 480,583 shares withheld; and Jeffrey L. Walker – 59,914,086 shares cast for election and 1,370,359 shares withheld. The terms of the following other existing directors continued after the meeting: Stephen H. Coltrin, Robert W. Felton, and Ralph W. Hardy, Jr.

•

Ratification of the selection of Tanner LC as registered independent public accounting firm of TenFold for the fiscal year ended December 31, 2007 – 61,051,348 shares cast for ratification, 58,315 shares cast against ratification, and 174,782 shares abstained.

•

Approval of an amendment to the Fourth Amended and Restated Certificate of Incorporation of TenFold Corporation to increase the number of authorized shares of common stock of TenFold Corporation from 120 million to 220 million and to increase the number of authorized shares of preferred stock of TenFold Corporation from 2 million to 4 million – 46,049,543 shares cast for ratification, 530,681 shares cast against ratification, 5,303 shares abstained, and 14,698,918 non votes.

Item 6.

Exhibits

(a)

Exhibits


Number		Description

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

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 (Principal Executive Officer)

November 1, 2007

/s/ Robert P. Hughes

Robert P. Hughes

Chief Financial Officer and Chief of Staff (Principal Financial and Accounting Officer)

November 1, 2007

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TENFOLD CORP /UT 10-Q