<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-14793
TEKNOWLEDGE CORPORATION
(Exact Name of small business issuer as specified in its charter)
Delaware 94-2760916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1810 Embarcadero Road, Palo Alto, California 94303
(Address of principal executive offices)
(415) 424-0500
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 15, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 26,205,643 Shares
<PAGE>
2
TABLE OF CONTENTS
Page No.
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996...................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996.............................. 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996............................. 6
Notes to Unaudited Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. ................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 11
Item 6. Exhibits and Reports on Form 8-K........................... 13
Signatures................................................ 15
<PAGE>
3
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. FINANCIAL STATEMENTS
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
1997 1996
--------------- ----------------
Current assets:
Cash and cash equivalents $ 1,770,956 $ 1,797,892
--------------- ----------------
Receivables
Customer - billed, net of
allowance of $10,000 940,120 1,198,488
Customer - unbilled 28,096 80,695
Others 8,304 10,220
--------------- ----------------
Total receivables 976,520 1,289,403
--------------- ----------------
Deposits and prepaid expenses 72,116 61,452
--------------- ----------------
Total current assets 2,819,592 3,148,747
--------------- ----------------
Capitalized software, net of accumulated
amortization of $698,483 and $675,209 104,980 126,001
--------------- ----------------
Equipment and improvements, at cost
Computer and other equipment 2,475,839 2,429,888
Leasehold improvements 767,496 766,545
--------------- ----------------
3,243,335 3,196,433
Less accumulated depreciation and
amortization (2,917,703) (2,877,020)
--------------- ----------------
Net equipment and improvements 325,632 319,413
--------------- ----------------
Total assets $ 3,250,204 $ 3,594,161
=============== ================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
4
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
March 31, December 31,
1997 1996
------------- ----------------
Current liabilities:
Accounts payable $ 108,857 $ 209,762
Accrued liabilities 371,373 693,882
Other 422,259 423,510
------------- ----------------
Total current liabilities 902,489 1,327,154
------------- ----------------
Long-term liabilities:
Provision for discontinued operations - 54,432
Restructuring obligation 18,305 18,305
------------- ----------------
Total long-term liabilities 18,305 72,737
------------- ----------------
Total liabilities 920,794 1,399,891
------------- ----------------
Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 2,500,000
shares, Series A convertible, none issued - -
Common stock, $.01 par value, authorized 50,000,000
shares, issued 26,229,643 262,052 260,963
Additional paid-in capital 2,001,698 1,992,798
Retained earnings (deficit) since January 1, 1993
(following quasi-reorganization) 68,660 (56,491)
Treasury stock, at cost, 24,000 shares (3,000) (3,000)
------------- ----------------
Total stockholders' equity 2,329,410 2,194,270
------------- ----------------
Total liabilities and stockholders' equity $ 3,250,204 $ 3,594,161
============= ================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
5
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
-------------- -------------
Revenues $ 1,805,302 $ 1,670,779
-------------- -------------
Costs and expenses:
Cost of revenues 1,109,541 971,351
Sales and marketing 108,237 57,917
General and administrative 472,803 524,980
-------------- -------------
Total costs and expenses 1,690,581 1,554,248
-------------- -------------
Operating income 114,721 116,531
Interest income 16,788 11,170
Other income (expense), net (211) 46,870
-------------- -------------
Income before tax 131,298 174,571
Provision for income tax 6,147 2,625
-------------- -------------
Net income $ 125,151 $ 171,946
============== =============
Net income per share $ 0.00 $ 0.01
============== =============
Weighted average common and common
equivalent shares outstanding 30,237,029 30,063,311
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
6
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
------------- -------------
Cash flows from operations:
Net income $ 125,151 $ 171,946
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 63,957 56,490
Stock compensation expense - 60,086
Gain on sale of equipment - (100)
Changes in assets and liabilities:
Receivables 312,883 118,337
Deposits and prepaid expenses (10,664) (3,944)
Accounts payable (100,905) 23,166
Accrued liabilities (378,192) (133,679)
------------- -------------
Net cash provided by operations 12,230 292,302
------------- -------------
Cash flows from investments:
Capitalization of software costs (2,253) (34,922)
Purchase of equipment and improvements (46,902) (38,854)
Proceeds from sale of equipment - 100
------------- -------------
Net cash used for investments (49,155) (73,676)
------------- -------------
Cash flows from financing:
Proceeds from issuance of common stock 9,989 1,439
Payments of capital lease obligations - (3,599)
------------- -------------
Net cash provided by (used for) financing 9,989 (2,160)
------------- -------------
Net increase (decrease) in cash and cash equivalents (26,936) 216,466
Cash and cash equivalents at beginning of period 1,797,892 962,724
------------- -------------
Cash and cash equivalents at end of period $ 1,770,956 $ 1,179,190
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
7
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. Interim Statements
The interim statements are unaudited and should be read in
conjunction with the statements and notes thereto contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996. In the opinion of management, these interim
statements include all adjustments, consisting of normal, recurring
adjustments, which are necessary for a fair presentation of results for
such periods. The results of operations for any interim period are not
necessarily indicative of results that may be achieved for the entire
fiscal year ending December 31, 1997.
For certain income statement amounts, prior year balances have
been reclassified to conform to the current year presentation.
2. Net Income Per Share
The number of shares of common stock used in the computation of
per share earnings for the three months ended March 31, 1997 and 1996,
is the weighted average number of shares of common and common equivalent
shares outstanding during the applicable periods. Common stock options
that are common stock equivalents are included for the three months
ended March 31, 1997 and 1996 because they are dilutive. The differences
between primary and fully diluted earnings per share are immaterial,
therefore only primary earnings per share are presented in the financial
statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per
Share, which simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion ("APBO") No. 15.
SFAS No. 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes
dilution. SFAS No. 128 also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all
entities with complex capital structures and requires a reconciliation.
Diluted earnings per share is computed similarly to fully diluted
earnings per share pursuant to APBO No. 15. SFAS No. 128 must be adopted
for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.
SFAS No. 128 requires restatement of all prior-period earnings per share
data presented. The Company has not yet quantified the effect of
adopting SFAS No. 128.
3. Contingencies - Patent Litigation
Refer to Part II Item 1. Legal Proceedings.
<PAGE>
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto.
Forward looking statements made in this section relating to recruiting
of additional employees, increase in demand for new employees, expected growth
in revenues, mix of revenues between government and commercial, anticipated new
government contracts, and the development and announcement of commercial
products involve risks and uncertainties, and actual results could differ
materially from that set forth in the forward looking statements contained
herein as a result of difficulties in recruiting, risks in government
contracting, risks relating to commercialization of products, and other risks
set forth below under "Risks and Uncertainties."
Results of Operations
Revenues
Revenues for the three months ended March 31, 1997 were $1,805,302,
versus $1,670,779 for the comparable period in 1996, an increase of 8%. The
increase is primarily due to a larger workforce performing work on existing and
new government contracts awarded during 1996 and 1997, offset by the Company's
investment in commercial software development, which did not produce revenues
during the first quarter of 1997. The Company continues to recruit additional
software engineers for its commercial software development and government
contracts. Revenues from government contracts represent substantially all of
total revenues for the three months ended March 31, 1997 and 1996. The Company
expects an increase in commercial revenues during 1997 if commercial sales of
Internet and Intranet software materialize as planned.
Costs and Expenses
Costs of revenues were $1,109,541 for the three month period ended March
31, 1997, compared to $971,351 for the three months ended March 31, 1996, an
increase of 14%. As a percent of revenues, costs rose from 58% to 61% due to
lower efficiencies resulting from the diversion of Company resources towards
development of commercial products.
Combined selling and marketing and general and administrative costs for
the three months ended March 31, 1997 were $581,040, compared to $582,897 for
the three months ended March 31, 1996. In the first quarter of 1997, the Company
incurred increased expenses related to an expanded selling and marketing
workforce, which was offset by a comparable decrease in executive stock
compensation and legal expenses. Combined selling and marketing and general and
administrative costs for the three months ended March 31, 1997 were 32% of
revenues, versus 35% of revenues for the same period in the previous year.
<PAGE>
9
Interest income was $16,788 for the three months ended March 31, 1997 versus
$11,170 for the comparable period in the previous year. Other income, net of
expenses, declined from $46,870 for the three months ended March 31, 1996 to
($211) for the first quarter of 1997. Other income in the prior year resulted
from the sale of a product line, which was sold in exchange for a note and a
royalty agreement in 1990. Income had been recognized as cash was received due
to significant uncertainties regarding payment. The note was paid in full in
late 1996.
Net income for the three months ended March 31, 1997 was $125,151,
versus $171,946 for the comparable period in 1996, or $.00 and $.01 per share.
Net income represented 7% of revenues for the three months ended March 31, 1997
and 10% of revenues for the comparable period in 1996. The decrease is due to
non-operating income received in 1996 related to the collection of the note
mentioned in the preceding paragraph. No such income was received for the
three-month period ended March 31, 1997.
Bookings and Backlog
At March 31, 1997, the expected order backlog was approximately $25
million, which consisted of (i) new orders for which work has not yet begun and
(ii) revenue remaining to be recognized on work in progress. The entire backlog
was from government customers. Approximately 44% of the backlog consists of
programs that are awarded but not yet authorized for funding. The government
normally funds a contract in incremental amounts for the tasks that are
currently in production. The Company's order backlog at December 31, 1996 was
approximately $18.5 million.
Liquidity and Capital Resources
As of March 31, 1997, unused sources of liquidity consisted of
$1,770,956 in cash and cash equivalents, a decrease of $26,936 from December 31,
1996. The decrease consisted of $12,230 provided by operations, $49,155 used for
investing, and $9,989 provided by financing. Net income for the three months
ended March 31, 1997 of $125,151, after adjustments for non-cash items such as
depreciation and amortization, provided $189,108 in cash to the Company. These
funds, in addition to collections of $312,883 in receivables, were primarily
used to pay $272,500 in scheduled bonuses to employees and $100,905 in accounts
payable. Investments consisted of purchases of $46,902 in equipment and
improvements.
The Company believes that the present level of cash and cash equivalents
is adequate to service the liquidity needs of the Company in the next twelve
months. The Company relies principally on the collection of receivables to
generate internal cash reserves. The government is capable of temporarily
disrupting the flow of cash to the Company at any time, for example, as a result
of delays associated with the annual budget process. Any judgments adverse to
the Company in the legal proceedings described in Part II Item 1 could have a
potential negative impact on the Company's short-term liquidity.
<PAGE>
10
The Company has an unsecured line of credit from a financial institution
in the amount of $1,000,000. The Company may borrow up to a maximum of 60% of
the receivable base or $1,000,000, whichever is lower. The line is subject to
certain covenants and maintenance requirements, which have been fulfilled. The
line expires in May 1997 and is expected to be renewed. The Company had not
utilized the credit line through March 31, 1997.
Management believes the Company will be able to operate in the next
twelve months without additional financing, whether in the form of borrowings or
equity capital. Successful operations in the long term should produce growth in
revenues and profitability, which may require additional financing.
Risks and Uncertainties
The majority of Teknowledge's service revenue is from government R&D
contracts, and the Company has historically been profitable in that business.
Dependence on government contracts carries risk; however, Teknowledge's
particular government customers have fared well over the past decade of budget
cutbacks in Washington. The primary uncertainty in providing services under
government contracts has been in the Company's ability to attract and retain
sufficient technical staff to meet the demands of new orders. Although the labor
market for skilled computer professionals is highly competitive, the Company
expects to meet its hiring goals. Management believes the Company has many
competitive advantages which mitigate the risks of the typical startup company.
In recent years, government services have provided the Company with a consistent
record of profits and a relatively stable base to fund future software
development. The Company believes it will continue to develop and market test
new software without a material adverse impact on its financial position or
results of operations. The Company carefully screens potential products for
development before they are released into the market. While this does not
guarantee success, it does minimize the exposure of the Company. A marketplace
success could result in further investments and additional products.
Management believes that the Internet and Intranet software market is a
significant new opportunity for growth and that the Company is in an excellent
position to convert Internet-based software developed under its government R&D
contracts into new commercial products. However, if the Internet or Intranet
market fails to develop, develops more slowly than expected, becomes saturated
with competitors, or if the Company's products do not achieve market acceptance,
the Company's commercial business, financial condition, and results of operation
may eventually be affected. There can be no assurance that commerce over the
Internet or the demand for associate systems will grow as quickly as expected,
or that any products developed or marketed by the Company will achieve market
acceptance for these purposes. The Company's products may be subject to price
erosion and marketing risks due to free client software distributed by on-line
service providers, Internet access providers, and others. There can also be no
assurance that any products developed by the Company for such new markets, even
if accepted, will generate any significant profits for the Company.
<PAGE>
11
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS
On or about August 2, 1994, Daniel R. Robusto, a former executive of the
Company, filed a suit in the Court of Common Pleas of Allegheny County,
Pennsylvania, pursuant to Pennsylvania Wage Payment and Collection Law,
alleging breach by the Company of an employment settlement agreement and the
nonpayment of severance wages of $107,307 plus liquidated damages of $26,827,
attorney fees and other court costs. The Company has responded to the initial
complaint and asserted certain counterclaims against Mr. Robusto based upon his
actions while in office. The litigation process is continuing.
On December 8, 1994, Trilogy Development Group, Inc. ("Trilogy") filed a
lawsuit in the United States District Court for the Northern District of
California against the Company. The subject matter of the case involves a
configuration systems patent owned by the Company (Bennett et al. U.S. Patent
4,591,983) and a sales configuration product of Trilogy. Trilogy is seeking a
judgment against Teknowledge that it does not infringe any claim of the Bennett
et al. patent, and for actual and punitive damages and attorney fees for
alleged unfair competition under the Lanham Act and common law for
misrepresenting Teknowledge and Trilogy's products. The Company has filed
counterclaims against Trilogy for patent infringement and for unfair
competition under the Lanham Act and common law for alleged false and
misleading statements disparaging the Bennett et al. patent.
On August 27, 1996, Teknowledge and Trilogy Development Group, Inc.
agreed to a settlement of their disputes. On August 29, 1996, Trilogy's
attorneys provided written notification to the Federal District Court that the
companies had reached a settlement. Under the agreement, Trilogy would provide
consideration to Teknowledge and Teknowledge would grant a license to Trilogy
to use the technology covered by the patent-in-suit. The agreement also
provided that all lawsuits between the parties would be dismissed and that all
previously existing debt between the parties would be canceled. The other
details of the agreement are to be kept confidential by both parties.
Nevertheless, on August 30, 1996, before formal documentation of the
settlement agreement was finalized, but after Trilogy's lawyers confirmed to
the Court in writing that the case had been settled, the U.S. District Court
entered an order granting Trilogy's motion for summary judgment invalidating
the patent. In view of the Court's order, Trilogy has taken the position that
no settlement yet exists and that it need not abide by the terms to which the
parties agreed and represented to the Court. The Company has informed Trilogy
that the Company intends to enforce the settlement agreement, and believes that
Trilogy has breached the settlement agreement. Accordingly, on September 20,
1996, the Company filed a motion to vacate the judgment in light of the prior
settlement. The Company and Trilogy engaged in discussions regarding the
settlement agreement in light of the Court's judgment; however, there is no
assurance that the parties will be able to resolve the issues without further
litigation, that the Company's motion to vacate and dismiss will be successful,
or that the Company will be able to enforce the settlement agreement.
<PAGE>
12
On September 19, 1995, Trilogy filed a suit in the Delaware Superior
Court alleging breach of contract by the Company in relation to $125,000 in
deferred payments under a 1987 agreement between BMW Vision Associates Limited
Partnership ("BMW") and American Cimflex Corporation ("ACC"), a predecessor to
the Company. The agreement provided for the sale of technology by BMW to ACC
for a consideration including certain deferred payments. In July 1995, Trilogy
acquired by assignment for $276,786 BMW's right to the remaining deferred
payments and then demanded payment of $525,000 from the Company. In September
1995, the Company paid Trilogy $400,000 in full satisfaction of the $525,000,
disclaiming the obligation to pay the balance of $125,000 which the Company
believes to be barred by statute of limitation. Trilogy filed a suit seeking
the $125,000, subsequent deferred payments, interest and attorney fees. On
August 20, 1996, the Court denied the Company's motion for partial summary
judgment on the choice of law issue, deciding that California law, instead of
Pennsylvania law, should apply to the issue of accord and satisfaction. The
Company is preparing a motion for summary judgment on its statute of
limitations defense. However, the final outcome of this litigation may be
decided by the ultimate enforceability of the settlement agreement between the
Company and Trilogy described in the preceding paragraph, which provides for
the dismissal of this lawsuit and the settlement of the underlying claim.
Management of the Company believes the above suits are without merit and
intends to defend itself vigorously. Management believes the ultimate resolution
of the above matters will not have an adverse material impact on the Company's
financial position and results of operations.
<PAGE>
13
Item 6. EXHIBITS AND REPORTS
(a) Exhibits:
Set forth below is a list of all exhibits filed herewith or
incorporated by reference as part of this Quarterly Report on Form 10-QSB.
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of Teknowledge
Corporation (6)
3.2 Amended and Restated Bylaws of Teknowledge Corporation (10)
3.3 Certificate of Designation, Preferences and Rights of the Terms of the
Series A Preferred Stock (8)
4.1 Rights Agreement dated January 29, 1996 between the Company and
Registrar and Transfer Company as Rights Agent (8)
10.1 Cimflex Teknowledge Corporation 1989 Stock Option Plan (9)
10.2 Development Agreement Amendment, dated December 22, 1987, between
American Cimflex Corporation and Ford Motor Company (1)
10.3 License Agreement, dated February 11, 1987, between American Cimflex
Corporation and BMW Technologies, Inc. (1)
10.4 Technology Sale and Stock Purchase Agreement, dated February 11, 1987,
between American Cimflex Corporation and BMW Vision Associates Limited
Partnership (1)
10.5 Stock Option Agreement, effective as of September 1, 1988, between
American Cimflex Corporation and Romesh T. Wadhwani (1)
10.6 Amendment to Stock Option Agreement, dated November 30, 1988, between
American Cimflex Corporation and Romesh T. Wadhwani (1)
10.7 Lease, dated March 30, 1989, between American Automated Factories,
Inc. and Third Copley-Franklin Trust (2)
10.8 Purchase and Sales Agreement, dated September 13, 1990, between
Cimflex Teknowledge Corporation, PaineWebber R&D Partners L.P. and Applied
Diagnostics, Inc. (3)
10.9 Employment Agreement, dated as of December 13, 1990, between Cimflex
Teknowledge Corporation and Daniel R. Robusto (3)
10.10 Asset Purchase Agreement, dated December 14, 1990, between American
Automated Factories, Inc. and Control Automation, Inc. (3)
<PAGE>
14
10.11 Lease, dated June 10, 1991, between Cimflex Teknowledge Corporation
and Pittsburgh Great Southern Company (3)
10.12 Amended Employment Agreement, dated as of January 21, 1992, between
Cimflex Teknowledge Corporation and Daniel R. Robusto (3) Exhibit No.
Description
10.13 Settlement Agreement, General Release, and Waiver of Claims, dated
November 21, 1992, between Daniel R. Robusto and Cimflex Teknowledge Corporation
(4)
10.14 Settlement Agreement, dated May 21, 1993, between Cimflex Teknowledge
Corporation and Third Copley-Franklin Trust (5)
10.15 Settlement Agreement, dated September 1, 1993, between Cimflex
Teknowledge Corporation and Pittsburgh Great Southern Company (5)
10.16 Settlement Agreement, dated December 15, 1993, between Cimflex
Teknowledge Corporation and Heitman Michigan Trustee I Corporation (5)
10.17 Change of Control Agreement, dated November 21, 1994, between
Teknowledge Corporation and Frederick Hayes-Roth and Neil Jacobstein (7)
27 Financial Data Schedule
References
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, as
amended, for the fiscal year ended December 31, 1993.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1994.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 1994.
(8) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
February 12, 1996, related to the adoption of a Shareholder Rights Agreement
dated January 29, 1996.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 1995.
(10) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB, for
the quarter ended March 31, 1996.
(b) Reports on Form 8-K
None.
<PAGE>
15
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TEKNOWLEDGE CORPORATION
(Registrant)
/s/ Frederick Hayes-Roth Chairman of the Board April 14, 1997
Frederick Hayes-Roth of Directors and
Chief Executive Officer
(Principal Executive
Officer)
/s/ Neil A. Jacobstein President and Chief April 14, 1997
Neil A. Jacobstein Operating Officer
/s/ Dennis A. Bugbee Director of Finance, April 14, 1997
Dennis A. Bugbee Treasurer and Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,770,956
<SECURITIES> 0
<RECEIVABLES> 976,520
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,819,592
<PP&E> 3,243,335
<DEPRECIATION> 2,917,703
<TOTAL-ASSETS> 3,250,204
<CURRENT-LIABILITIES> 902,489
<BONDS> 0
<COMMON> 262,052
0
0
<OTHER-SE> 2,067,358
<TOTAL-LIABILITY-AND-EQUITY> 3,250,204
<SALES> 0
<TOTAL-REVENUES> 1,805,302
<CGS> 0
<TOTAL-COSTS> 1,690,581
<OTHER-EXPENSES> 1,625,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 131,298
<INCOME-TAX> 6,147
<INCOME-CONTINUING> 125,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,151
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
