<PAGE>
1
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 June 30, 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 July 29, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 23,842,674 Shares
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2
TABLE OF CONTENTS
Page No.
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996...................................... 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 1997 and 1996................ 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 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 4. Submission of Matters to a Vote of Security Holders........ 11
Item 6. Exhibits and Reports on Form 8-K........................... 12
Signatures................................................................ 14
<PAGE>
3
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. FINANCIAL STATEMENTS
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1997 1996
--------------- ----------------
Current assets:
Cash and cash equivalents $ 1,482,032 $ 1,797,892
--------------- ----------------
Receivables
Customer - billed, net of
allowance of $10,000 1,820,356 1,198,488
Customer - unbilled 130,844 80,695
Others - 10,220
--------------- ----------------
Total receivables 1,951,200 1,289,403
--------------- ----------------
Deposits and prepaid expenses 106,478 61,452
--------------- ----------------
Total current assets 3,539,710 3,148,747
--------------- ----------------
Capitalized software, net of accumulated
amortization of $710,433
($675,209 - December 31, 1996) 99,867 126,001
--------------- ----------------
Fixed Assets, at cost
Computer and other equipment 2,558,443 2,429,888
Furniture and fixtures 7,644 -
Leasehold improvements 792,416 766,545
--------------- ----------------
3,358,503 3,196,433
Less accumulated depreciation and
amortization (2,953,799) (2,877,020)
--------------- ----------------
Net fixed assets 404,704 319,413
--------------- ----------------
Total assets $ 4,044,281 $ 3,594,161
=============== ================
The accompanying notes are an integral part of these financial statements.
<PAGE>
4
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
1997 1996
------------- ----------------
Current liabilities:
Accounts payable $ 375,966 $ 209,762
Payroll and related 591,619 431,330
Other 404,908 686,062
------------- ----------------
Total current liabilities 1,372,493 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 1,390,798 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 26,205,643 and
26,096,770 shares at June 30, 1997 and
December 31, 1996, respectively 262,052 260,963
Additional paid-in capital 2,176,698 1,992,798
Retained earnings (deficit) since January 1,
1993 (following quasi-reorganization) 1,223,489 (56,491)
Treasury stock, 2,362,969 and 24,000 shares
at June 30, 1997 and December 31, 1996,
respectively (1,008,756) (3,000)
------------- ----------------
Total stockholders' equity 2,653,483 2,194,270
------------- ----------------
Total liabilities and stockholders' equity $ 4,044,281 $ 3,594,161
============= ================
The accompanying notes are an integral part of these financial statements.
<PAGE>
5
TEKNOWLEDGE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,481,827 $ 1,662,054 $ 4,287,129 $ 3,332,833
--------------- -------------- -------------- --------------
Costs and expenses:
Cost of revenues 1,735,054 924,236 2,844,595 1,895,587
Sales and marketing 197,661 93,092 305,898 151,009
General and administrative 499,766 533,785 972,569 1,058,765
Research and development 24,113 - 24,113 -
--------------- -------------- -------------- --------------
Total costs and expenses 2,456,594 1,551,113 4,147,175 3,105,361
--------------- -------------- -------------- --------------
Operating income 25,233 110,941 139,954 227,472
Interest income 23,122 11,223 39,910 22,393
Other income and expense, net 1,109,458 33,180 1,109,247 80,050
--------------- -------------- -------------- --------------
Income before tax 1,157,813 155,344 1,289,111 329,915
Provision for income tax 2,984 2,625 9,131 5,250
--------------- -------------- -------------- --------------
Net income $ 1,154,829 $ 152,719 $ 1,279,980 $ 324,665
=============== ============== ============== ==============
Net income per share $ 0.04 $ 0.01 $ 0.04 $ 0.01
=============== ============== ============== ==============
Weighted average common
and common equivalent
shares outstanding 29,179,184 30,505,030 29,708,107 30,284,171
=============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
6
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
1997 1996
------------- -------------
Cash flows from operations:
Net income $ 1,279,980 $ 324,665
Adjustments to reconcile net income to net cash
used for operations:
Depreciation and amortization 113,319 108,787
Noncash portion of other income from
Trilogy settlement (1,005,757) -
Stock compensation expense - 120,173
Gain on sale of fixed assets - (100)
Changes in assets and liabilities:
Receivables (661,797) 333,074
Deposits and prepaid expenses (45,026) (28,505)
Accounts payable 166,204 (5,135)
Accrued liabilities (1,613) (191,276)
------------- -------------
Net cash provided by (used for)operations (154,690) 661,683
------------- -------------
Cash flows from investing activities:
Capitalization of software costs (9,090) (47,511)
Purchase of fixed assets (162,070) (88,733)
Proceeds from sale of fixed assets - 100
------------- -------------
Net cash used for investing activities (171,160) (136,144)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,990 5,633
Payments of capital lease obligations - (3,599)
------------- -------------
Net cash provided by financing activities 9,990 2,034
------------- -------------
Net increase (decrease) in cash and cash equivalents (315,860) 527,573
Cash and cash equivalents at beginning of period 1,797,892 962,724
------------- -------------
Cash and cash equivalents at end of period $ 1,482,032 $ 1,490,297
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
7
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Interim Statements
The interim statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
However, the Company believes that the disclosures are adequate to make
the information presented not misleading. These interim statements
should be read in conjunction with the financial statements and the
notes thereto included 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 presented herein 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
Net income per share is calculated by dividing net income by
the weighted average shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents
consist of shares issuable upon the exercise of outstanding common
stock options. Fully diluted net income per share is substantially the
same as reported primary net income per share.
3. Commitments and contingencies
Refer to Part II Item 1. Legal Proceedings.
4. New accounting standards
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No.
128, "Earnings per Share", which will be adopted by the Company in the
fourth quarter of 1997. SFAS No. 128 requires companies to compute net
income per share under two different methods, basic and diluted, and to
disclose the methodology used for the calculation. If SFAS No. 128 had
been applied by the Company, basic net income per share would have been
$.05 each for the three months and six months ended June 30, 1997, and
$.01 each for the comparable periods in 1996. Diluted net income per
share would have been $.04 each for the three months and six months
ended June 30, 1997, and $.01 each for the comparable periods in 1996.
In February 1997, FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which will be adopted by the
Company in the fourth quarter of 1997. SFAS No. 129 requires companies
to disclose certain information about their capital structure. The
Company does not anticipate that SFAS No. 129 will have a material
impact on its financial position, results of operations, or cash flows.
<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 and six months ended June 30, 1997
improved to $2,481,827 and $4,287,129, an increase of 49% and 29%, respectively,
over the comparable periods in 1996. Nearly all of the revenues in 1997 and 1996
were sponsored by agencies of the Federal Government. During the quarter, the
Company recorded its first sale of Sales Associate(TM) to the Rapid Response
Manufacturing (RRM) consortium. Service revenues were enhanced by a 29% growth
in the workforce during the second quarter of 1997 and a 40% growth in headcount
between comparable quarters in 1997 and 1996. The Company still has a number of
open positions to fill, but the growth in the workforce is expected to slow down
later in the year as the overall services headcount approaches targeted staffing
levels.
Costs and Expenses
Cost of revenues were $1,735,054 and $2,844,595 for the three months
and six months ended June 30, 1997, a growth of 88% and 50%, respectively, over
the comparable periods in 1996. The Company experienced a significant increase
in labor and related costs as it continued to expand its technical workforce by
40% between comparable quarters in 1997 and 1996. The growth of the workforce
has a direct positive effect on revenues from our cost-plus-fixed-fee government
contracts. As a percent of revenues, cost of revenues rose from 56% and 57% for
the three months and six months ended June 30, 1996, to 70% and 66% for the
three months and six months ended June 30, 1997. Due to the rapid growth of the
technical staff, the relationship between cost of revenues and administrative
costs has changed. Cost of revenues now accounts for a larger portion of total
costs, representing 71% and 69% of total costs for the three months and six
months ended June 30, 1997, compared to 60% and 61% for the three months and six
months ended June 30, 1996.
Combined sales and marketing and general and administrative costs for
the three months and six months ended June 30, 1997 were $697,427 and
$1,278,467, compared to $626,877 and $1,209,774 for the three months and six
months ended June 30, 1996. These costs were essentially unchanged between
years, reflecting the Company's conscious effort to hold administrative costs
down as it grew. The Company incurred increased expenses related to recruiting
and an expanded sales and marketing workforce, which was offset by a comparable
decrease in executive stock compensation costs and legal expenses. Combined
sales and marketing and general and administrative costs for the three months
and six months ended June 30, 1997 were 28% and 30% of revenues, versus 38% and
36% of revenues for the same periods in the previous year. These reductions were
mirrored by the increase of cost of revenues as a percentage of revenues
discussed in the preceding paragraph. As the Company's revenues continue to
increase, the percentage of costs attributable to technical versus
administrative activities is expected to continue to increase.
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9
Interest income was $23,122 and $39,910 for the three months and six
months ended June 30, 1997 versus $11,223 and $22,393 for the comparable periods
in the previous year. Other income, net of expenses, increased from $33,180 and
$80,050 for the three months and six months ended June 30, 1996 to $1,109,458 &
$1,109,247 for the same periods in the current year. The increase was primarily
attributable to the settlement of all outstanding lawsuits and debts between the
Company and Trilogy Development Group, Inc ("Trilogy"). In return for granting
to Trilogy a license to the Company's United States Patent 4,591,983, the
Company received 2,338,969 shares of Company stock with a fair value of
$1,000,000, and $400,000 in cash. The transaction contributed $1,145,618 to
other income, net of legal fees. Other income totaling $70,000 from the sale of
a product line was recorded for the six months ended June 30, 1996. The note was
paid in full in late 1996, and the income stream stopped at that time.
Net income for the three months and six months ended June 30, 1997 was
$1,154,829 and $1,279,980, or $0.04 per share each, versus $152,719 and $324,665
for the comparable periods in 1996, or $.01 per share each. During the quarter,
the Company established a $100,000 contract reserve for possible overhead rate
adjustments that directly affected income. This reserve may be used to offset
revenue adjustments due to deviations between actual and estimated overhead
rates should the need arise. Net income represented 47% and 30% of revenues for
the three months and six months ended June 30, 1997 and 9% and 10% for the
comparable periods in 1996. The increase in net income in 1997 was due to other
income recorded for the aforementioned legal settlement.
Bookings and Backlog
At June 30, 1997, the expected order backlog from government customers
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. Approximately 31% 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 June 30, 1997, unused sources of liquidity consisted of
$1,482,032 in cash and cash equivalents, a decrease of $315,860 from December
31, 1996. The decrease consisted of $154,690 used for operations, $171,160 used
for investing activities, and $9,990 provided by financing activities. The
increase of $661,797 in receivables more than offset net income (after
adjustments for noncash items) and the increase in accounts payable, resulting
in negative cash flows from operations. The increase in receivables was
primarily due to the slowdown of government payments on contracts towards the
end of the period. However, the Company has collected a substantial portion of
the receivable balance from the government subsequent to the end of the quarter.
The Company's primary investing activities were the purchase of fixed assets and
the capitalization of software development costs.
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.
The Company has an unsecured line of credit from a financial
institution in the amount of $1,500,000. The Company may borrow up to the lower
of 60% of the receivable base or $1,500,000, at a rate of one percent over the
Wall Street Journal Prime. The line is subject to certain covenants and
maintenance requirements, which have been fulfilled. The line expires in June
1998. The Company had not utilized the credit line through June 30, 1997.
<PAGE>
10
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
Teknowledge's service revenue is currently derived primarily 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 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 for 1997. 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 to the
Company. A marketplace success could result in further investments and
additional products.
The Company believes that the Internet and Intranet software market
offers 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 operations may eventually be adversely affected.
All of the Company's government contracts are the cost-plus-fixed-fee
type. Revenues, costs and earnings on government contracts are determined based
on estimated overhead rates derived from forecasted annual costs. The Company's
actual experience in headcount growth, billable efficiency, and costs may vary
from those forecasted and necessitate adjustments of estimated overhead rates.
Such adjustments are made on a cumulative basis whereby the resulting revenue
and income effects are recognized in the period of the adjustments.
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11
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS
On May 15, 1997, the Company and Trilogy Development Group, Inc.
("Trilogy") agreed to a settlement of all outstanding lawsuits and debts between
the companies. On May 19, 1997, in consideration of the settlement agreement,
the United States District Court for the Northern District of California vacated
its previous summary judgment against the Company. The Settlement Agreement,
License Agreement, and Mutual Release (the "Agreement") specifies that the
Company immediately grant to Trilogy a non-exclusive, royalty-free license to
its United States Patent 4,591,983 in exchange for 2,338,969 shares of Company
stock, which the Company valued at $1,000,000, and $400,000 in cash. The
Agreement also provided for the transfer of certain proxy rights to the Company
and other consideration, including the orderly disposal of Trilogy's remaining
stock ownership of approximately 900,000 shares in open market transactions
through May 14, 1998.
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 Management of the Company believes this suit is without merit and intends to
defend itself vigorously. Management believes the ultimate resolution of this
suit will not have an adverse material impact on the Company's financial
position and results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on June 18, 1997.
A proposal to elect two directors of the Company to serve for a
three-year term was approved by stockholders. This proposal received the
following votes:
For Withheld Abstain
Dr. Frederick Hayes-Roth 18,310,871 120,927 -
Gen. Robert T. Marsh (ret.) 18,237,392 194,406 -
The following directors continue:
Neil A. Jacobstein
William G. Roth
James Workman
In addition, stockholders ratified selection of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal year ending December
31, 1997. This proposal received the following votes:
For Against Abstain
Arthur Andersen 18,369,685 21,775 40,338
<PAGE>
12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(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 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)
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)
<PAGE>
13
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
Current report on Form 8-K dated June 16, 1997, related to the
settlement agreement, license agreement and mutual release between the Company
and Trilogy Development Group, Inc.
<PAGE>
14
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 August 13, 1997
- ------------------------ of Directors and Chief
Frederick Hayes-Roth Executive Officer
(Principal Executive
Officer)
/s/ Neil A. Jacobstein President and Chief August 13, 1997
- ------------------------ Operating Officer
Neil A. Jacobstein
/s/ Dennis A. Bugbee Director of Finance, August 13, 1997
- ------------------------ Treasurer and Secretary
Dennis A. Bugbee (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,482,032
<SECURITIES> 0
<RECEIVABLES> 1,961,200
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,539,710
<PP&E> 3,358,503
<DEPRECIATION> 2,953,799
<TOTAL-ASSETS> 4,044,281
<CURRENT-LIABILITIES> 1,372,493
<BONDS> 0
<COMMON> 262,052
0
0
<OTHER-SE> 2,391,431
<TOTAL-LIABILITY-AND-EQUITY> 4,044,281
<SALES> 0
<TOTAL-REVENUES> 4,287,129
<CGS> 0
<TOTAL-COSTS> 4,147,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,289,111
<INCOME-TAX> 9,131
<INCOME-CONTINUING> 1,279,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,279,980
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
