<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 September 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 October 28, 1997
---------------------------- -------------------------------
Common Stock, $.01 par value 23,876,314 Shares
<PAGE>
2
TABLE OF CONTENTS
Page No.
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996...................................... 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1997 and 1996.......... 5
Consolidated Statements of Cash Flows for the nine months
ended September 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. ................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 12
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)
September 30, December 31,
1997 1996
--------------- ----------------
Current assets:
Cash and cash equivalents $ 1,769,088 $ 1,797,892
--------------- ----------------
Receivables
Customer - billed, net of
allowance of $10,000 1,746,270 1,198,488
Customer - unbilled 347,174 80,695
Others - 10,220
--------------- ----------------
Total receivables 2,093,444 1,289,403
--------------- ----------------
Deposits and prepaid expenses 116,197 61,452
--------------- ----------------
Total current assets 3,978,729 3,148,747
--------------- ----------------
Capitalized software, net of accumulated
amortization of $646,251
($675,209 - December 31, 1996) 114,334 126,001
--------------- ----------------
Fixed Assets, at cost
Computer and other equipment 2,672,864 2,429,888
Furniture and fixtures 65,981 -
Leasehold improvements 826,578 766,545
--------------- ----------------
3,565,423 3,196,433
Less accumulated depreciation and
amortization (3,028,327) (2,877,020)
--------------- ----------------
Net fixed assets 537,096 319,413
--------------- ----------------
Total assets $ 4,630,159 $ 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)
September 30, December 31,
1997 1996
------------- ----------------
Current liabilities:
Accounts payable $ 481,257 $ 209,762
Payroll and related 709,233 431,330
Other 391,142 686,062
------------- ----------------
Total current liabilities 1,581,632 1,327,154
------------- ----------------
Long-term liabilities:
Provision for discontinued operations - 54,432
Other 18,305 18,305
------------- ----------------
Total long-term liabilities 18,305 72,737
------------- ----------------
Total liabilities 1,599,937 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 26,239,283 and
26,096,770 shares at September 30, 1997 and
December 31, 1996, respectively 262,389 260,963
Additional paid-in capital 2,181,748 1,992,798
Retained earnings (deficit) since January 1,
1993 (following quasi-reorganization) 1,594,841 (56,491)
Treasury stock, 2,362,969 and 24,000 shares
at September 30, 1997 and December 31, 1996,
respectively (1,008,756) (3,000)
------------- ----------------
Total stockholders' equity 3,030,222 2,194,270
------------- ----------------
Total liabilities and stockholders' equity $ 4,630,159 $ 3,594,161
============= ================
The accompanying notes are an integral part of these financial statements.
<PAGE>
5
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 3,367,044 $ 1,847,212 $ 7,654,173 $ 5,180,045
--------------- -------------- -------------- --------------
Costs and expenses:
Cost of revenues 2,322,902 1,108,721 5,245,658 3,004,308
Sales and marketing 111,654 96,102 339,391 247,111
General and administrative 584,845 499,903 1,557,414 1,558,668
Research and development 25,377 - 49,490 -
--------------- -------------- -------------- --------------
Total costs and expenses 3,044,778 1,704,726 7,191,953 4,810,087
--------------- -------------- -------------- --------------
Operating income 322,266 142,486 462,220 369,958
Interest income 19,516 14,842 59,426 37,235
Other income and expense, net 36,370 33,858 1,145,617 113,908
--------------- -------------- -------------- --------------
Income before tax 378,152 191,186 1,667,263 521,101
Provision for income tax 6,800 2,625 15,931 7,875
--------------- -------------- -------------- --------------
Net income $ 371,352 $ 188,561 $ 1,651,332 $ 513,226
=============== ============== ============== ==============
Net income per share $ 0.01 $ 0.01 $ 0.06 $ 0.02
=============== ============== ============== ==============
Weighted average common
and common equivalent
shares outstanding 28,078,586 30,530,014 29,164,933 30,366,118
=============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
6
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- -------------
Cash flows from operations:
Net income $ 1,651,332 $ 513,226
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 214,574 194,752
Noncash portion of other income from
Trilogy settlement (1,005,757) -
Stock compensation expense - 120,073
Changes in assets and liabilities:
Receivables (804,041) (25,341)
Deposits and prepaid expenses (54,745) (15,424)
Accounts payable 271,495 (82,235)
Accrued liabilities 103,553 7,700
------------- -------------
Net cash provided by operations 376,411 712,751
------------- -------------
Cash flows from investing activities:
Capitalization of software costs (51,600) (60,446)
Purchase of fixed assets (368,990) (192,327)
------------- -------------
Net cash used for investing activities (420,590) (252,773)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 15,375 7,090
Payments of capital lease obligations - (3,599)
------------- -------------
Net cash provided by financing activities 15,375 3,491
------------- -------------
Net increase (decrease) in cash and cash equivalents (28,804) 463,469
Cash and cash equivalents at beginning of period 1,797,892 962,724
------------- -------------
Cash and cash equivalents at end of period $ 1,769,088 $ 1,426,193
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
7
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
$.02 and $.07 for the three months and nine months ended September 30,
1997, and $.01 and $.02 for the comparable periods in 1996. Diluted net
income per share would have been $.01 and $.06 for the three months and
nine months ended September 30, 1997, and $.01 and $.02 for the
comparable periods in 1996.
In February 1997, the 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
adoption of SFAS No. 129 is not expected to impact the Company's
consolidated financial statements.
<PAGE>
8
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
4. New accounting standards (cont'd)
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which becomes effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 is not
expected to impact the Company's consolidated financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which becomes
effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 is not expected to impact the Company's
consolidated financial statements.
<PAGE>
9
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.
Several forward looking statements are made in this section including,
but not limited to, statements 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 nine months ended September 30, 1997
improved to $3,367,044 and $7,654,173, an increase of 82% and 48%, respectively,
over the comparable periods in 1996. Nearly all of the revenues in 1997 and 1996
were sponsored by agencies of the Federal Government. New government contracts
awarded in 1996 and 1997 contributed to the Company's substantial increase in
billable work and headcount. There was a 49% growth in the workforce between
comparable quarters in 1997 and 1996, escalating labor and related costs.
Generally, legitimate costs incurred by the Company in the performance of its
contracts are reimbursed by the government and the results are reflected in
revenues. Expansion of the workforce, a major component in the overall growth of
the Company, is expected to taper off in the fourth quarter of 1997, as
employment approaches targeted staffing levels. The Company often partners with
outside subcontractors or consultants on complex government projects. Their
support enhances the Company's ability to compete for new government contracts
against much larger companies and contributes to increased contract awards and
the revenue growth stream. So far in 1997, combined billable subcontractor and
consultant costs were $883,928 and $1,463,679 for the three months and nine
months ended September 30, 1997, compared to $145,246 and $495,168 for the three
months and nine months ended September 30, 1996.
Costs and Expenses
Cost of revenues were $2,322,902 and $5,245,658 for the three months
and nine months ended September 30, 1997, a growth of 110% and 75%,
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. The growth of the workforce coupled with increased demand
for services lead to improved revenues from our cost-plus-fixed-fee government
contracts. Subcontractor and consultant costs also increased significantly but
so did revenue from these activities. As a percent of revenues, cost of revenues
rose from 60% and 58% for the three months and nine months ended September 30,
1996, to 69% each for the three months and nine months ended September 30, 1997.
Due to the rapid growth of the technical staff, cost of revenues now accounts
for a larger portion of total costs, representing 76% and 73% of total costs for
the three months and nine months ended September 30, 1997, compared to 65% and
62% for the three months and nine months ended September 30, 1996.
Combined sales and marketing and general and administrative costs for
the three months and nine months ended September 30, 1997 were $696,499 and
$1,896,805, compared to $596,005 and $1,805,779 for the three months and nine
months ended September 30, 1996, an increase of 17% and 5%, respectively. The
Company incurred increased expenses related to recruiting, accrued bonuses, and
an expanded sales and marketing workforce, which were offset by a comparable
decrease in executive stock compensation costs and legal expenses. These costs
were relatively stable between years, reflecting the Company's effort to keep
administrative costs in check as it grows. Combined sales and marketing and
<PAGE>
10
general and administrative costs for the three months and nine months ended
September 30, 1997 were 21% and 25% of revenues, versus 32% and 35% of revenues
for the same periods in the previous year. As the Company's revenues continue to
increase, the percentage of costs attributable to administrative activities is
expected to continue to decrease.
Interest income was $19,516 and $59,426 for the three months and nine
months ended September 30, 1997 versus $14,842 and $37,235 for the comparable
periods in the previous year. Other income, net of expenses, increased from
$33,858 and $113,908 for the three months and nine months ended September 30,
1996 to $36,370 and $1,145,617 for the same periods in the current year. The
increase between years for the nine month period ended September 30 was
primarily attributable to the settlement of all outstanding lawsuits and debts
between the Company and Trilogy Development Group, Inc. ("Trilogy") during the
second quarter of 1997. 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 an estimated 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 nine months ended September 30, 1996.
Net income for the three months and nine months ended September 30,
1997 was $371,352 and $1,651,332, or $0.01 and $.06 per share, versus $188,561
and $513,226 for the comparable periods in 1996, or $.01 and $.02 per share. The
settlement from Trilogy accounted for $.04 of the per share earnings for the
nine months ended September 30, 1997. Net income represented 11% and 22% of
revenues for the three months and nine months ended September 30, 1997 and 10%
each for the comparable periods in 1996.
Bookings and Backlog
At September 30, 1997, the order backlog from government customers was
approximately $21 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 84% 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 September 30, 1997, unused sources of liquidity consisted of
$1,769,088 in cash and cash equivalents, a decrease of $28,804 from December 31,
1996. The decrease consisted of $376,411 provided by operations, $420,590 used
for investing in fixed assets and software development, and $15,375 provided by
financing activities. Net income (after adjustments for noncash items) and the
increase in accounts payable and accrued liabilities more than offset the
increase of $804,041 in receivables (billed and unbilled), resulting in positive
cash flows from operations. The billed receivables balance rose in proportion to
the growth of revenues, and the unbilled receivables balance increased as a
result of a change to an earlier billing month cutoff, representing a timing
difference only.
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
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 September 30, 1997.
<PAGE>
11
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 currently derives 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 government customers have generally not been impacted by historic
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 company in
its phase of development. In recent years, government services have provided the
Company with a relatively stable income base to fund future internal 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 a
good 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.
<PAGE>
12
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 office. The litigation process is continuing. 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.
<PAGE>
13
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 (5)
3.2 Amended and Restated Bylaws of Teknowledge Corporation (9)
3.3 Certificate of Designation, Preferences and Rights of the
Terms of the Series A Preferred Stock (7)
4.1 Rights Agreement dated January 29, 1996 between the Company
and Registrar and Transfer Company as Rights Agent (7)
10.1 Teknowledge Corporation amended 1989 Stock Option Plan (8)
10.2 License Agreement, dated February 11, 1987, between American
Cimflex Corporation and BMW Technologies, Inc. (1)
10.3 Technology Sale and Stock Purchase Agreement, dated February
11, 1987, between American Cimflex Corporation and BMW Vision
Associates Limited Partnership (1)
10.4 Stock Option Agreement, effective as of September 1, 1988,
between American Cimflex Corporation and Romesh T. Wadhwani (1)
10.5 Amendment to Stock Option Agreement, dated November 30, 1988,
between American Cimflex Corporation and Romesh T. Wadhwani (1)
10.6 Asset Purchase Agreement, dated December 14, 1990, between
American Automated Factories, Inc. and Control Automation, Inc. (2)
10.7 Amended Employment Agreement, dated as of January 21, 1992,
between Cimflex Teknowledge Corporation and Daniel R. Robusto (2)
10.8 Settlement Agreement, General Release, and Waiver of Claims,
dated November 21, 1992, between Daniel R. Robusto and Cimflex
Teknowledge Corporation (3)
10.9 Settlement Agreement, dated May 21, 1993, between Cimflex
Teknowledge Corporation and Third Copley-Franklin Trust (4)
10.10 Settlement Agreement, dated September 1, 1993, between Cimflex
Teknowledge Corporation and Pittsburgh Great Southern Company (4)
10.11 Change of Control Agreement, dated November 21, 1994, between
Teknowledge Corporation and Frederick Hayes-Roth and Neil
Jacobstein (6)
27 Financial Data Schedule
<PAGE>
14
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, 1991.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
(4) Filed as an Exhibit to the Company's Annual Report on Form
10-KSB, as amended, for the fiscal year ended December 31, 1993.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1994.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB,
for the fiscal year ended December 31, 1994.
(7) 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.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for
the fiscal year ended December 31, 1995.
(9) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB,
for the quarter ended March 31, 1996.
(b) The registrant did not file a report on Form 8-K during the quarter ended
September 30, 1997.
<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 October 28, 1997
- ------------------------ of Directors and Chief
Frederick Hayes-Roth Executive Officer
(Principal Executive
Officer)
/s/ Neil A. Jacobstein President and Chief October 28, 1997
- ------------------------ Operating Officer
Neil A. Jacobstein
/s/ Dennis A. Bugbee Director of Finance, October 28, 1997
- ------------------------ Treasurer and Secretary
Dennis A. Bugbee (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,769,088
<SECURITIES> 0
<RECEIVABLES> 2,103,444
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,978,729
<PP&E> 3,565,423
<DEPRECIATION> 3,028,327
<TOTAL-ASSETS> 4,630,159
<CURRENT-LIABILITIES> 1,581,632
<BONDS> 0
<COMMON> 262,389
0
0
<OTHER-SE> 2,767,833
<TOTAL-LIABILITY-AND-EQUITY> 4,630,159
<SALES> 0
<TOTAL-REVENUES> 7,654,173
<CGS> 0
<TOTAL-COSTS> 7,191,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,667,263
<INCOME-TAX> 15,931
<INCOME-CONTINUING> 1,651,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,651,332
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
