<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, 1998
[ ] 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)
(650) 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 November 5, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 24,776,074 Shares
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2
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997...................................... 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1998 and 1997.......... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997.......................... 5
Notes to Unaudited Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. ................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 11
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signatures................................................................ 13
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3
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. FINANCIAL STATEMENTS
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
Unaudited
September 30, December 31,
1998 1997
------------- -------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,571,983 $ 2,172,235
------------- -------------
Receivables:
Customer - billed, net of allowance of $10,000 1,861,654 1,949,476
Customer - unbilled 197,416 339,277
------------- -------------
Total receivables 2,059,070 2,288,753
------------- -------------
Deferred tax asset, short-term 400,000 400,000
Deposits and prepaid expenses 143,963 97,905
------------- -------------
Total current assets 5,175,016 4,958,893
------------- -------------
Capitalized software, net of accumulated
amortization of $562,709 and $623,215 225,862 27,398
------------- -------------
Fixed assets, at cost
Computer and other equipment 2,924,772 2,758,384
Furniture and fixtures 112,647 103,909
Leasehold improvements 838,398 829,904
------------- -------------
3,875,817 3,692,197
Less accumulated depreciation and amortization (3,313,431) (3,093,603)
------------- -------------
Net fixed assets 562,386 598,594
------------- -------------
Deferred tax asset, long-term 500,000 500,000
------------- -------------
Total assets $ 6,463,264 $ 6,084,885
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 540,421 $ 702,898
Payroll and related 659,432 744,934
Other accrued liabilities 301,532 477,012
------------- -------------
Total current liabilities 1,501,385 1,924,844
------------- -------------
Commitments and contingencies
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 24,544,824 and 23,982,714 shares 245,444 239,823
Additional paid-in capital 1,334,415 1,217,055
Retained earnings since January 1, 1993
(following quasi-reorganization) 3,382,020 2,703,163
------------- -------------
Total stockholders' equity 4,961,879 4,160,041
------------- -------------
Total liabilities and stockholders' equity $ 6,463,264 $ 6,084,885
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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4
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
3 Months Ended Sep 30, 9 Months Ended Sep 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 3,070,219 $ 3,367,044 $ 9,221,003 $ 7,654,173
------------- ------------- ------------- -------------
Costs and expenses:
Cost of revenues 2,226,756 2,322,902 6,191,756 5,245,658
General and administrative 497,186 584,845 1,662,536 1,557,414
Sales and marketing 123,127 111,654 627,298 339,391
Research and development (31,114) 25,377 132,502 49,490
------------- ------------- ------------- -------------
Total costs and expenses 2,815,955 3,044,778 8,614,092 7,191,953
------------- ------------- ------------- -------------
Operating income 254,264 322,266 606,911 462,220
Interest income 26,416 19,516 72,554 59,426
Other income and expense, net (11) 36,370 (660) 1,145,617
------------- ------------- ------------- -------------
Income before tax 280,669 378,152 678,805 1,667,263
Provision for income tax 7,200 6,800 (52) 15,931
------------- ------------- ------------- -------------
Net income $ 273,469 $ 371,352 $ 678,857 $ 1,651,332
============= ============= ============= =============
Net income per share:
- Basic $ 0.01 $ 0.02 $ 0.03 $ 0.07
============= ============= ============= =============
- Diluted $ 0.01 $ 0.01 $ 0.02 $ 0.06
============= ============= ============= =============
Shares used in computing net income per share:
- Basic 24,532,411 23,866,979 24,333,156 24,985,415
============= ============= ============= =============
- Diluted 28,852,744 28,078,586 28,712,620 29,164,933
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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5
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
9 Months Ended Sep 30,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income $ 678,857 $ 1,651,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 235,232 214,574
Noncash portion of other income from Trilogy Settlement - (1,005,757)
Changes in assets and liabilities:
Receivables 229,683 (804,041)
Deposits and prepaid expenses (46,058) (54,745)
Accounts payable (162,477) 271,495
Accrued liabilities (233,674) 103,553
------------- -------------
Net cash provided by operating activities 701,563 376,411
------------- -------------
Cash flows from investing activities:
Capitalization of software costs (213,868) (51,600)
Purchase of fixed assets (183,620) (368,990)
------------- -------------
Net cash used for investing activities (397,488) (420,590)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 95,673 15,375
------------- -------------
Net cash provided by financing activities 95,673 15,375
------------- -------------
Net increase (decrease) in cash and cash equivalents 399,748 (28,804)
Cash and cash equivalents at beginning of period 2,172,235 1,797,892
------------- -------------
Cash and cash equivalents at end of period $ 2,571,983 $ 1,769,088
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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6
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
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, 1997. 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 ended December 31, 1998.
2. Net Income Per Share
Net income per share is calculated in accordance with the
provision of Statement of Financial Accounting Standard (SFAS) No. 128,
"Earnings per Share," 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. Basic earning per share
is calculated by dividing net income by the weighted average shares of
common stock outstanding during the period. Diluted earning per share is
calculated by dividing net income by the weighted average shares of
outstanding common stock and common stock equivalents during the period.
Common stock equivalents consist of dilutive shares issuable upon the
exercise of outstanding common stock options.
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7
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.
Teknowledge Corporation (the "Company") is in the distributed knowledge
management business. The central value of this business is to help customers
manage their knowledge assets for competitive advantage, both inside corporate
intranets and distributed on the Internet. Teknowledge is in a unique position
to apply its core competencies in knowledge-based systems and large-scale,
distributed object-oriented software to the expanding opportunities presented by
the Internet and the World Wide Web. These core competencies have developed
through a strong software talent base, a rapidly evolving technology and
intellectual property portfolio, and a 17-year history of solving business
problems for customers. Teknowledge provides software products and consulting
services for government and commercial applications. The Company's key business
lines are: Distributed Systems Engineering, Situation Assessment & Data Fusion,
Education & Training Technologies, Command & Control & Information Security, and
Electronic Commerce ("E-Commerce") products and services. Teknowledge was
incorporated on July 8, 1981 under the laws of the State of Delaware.
Results of Operations
Revenues
Revenues for the three months and nine months ended September 30, 1998
were $3,070,219 and $9,221,003, a decrease of 9% and an increase of 20%,
respectively, over the comparable periods in 1997. During the earlier part of
this year, the Company began technical work on several new government contracts,
which was the primary cause of increased revenues during the nine-month period.
However, as a result of attrition, scheduled completion of some multi-year
contracts, and the closure of two of the Company's projects under the JFACC
program, as reported in the second quarter, revenues for the third quarter this
year were lower than that for last year. Approximately 99% of the revenues
earned in 1998 are attributed to contracts with agencies of the Federal
Government; however, Teknowledge is focusing increasing resources and attention
on commercial revenue sources, particularly in E-Commerce.
Costs and Expenses
Cost of revenues was $2,226,756 and $6,191,756 for the three months and
nine months ended September 30, 1998, a 4% decrease and an 18% increase,
respectively, over the comparable periods in 1997. The nine-month increase in
cost of revenues was primarily attributable to overall increases in labor and
subcontractor costs during the period, as the Company continued to expand its
technical workforce on new government contracts through the second quarter.
Direct billable labor and subcontractor costs increased by 22% and 32%, to
$2,114,534 and $1,936,983 for the nine months ended September 30, 1998, from the
same periods in 1997. However, cost of revenues for the three months ended
September 30, 1998 fell as a result of the decrease in subcontractor costs from
the same quarter last year. Cost of revenues as a percentage of total costs
represented 79% and 72% for the three months and nine months ended September 30,
1998, and 76% and 73% for the three months and nine months ended September 30,
1997.
General and administrative costs for the three months and nine months
ended September 30, 1998 were $497,186 and $1,662,536, a 15% decrease and a 7%
increase over the comparable periods in 1997. The three-month decrease was due
to the settlement of the lawsuit discussed at Part II Item 1 "Legal
Proceedings." The nine-month increased expenses were due to a general increase
in labor and related costs and use of information consultants. General and
administrative costs for the three months and nine months ended September 30,
1998 were 18% and 19% of total costs, versus 19% and 22% for the same periods in
the previous year.
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8
Sales and marketing costs for the three months and nine months ended
September 30, 1998 increased to $123,127 and $627,298, or 10% and 85% over the
comparable periods in 1997. The increase was primarily due to an expanded
E-Commerce sales and marketing staff in 1998. Sales and marketing costs remained
at 4% of total costs for the third quarter between 1998 and 1997 and increased
from 5% for the nine months ended September 30, 1997 to 7% for the same period
this year.
Research and development costs for the three months and nine months
ended September 30, 1998 were ($31,114) and $135,502, a 223% decrease and 168%
increase from the comparable periods in 1997. The three-month decrease resulted
from a year-to-date adjustment and a complementary general increase in
capitalized software development efforts. The overall nine-month increase was
primarily concentrated in the development of a commercial product for the
Internet. Research and development costs for the three months and nine months
ended September 30, 1998 were (1%) and 2% of total costs, versus 1% for the same
periods in the previous year. These figures did not include the large amount of
R&D conducted under contract for our customers and also did not include
development costs, which were qualified for capitalization.
Interest income was $26,416 and $72,554 for the three months and nine
months ended September 30, 1998, versus $19,516 and $59,426 for the comparable
periods of the previous year. The Company increased its cash reserves during
1998, due to increased revenues and the general improvement in its receivables
turnover. There was no significant other income and expense for the three months
and nine months ended September 30, 1998, but a settlement between the Company
and Trilogy Development Group, Inc. contributed approximately $1.1M to other
income and expense for the nine months ended September 30, 1997.
Net income for the three and nine months ended September 30, 1998 was
$273,469 and $678,857, or $.01 and $.02 per share each, versus $371,352 and
$1,651,332, or $.01 and $.06 per share each, for the same periods in 1997. Net
income represented 9% and 7% of revenue for the three and nine months ended
September 30, 1998 and 11% and 22% for the comparable periods in 1997. During
the second quarter of 1997, the Company recorded approximately $1.1M income as a
result of a patent settlement and licensing agreement with Trilogy Development
Group, Inc. for Teknowledge's Hierarchical Knowledge System Patent #4,591,983.
Bookings and Backlog
At September 30, 1998, the expected multi-year contract commitments
(order backlog) from government customers were approximately $22M, 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 82% of the backlog
consist 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, 1997
was approximately $25M.
Recently, there has been considerable turnover in management at the
Defense Advanced Research Projects Agency ("DARPA"), our biggest government
customer. The new DARPA management identifies new opportunities and reshapes
existing programs to make more money available for its strategic directions. The
Company has learned that DARPA intends to discontinue the Distributed Multi-user
Information Fusion (DMIF) project as a separate program and combine any
continuing related work with a different program called the Dynamic Data Base
(DDB). Based on the likelihood that DMIF-specific revenue will not materialize,
the Company removed $3.2M from its multi-year backlog, which currently stands at
$22M. The change in program priorities is not expected to have a material effect
on 1998 results, due to the Company's relatively high backlog and its ability to
utilize technical staff on alternate projects.
We are actively pursuing the new opportunities identified by DARPA,
while continuing to strengthen our performance on other projects that have been
identified as central to the long-term directions of the government. Our
leadership on the High Performance Knowledge Base program and the Quorum program
<PAGE>
9
for Quality of Service for distributed, real-time, Internet-based systems should
position us for significant new business opportunities in both government and
commercial markets.
The Company has cultivated several lines of business that can provide
multiple paths to economic success. The Company's new NIST Courseware Conversion
contract provides an example of our strategy. In addition to developing the
software for licensing to our partners, we plan to incorporate the technology
into our Sales AssociateTM product. The technology we develop will enable rapid
conversion of product catalogs into E-Commerce web sites. Corporations that need
quick conversion of their classroom training materials for intranet or Internet
distribution will also be able to utilize the software that we are developing.
Liquidity and Capital Resources
As of September 30, 1998, unused sources of liquidity consisted of
$2,571,983 in cash and cash equivalents, an increase of $399,748 from December
31, 1997. The increase consisted of $701,563 provided by operating activities,
$397,488 used for investing in capital software development and fixed assets,
and $95,673 provided by issuance of common stock related to stock option
programs.
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 Company may experience
periodic cashflow shortages as a result of delays associated with the
government's annual budget process.
The Company has an unsecured line of credit from a financial
institution in the amount of $2,000,000. The Company may borrow up to the lower
of 60% of the receivable base or $2,000,000, at a rate of one percent over
prime. The line is subject to certain covenants and maintenance requirements and
expires in June 1999. The Company has not utilized the credit line through
September 30, 1998.
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. As the Company's commercial business expands it may require
additional financing to sustain growth. There can be no assurance that such
financing will be available on satisfactory terms.
Year 2000
The Company is aware of and is addressing the issues associated with
the programming code in existing computer systems as the millennium ("year 2000"
or "Y2K") approaches. The key issue is whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. The
consequences of this issue may include systems failures and business process
interruption.
Although most of the hardware and software currently in use at the
Company are relatively new and expected to be Y2K compliant, the issue can
affect the Company's internal systems, including information technology (IT) and
non-IT systems. The Company is assessing the readiness of its systems for
handling Y2K, by inventorying and analyzing its centralized computer and
embedded systems to identify any potential issues. Although the assessment is
still underway, management believes that no significant remediation efforts and
compliance expenses inside the Company are necessary. The Company expects to
substantially complete validation and remediation, if any, of its internal
systems, as well as to develop contingency plans for certain internal systems,
by mid-1999. However, if implementation of remediation plans is delayed, if
significant new non-compliance issues are identified, or if contingency plans
fail, the Company's results of operations or financial condition could be
materially adversely affected.
The Company is currently addressing its exposure related to significant
third parties. Material suppliers and vendors are being identified and will be
contacted to determine if their operations and/or the products and services they
provide to the Company are Y2K compliant. Key government customers will be
<PAGE>
10
surveyed for their Y2K readiness to determine their ability to continue paying
our bills through the change to 2000, to avoid disrupted cashflows to the
Company. The Company intends to work directly with its material third parties,
if necessary, to avoid any business interruptions in Y2K. Where practicable, the
Company will attempt to mitigate its risks with respect to the failure of key
third parties to be Y2K ready, including developing contingency plans. However,
such failures, including failures of any contingency plans, remain a possibility
and could have a materially adverse impact on the Company's results of
operations or financial condition.
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. However, dependence on government contracts can be risky because
the contracts are subject to administrative, legislative, and political
interruptions, which may jeopardize the flow of funds. Another uncertainty in
providing services under government contracts is the Company's ability to
attract and retain sufficient technical staff to meet the demands of new orders.
The Company's 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 original estimates and necessitate periodic adjustments
to overhead rates and revenues. Such adjustments are made on a cumulative basis
whereby the resulting revenue and income effects are recognized in the period of
the adjustments.
The typical cost-type government contract performed by the Company has
a regulated fixed fee limit, which inhibits the Company from improving profit
margins beyond what is permitted in the government regulations. In addition,
Federal Acquisition Regulations exclude from reimbursement some "unallowable"
expenses, which the Company considers a regular part of the business.
Furthermore, almost all the Company's contracts contain termination clauses,
which permit contract termination upon the Company's default or at the
contracting party's discretion.
The Company believes the Internet and intranet software market offers a
significant new opportunity for growth and Teknowledge is in a good position to
convert Internet-based software developed under its government R&D contracts
into new commercial products. However, if the Company's E-Commerce related sales
develop more slowly than expected, or the market 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.
Forward-Looking Statements
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, year 2000 issues, 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 relating to
the development of the Internet and intranet software market, market acceptance
of the the Company's products, risks in government contracting, risks relating
to commercialization of products, and other risks set forth under "Risks and
Uncertainties" above and the section entitled "Certain Factors Which May Affect
Future Results of Operations and/or Stock Price" in the Company's Form 10-KSB.
<PAGE>
11
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS
The Company recently entered into a cash settlement agreement with Dan
Robusto, a former executive of the Company, in the amount of $80,000. The
settlement resolved all severance claims made by the former executive relating
to the 1994 lawsuit.
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 (4)
3.2 Amended and Restated Bylaws of Teknowledge Corporation (7)
3.3 Certificate of Designation, Preferences and Rights of the Terms of
the Series A Preferred Stock (6)
4.1 Rights Agreement dated January 29, 1996 between the Company and
Registrar and Transfer Company as Rights Agent (6)
10.1 Teknowledge Corporation 1998 Stock Option Plan (8)
10.2 Amended Employment Agreement, dated as of January 21, 1992, between
Cimflex Teknowledge Corporation and Daniel R. Robusto (1)
10.3 Settlement Agreement, General Release, and Waiver of Claims, dated
November 21, 1992, between Daniel R. Robusto and Cimflex
Teknowledge Corporation (2)
10.4 Settlement Agreement, dated May 21, 1993, between Cimflex
Teknowledge Corporation and Third Copley-Franklin Trust (3)
10.5 Settlement Agreement, dated September 1, 1993, between Cimflex
Teknowledge Corporation and Pittsburgh Great Southern Company (3)
10.6 Change of Control Agreement, dated November 21, 1994, between
Teknowledge Corporation and Frederick Hayes-Roth and Neil
Jacobstein (5)
27 Financial Data Schedule
<PAGE>
12
References
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, as
amended, for the fiscal year ended December 31, 1993.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1994.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for
the fiscal year ended December 31, 1994.
(6) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
February 12, 1996, related to the adoption of a 12(g) Shareholder Rights
Agreement dated January 29, 1996.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996.
(8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1998.
(b) The registrant did not file a report on Form 8-K during the quarter ended
September 30, 1998.
<PAGE>
13
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 November 12, 1998
- ------------------------ of Directors and Chief
Frederick Hayes-Roth Executive Officer
(Principal Executive
Officer)
/s/ Neil A. Jacobstein President and Chief November 12, 1998
- ------------------------ Operating Officer
Neil A. Jacobstein
/s/ Dennis A. Bugbee Director of Finance, November 12, 1998
- ------------------------ 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-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 2,571,983
<SECURITIES> 0
<RECEIVABLES> 2,069,070
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,175,016
<PP&E> 3,875,817
<DEPRECIATION> 3,313,431
<TOTAL-ASSETS> 6,463,264
<CURRENT-LIABILITIES> 1,501,385
<BONDS> 0
0
0
<COMMON> 245,444
<OTHER-SE> 4,716,435
<TOTAL-LIABILITY-AND-EQUITY> 6,463,264
<SALES> 0
<TOTAL-REVENUES> 9,221,003
<CGS> 0
<TOTAL-COSTS> 6,191,756
<OTHER-EXPENSES> 2,422,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 678,805
<INCOME-TAX> (52)
<INCOME-CONTINUING> 678,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 678,857
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.02
</TABLE>
