<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 March 31, 1999
[ ] 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 [ ] No [X]
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 27, 1999
---------------------------- -------------------------------
Common Stock, $.01 par value 4,970,651 Shares
<PAGE>
2
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998...................................... 3
Consolidated Statements of Operations and Comprehensive
Income for the three months ended March 31, 1999 and 1998.. 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998.............................. 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 6. Exhibits and Reports on Form 8-K........................... 12
Signatures................................................................ 13
<PAGE>
3
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. FINANCIAL STATEMENTS
TEKNOWLEDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,923,606 $ 2,378,390
------------- ------------
Receivables:
Customer - billed, net of allowance of $10,000 2,486,710 2,471,242
Customer - unbilled 476,627 62,541
------------- ------------
Total receivables 2,963,337 2,533,783
------------- ------------
Deferred tax asset, short-term 400,000 400,000
Deposits and prepaid expenses 103,638 116,255
------------- ------------
Total current assets 5,390,581 5,428,428
------------- ------------
Capitalized software development costs, net of accumulated
amortization of $34,793 and $11,562, respectively 246,390 267,206
------------- ------------
Fixed assets, at cost
Computer and other equipment 2,970,358 2,939,274
Furniture and fixtures 112,647 112,647
Leasehold improvements 838,398 838,398
------------- ------------
3,921,403 3,890,319
Less accumulated depreciation and amortization (3,455,669) (3,385,942)
------------- ------------
465,734 504,377
------------- ------------
Deferred tax asset, long-term 500,000 500,000
------------- ------------
Total assets $ 6,602,705 $ 6,700,011
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 418,156 $ 661,321
Payroll and related liabilities 609,763 678,514
Other accrued liabilities 214,029 267,863
------------- ------------
Total current liabilities 1,241,948 1,607,698
------------- ------------
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 25,000,000
shares, issued and outstanding 4,969,339 shares 49,693 49,550
Additional paid-in capital 1,670,736 1,553,980
Retained earnings since January 1, 1993
(following quasi-reorganization) 3,640,328 3,488,783
------------- ------------
Total stockholders' equity 5,360,757 5,092,313
------------- ------------
Total liabilities and stockholders' equity $ 6,602,705 $ 6,700,011
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
4
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
3 Months ended March 31,
1999 1998
Revenues $ 2,790,644 $ 3,069,930
---------- -----------
Costs and expenses:
Cost of revenues 1,655,107 1,967,750
General and administrative 629,819 605,665
Sales and marketing 130,677 111,461 *
Research and development 148,676 182,195 *
---------- -----------
Total costs and expenses 2,564,278 2,867,071
---------- -----------
Operating income 226,366 202,859
Interest income 26,209 24,148
---------- -----------
Income before taxes 252,575 227,007
Provision for income taxes 101,030 7,200
---------- -----------
Net income and comprehensive income $ 151,545 $ 219,807
========== ===========
Net income per share:
- Basic $ 0.03 $ 0.05
========== ===========
- Diluted $ 0.03 $ 0.04
========== ===========
Shares used in computing net income per share:
- Basic 4,961,169 4,823,897
========== ===========
- Diluted 5,919,681 5,644,692
========== ===========
* Amounts were reclassified to conform to current presentation.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
5
TEKNOWLEDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
3 Months Ended March 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 151,545 $ 219,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 92,958 75,141
Noncash portion of income tax provision 90,000 -
Changes in assets and liabilities:
Receivables (429,554) 101,018
Deposits and prepaid expenses 12,617 (27,690)
Accounts payable (243,165) (50,606)
Accrued liabilities (122,585) (162,494)
---------- -----------
Net cash provided by (used for) operating activities (448,184) 155,176
---------- -----------
Cash flows from investing activities:
Capitalization of software development costs (2,415) -
Purchase of fixed assets (31,084) (79,638)
---------- -----------
Net cash used for investing activities (33,499) (79,638)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 26,899 11,929
Redemption of fractional shares from reverse stock split - -
---------- -----------
Net cash provided by financing activities 26,899 11,929
---------- -----------
Net increase (decrease) in cash and cash equivalents (454,784) 87,467
Cash and cash equivalents at beginning of year 2,378,390 2,172,235
---------- -----------
Cash and cash equivalents at end of year $ 1,923,606 $ 2,259,702
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
6
TEKNOWLEDGE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
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, 1998. 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, 1999.
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.
The Company has effected a one-for-five reverse stock split on
December 22, 1998. All share and per share data has been retroactively
restated to reflect the effect of the reverse stock split. Since there was
no change in per share par value, aggregate par value has also been
retroactively adjusted to reflect the reduction in the number of common
stock.
<PAGE>
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 expanding Internet
software and services business. Virtually all of Teknowledge's government and
commercial projects involve processing application knowledge and distributing
customer solutions over the Internet. The Company's strategy for the past few
years has been to convert the software technology and skills gained in the
government R&D business into commercial business. In 1998, the percentage of
commercial revenues was 1%. In the first quarter of 1999 ("Q-1"), the percentage
of commercial business increased to 5%. In addition, as government contract
revenues declined in the first quarter, Teknowledge invested in training its
staff to deliver commercial 3rd party products, and in software product
development. The Company expects that this transition will take place
incrementally as the new business builds customer references and momentum. The
Company is implementing its strategy to move its primary revenue base from the
defense R&D customer base to the rapid-growth commercial applications customer
base. Teknowledge's talented technical staff, its dual-purpose software
technology base, and the exploding commercial Internet market, makes this a
viable and potentially rewarding transformation.
Teknowledge's core competencies are in E-Commerce, web-based training,
information assurance, situation assessment, and distributed systems
engineering. These core competencies are complementary and inherently
"dual-use." They help Teknowledge integrate its own proprietary software and
third party products into a total systems solution for customers in industry or
government. In Q-1, Teknowledge began selling a total systems solution to
developing E-Commerce sites. The Teknowledge Information Assurance security team
in Washington is providing the Check Point FireWall-1(TM) security expertise.
The Web-based Training team is providing some of the recent upgrades to
Teknowledge's Sales Associate(TM) product. The E-Commerce team supplied the IBM
Net.Commerce(TM) E-commerce storefront expertise and the component systems
integration work. This type of web-enabled application system supports the
integration, processing, and systematic utilization of a customer's knowledge
assets to achieve its strategic objectives. Teknowledge's business now depends
on increasing its customer's quality, speed, and efficiency of operations on the
Internet.
The exponential increase in information flowing through the World Wide
Web has placed a premium on the ability to apply knowledge to enhance the value
of information. This trend leverages Teknowledge's expertise in knowledge
processing. Knowledge has become the key enabler to providing informed sales
advice on an E-Commerce web site, or the individualized lessons in Teknowledge's
Courseware Factory project for Web-based training. In Q-1, several staff members
had dual appointments in Web-based training and E-Commerce. These two groups
began building a common software component that can be used by web servers.
Unlike the stand-alone expert system, Internet-based knowledge systems enable
new relationships between people and computers in capturing, refining,
distributing, and applying knowledge to solve business application problems.
Knowledge that was once held only by people can now be processed consistently by
a computer and distributed via a web server to millions of customers 7 days a
week, 24 hours a day. This type of "activated" knowledge can also be used by
Teknowledge's other groups, to assess situations rapidly in a crisis, defend web
sites from attack, or ensure the distribution of messages to the right people at
the right time.
In Q-1, Teknowledge continued to invest in its own Sales Associate(TM)
software that acts as an electronic sales agent for selling products on Internet
E-Commerce web sites. In order to facilitate the opportunity to install Sales
Associate(TM) on major web sites, Teknowledge has also invested in the
capability to provide total customer solutions for E-Commerce web sites. This
includes E-Commerce strategy, web design, storefront server, firewall, and
database delivery. Teknowledge has become a Premier Provider for IBM's
E-Commerce web-site storefront product called Net.Commerce(TM), and a
value-added reseller of Check Point's security Firewall-1(TM) product. In Q-1,
Teknowledge became a Microsoft Certified Solution Provider, which enables a
closer coupling to the NT versus the UNIX platform for component application
solutions. Teknowledge's customer base is expected to change significantly as
<PAGE>
8
E-Commerce related investment and customer solution capabilities increase over
the coming years.
Teknowledge has sustained its business for seventeen years. It has
reported nineteen consecutive profitable quarters. The Company maintains an
aggressive intellectual property program and defends its eight key U.S. software
patents vigorously. Teknowledge provides a challenging and collaborative
technical environment with many employee rewards. These rewards include advanced
education and training, incentive stock options, performance bonuses,
competitive salary, and an attractive benefits program. Teknowledge is
headquartered in Palo Alto, California with offices in Fairfax, Orlando, and San
Diego. The Company's stock is traded on the NASDAQ SmallCap Market under the
symbol TEKC. Teknowledge was incorporated on July 8, 1981 under the laws of the
State of Delaware.
Results of Operations
Revenues
Revenues for the three months ended March 31, 1999 were $2,790,644, a
decrease of 9% from $3,069,930 for the comparable period in 1998. Revenues in
the first quarter of 1999 were affected by two factors that contributed to lower
than expected revenues: 1) the overall demand for some government services
declined as a result of government-initiated cutbacks in the latter part of
1998, and 2) the Company diverted some of its technical employees to non-revenue
producing functions, such as, Sales Associate(TM) software development and 3rd
party VAR product training, in anticipation of an increase in demand for
commercial services in the future. Approximately 95% of the revenues earned in
the first quarter of 1999 were attributed to contracts with agencies of the
Federal Government, and the remaining 5% of revenues were commercial. While
commercial revenues were relatively small, they have increased approximately
five-fold since 1998, when commercial revenues were approximately 1% of total
revenues. The Company began work in March 1999 to develop a secured commercial
Internet web site for a financial service provider. The first phase of this
project is to be completed in June 1999, with the target date for public release
expected sometime around September 1999. This type of project is an example of a
new source of revenue for the Company. It is part of the strategy to produce
total solutions for E-Commerce web sites using a combination of 3rd party web
site and security products as well as Teknowledge's own software, such as Sales
Associate (TM).
Costs and Expenses
Cost of revenues was $1,655,107 for the three months ended March 31, 1999,
a 16% decrease from the comparable period in 1998. The cost of labor on
government contracts declined in relation to the reduced rate of production.
This was partially offset by an 8% increase in billable subcontractor and
consultant costs. Subcontractor and consultant costs were $624,372 for the first
quarter ended March 31, 1999, compared to $580,413 in the same quarter last
year. Cost of revenues as a percentage of total revenues represented 59% for the
three months ended March 31, 1999; a 5% decrease from the three months ended
March 31, 1998.
General and administrative costs for the three months ended March 31, 1999
were $629,819, a 4% increase over the first quarter in 1998. General and
administrative costs for the three months ended March 31, 1999 were 23% of total
revenues, versus 20% for the first quarter last year.
Sales and marketing costs for the three months ended March 31, 1999
increased to $130,677, or 17% from the comparable period in 1998, primarily due
to increased telemarketing efforts. Sales and marketing costs were 5% and 4% of
total revenues for the first quarter in 1999 and 1998, respectively.
Research and development ("R&D") costs for the three months ended March
31, 1999 were $148,676, an 18% decrease from the comparable period in 1998. The
three-month decrease resulted from a migration of R&D work to billable contract
work, both commercial and government. R&D costs were 6% of revenues for both the
three months ended March 31, 1999 and 1998. These figures did not include
<PAGE>
9
primary R&D conducted under contract for our customers and also did not include
software development costs that were capitalized during the period.
Interest income was $26,209 and $24,148 for the three months ended March
31, 1999 and 1998, respectively.
Income before taxes for the three months ended March 31, 1999 was
$252,575, which represented an 11% increase over the comparable period in 1998,
of $227,007. The increase was directly attributable to the expansion of the
E-Commerce business and revenue in the first quarter of 1999. Income before
taxes represented 9% and 7% of revenues, for the three months ended March 31,
1999 and 1998, respectively.
The Company has utilized essentially all tax losses generated subsequent
to the date of the quasi-reorganization, which were reflected as a reduction to
the effective tax rate and provision for income taxes, up to December 31, 1998.
Commencing 1999, realization of tax benefits existing at the date of the
quasi-reorganization is recorded as an adjustment to additional paid-in-capital.
Accordingly, the Company has increased its effective tax rate and provision for
income taxes for the first quarter of 1999. However, even with the increase in
its effective tax rate for book purposes, the Company will continue to realize
full cash savings from its extensive tax loss benefits existing at the date of
the quasi-reorganization. In short, the Company will begin to report increased
tax expenses, but will not actually pay such taxes, and there will be no effect
on the Company's cash resulting from the reported increases.
Net income for the three months ended March 31, 1999 was $151,545, or $.03
per diluted share, versus $219,807, or $.04 per diluted share, for the same
period in 1998. Net income represented 5% and 7% of revenues, for the three
months ended March 31, 1999 and 1998, respectively. Due to the aforementioned
increase in the Company's provision for income taxes, net income for the first
quarter of 1999 was reduced by approximately $100K from the comparable period in
1998.
Bookings and Backlog
At March 31, 1999, the expected multi-year contract commitments (order
backlog) from government customers were approximately $17 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 63% 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, 1998
was approximately $15 million.
Liquidity and Capital Resources
As of March 31, 1998, unused sources of liquidity consisted of $1,923,606
in cash and cash equivalents, a decrease of $454,784 from December 31, 1998. The
decrease consisted of $448,184 used by operating activities mostly in the form
of increase in unbilled receivables, $33,499 used for investing in capital
software development and fixed assets, offset by $26,899 provided by issuance of
common stock related to stock option programs. Unbilled receivables increased as
a result of a positive difference between the annualized booked and billed
overhead rates, which is typical at the early part of the year when estimates
dominate overhead rate calculations. The Company anticipates recovering the
related unbilled amounts in the near term, pending approval of a rate increase
from the government.
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 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 March 31, 1999.
<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. Future growth might require additional financing.
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 treat
date-sensitive information correctly when the year changes to 2000. The
consequences of this issue may include system failures and business process
interruption.
Although most of the hardware and software currently in use at the Company
is 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 has begun its assessment of 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 the remaining assessment 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.
Almost all of the Company's revenues are currently generated from
government R&D service contracts, the deliverable of which is sometimes a
software prototype. Under some of the contracts, the government requires from
the Company a Y2K warranty within the contracts, which generally guarantees all
software delivered under government contracts to be able to process
date-sensitive information beyond Y2K accurately, to the extent other third
party elements used in combination are Y2K compliant. In the case of
noncompliance discovered and communicated to the Company within a prescribed
timeframe, usually 90 days from acceptance of an item, remedies in the form of
repair or replacement will be made available. The Company is exposed only on
ongoing government contracts, and believes that software developed under them is
Y2K compliant.
The Company is currently addressing its exposure related to significant
third parties. Key suppliers and vendors are being identified and contacted to
determine if their operations and/or the products and services they provide to
the Company are Y2K compliant. The Company believes its financial reporting
systems are compliant. The Company plans to replace its telephone system and
upgrade its internal security system, if required, before year-end. The
Department of Defense ("DoD") is confident that payments to its contractors,
among others, will continue uninterrupted in January 2000. The DoD payment
systems are Y2K compliant and are targeted to be on Y2K compliant platforms by
the end of May 1999. Since the majority of DoD payments are made by electronic
funds transfer, systems will be tested with the Federal Reserve System and
several financial institutions in the June-July 1999 time period. The Company
intends to continue working directly with other material third parties to avoid
any business interruptions in Y2K. Where practicable, the Company will attempt
to mitigate its risks with respect to the failure of other 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.
<PAGE>
11
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 relate to the
realizability of backlog, competition for new government contracts, mix of
revenues between government and commercial, development of commercial products
and VAR services, deferred tax assets, year 2000 issues, future growth and
additional financing. All forward looking statements involve risks and
uncertainties, and actual results could differ materially from those set forth
in the forward looking statements contained herein as a result of competition,
agency funding limitations, other factors relating to government contracting,
ability to attract and retain technical and management personnel, commercial
opportunities, and other factors 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>
12
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
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 (4)
3.3 Certificate of Designation, Preferences and Rights of the Terms of
the Series A Preferred Stock (2)
4.1 Rights Agreement dated January 29, 1996 between the Company and
Registrar and Transfer Company as Rights Agent (2)
10.1 Change of Control Agreement, dated November 21, 1994, between
Teknowledge Corporation and Frederick Hayes-Roth and Neil
Jacobstein (1)
10.2 Teknowledge Corporation 1998 Stock Option Plan (3)
27 Financial Data Schedule
References
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for
the fiscal year ended December 31, 1994.
(2) 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.
(3) Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB, for
the quarter ended June 30, 1998.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB, for
the fiscal year ended December 31, 1998.
(b) The registrant did not file a report on Form 8-K during the quarter ended
March 31, 1999.
<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 May 17, 1999
- ------------------------ of Directors and Chief
Frederick Hayes-Roth Executive Officer
(Principal Executive
Officer)
/s/ Neil A. Jacobstein President and Chief May 17, 1999
- ------------------------ Operating Officer
Neil A. Jacobstein
/s/ Dennis A. Bugbee Director of Finance, May 17, 1999
- ------------------------ Treasurer and Secretary
Dennis A. Bugbee (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 1,923,606
<SECURITIES> 0
<RECEIVABLES> 2,973,337
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,390,581
<PP&E> 3,921,403
<DEPRECIATION> 3,455,669
<TOTAL-ASSETS> 6,602,705
<CURRENT-LIABILITIES> 1,241,948
<BONDS> 0
0
0
<COMMON> 49,693
<OTHER-SE> 5,311,064
<TOTAL-LIABILITY-AND-EQUITY> 6,602,705
<SALES> 0
<TOTAL-REVENUES> 2,790,644
<CGS> 0
<TOTAL-COSTS> 1,655,107
<OTHER-EXPENSES> 909,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 252,575
<INCOME-TAX> 101,030
<INCOME-CONTINUING> 151,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,545
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
