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                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 10-KSB/A
                                (Amendment No. 1)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [Fee Required]

                    For the fiscal year ended December 31, 1997

[   ] TRANSITION REPORT PURSUANT TO 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
           (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) (Zip Code)

                    Issuer's telephone number: (650)424-0500

         Securities registered pursuant to Section 12 (b) of the Act: None

            Securities registered pursuant to Section 12 (g) of the Act:

                     Common Stock, $.01 par value per share

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[ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $11,094,930

The aggregate  market value of Common Stock,  $.01 par value per share,  held by
non-affiliates of the registrant was $18,018,715 on March 23, 1998 (based on the
average  bid and ask price per  share of Common  Stock on that date as  reported
over-the-counter by the National Quotation Bureau).  Shares of Common Stock held
by each  officer  and  director  and by each  person  who owns 5% or more of the
outstanding  common stock have been  excluded in that such persons may be deemed
to be affiliates.  This  determination  of  affiliate  status is not necessarily
a conclusive determination for other purposes.

On March 23, 1998, there were 24,082,714  shares of Common Stock, $.01 par value
per share, of the registrant outstanding.

                       Documents Incorporated by Reference
      Proxy Statement for the 1998 Annual Meeting of Stockholders Part III

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Item 13. Exhibits and Reports on Form 8-K

(a)(3):  Exhibits

        Set forth below is a list of all exhibits filed herewith or incorporated
by reference as part of this Annual Report on Form 10-KSB.

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 (8)

   4.1       Rights Agreement dated January 29, 1996 between the Company and
             Registrar and Transfer Company as Rights Agent (8)

  10.1       Teknowledge Corporation 1989 Stock Option Plan (7)

  10.2       Amendment to Stock Option Agreement, dated November 30, 1988,
             between American Cimflex Corporation and Romesh T. Wadhwani (1)

  10.3       Amended Employment Agreement, dated as of January 21, 1992, between
             Cimflex Teknowledge Corporation and Daniel R. Robusto (2)

  10.4       Settlement Agreement, General Release, and Waiver of Claims, dated
             November 21, 1992, between Daniel R. Robusto and Cimflex
             Teknowledge Corporation (3)

  10.5       Settlement Agreement, dated May 21, 1993, between Cimflex
             Teknowledge Corporation and Third Copley-Franklin Trust (4)

  10.6       Settlement Agreement, dated September 1, 1993, between Cimflex
             Teknowledge Corporation and Pittsburgh Great Southern Company (4)

  10.7       Change of Control Agreement, dated November 21, 1994, between
             Teknowledge Corporation and Frederick Hayes-Roth and Neil
             Jacobstein (6)

  23.1       Consent of Arthur Andersen LLP, independent public accountants

  27.1       Financial Data Schedule for year end 1997

  27.2       Financial Data Schedules for year ends 1995, 1996
             and quarters 1, 2 and 3 of 1996

  27.3       Financial Data Schedules for quarters 1, 2 and 3 of 1997

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                                   SIGNATURES

      In  accordance  with  the  requirements  of  Section  13 or  15(d)  of the
Securities  Exchange Act of 1934,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                          Teknowledge Corporation


Date:  March 30, 1998                     By:   /s/ Frederick Hayes-Roth
                                                ------------------------
                                                Frederick Hayes-Roth
                                                Chairman of the Board of
                                                Directors

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

           Name                        Capacity                     Date
           ----                        --------                     ----

/s/ Frederick Hayes-Roth           Chairman of the Board         March 30, 1998
---------------------------        of Directors and
Frederick Hayes-Roth               Chief Executive Officer
                                   (Principal Executive
                                   Officer)

/s/ Neil A. Jacobstein             President, Chief Operating    March 30, 1998
---------------------------        Officer and Director
Neil A. Jacobstein

/s/ Dennis A. Bugbee               Director of Finance,          March 30, 1998
---------------------------        Treasurer and Secretary
Dennis A. Bugbee                   (Principal Financial and
                                   Accounting Officer)

/s/ Lawrence Druffel               Director                      March 30, 1998
---------------------------
Lawrence Druffel

/s/ General Robert T. Marsh        Director                      March 30, 1998
---------------------------
General Robert T. Marsh

/s/ William G. Roth                Director                      March 30, 1998
---------------------------
William G. Roth

/s/ James C. Workman               Director                      March 30, 1998
---------------------------
James C. Workman