# UNITED STATES SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

Form 10-KSB/AAmendment No. 1

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

For the
 fiscal year ended December 31, 2004

[   ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

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 of Incorporation)       
                     
                       
            (I.R.S. Employer Identification No.)

1800 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, $0.01 Par ValueSeries A Preferred Stock Purchase Rights

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 the registrants knowledge, in definitive proxy or information statements incorporated
 by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. [  ]

State issuer's revenues for its most recent fiscal
 year: $8,221,149

The aggregate market value of Common Stock, $.01 par
 value per share, held by non-affiliates of the registrant was $6,010,584 on March 11, 2005 (based on
 the average bid and ask price per share of Common Stock on that date as reported by the Nasdaq SmallCap
 Market). 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 April 25, 2005, there were 5,735,754 shares of Common
 Stock, $.01 par value per share, of the registrant outstanding.

Introductory Note. This Amendment No. 1 on Form
 10-KSB/A amends and restates the Form 10-KSB filed by Teknowledge Corporation with the Securities and Exchange
 Commission on April 15, 2005, to update Part III.
 In addition, in connection with the filing of this Amendment No. 1 to the annual report on Form 10-KSB and pursuant
 to Rule 12b-15, the Company is including certain currently dated certifications. The remainder of the annual report
 on Form 10-KSB filed on April 15, 2005 remains unchanged.



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Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act

Directors
and Executive Officers

The
Board of Directors currently consists of four members: Neil A. Jacobstein (Chairman), Dr.
Larry E. Druffel, General Robert T. Marsh (Ret.), and Benedict OMahoney. Ivan L.
Lustig, who served as a member of the Board since 2001, resigned from the Board of
Directors on April 15, 2005. The Board of Directors is comprised of three classes of
directors, with one class of the Board being elected each year. At each annual meeting
thereafter, nominees for directors in the class whose term is expiring are voted upon, and
upon election, such director would serve a three-year term.

|                                                                 |     |                           |         
|---------------------------------------------------------------- | --- | ------------------------- | --------
|                                                                 |     | Positions                 | Director
|Name                                                             | Age | With the Company          | Since   
|                                                                 |     |                           |         
|Class II Directors whose term expires at the 2005 Annual Meeting
|                                                                 |     |                           |         
|Neil A. Jacobstein                                               | 50  | Chairman of the Board,    | 1993    
|                                                                 |     | President, and CEO        |         
|Benedict O'Mahoney                                               | 45  | V.P. Adm. & Legal Affairs | 1999    
|                                                                 |     |                           |         
|Class III Director whose term expires at the 2006 Annual Meeting
|                                                                 |     |                           |         
|Gen. Robert T. Marsh                                             | 80  | Director                  | 1987    
|                                                                 |     |                           |         
|Class I Director whose term expires at the 2007 Annual Meeting  
|                                                                 |     |                           |         
|Dr. Larry E. Druffel                                             | 64  | Director                  | 1997    

Neil
A. Jacobstein. Mr. Jacobstein, 50, has served as Chairman of the Board, Chief Executive
Officer and President of Teknowledge since November 1999. He served as President, Chief
Operating Officer, and a Director of Teknowledge from January 1993 to November 1999. Mr.
Jacobstein joined Teknowledge in 1984, and has served as Teknowledges Senior
Knowledge Engineer, Manager of the Research and Advanced Development Group, Vice President
and General Manager of Research and Advanced Systems Development, and Vice President and
General Manager of the Knowledge Systems Division. Mr. Jacobstein initiated
Teknowledges eCommerce business unit in 1996. He served on the Technology Advisory
Board of the U.S. Armys Simulation, Training, and Instrumentation Command (STRICOM)
from 1998-2000. Prior to joining Teknowledge, Mr. Jacobstein was a Graduate Research
Intern and consultant at Xerox PARC, and a Research Associate at CBNS. Since 1992, he has
served as the Chairman of the Board of Directors of the Institute for Molecular
Manufacturing, a private nonprofit organization. In 1999, Mr. Jacobstein was elected a
Henry Crown Fellow in the Aspen Institutes executive leadership program. He is the
Chairman of the American Association of Artificial Intelligences Innovative
Applications of AI Conference for 2005.

Dr. 
          Larry E. Druffel. Dr. Druffel, 64, was appointed to the Board of Directors in
          April 1997. Since 1996, he has served as President and a Director of the South
          Carolina Research Authority (SCRA), a public, non-profit, information technology
          and R&D organization. He holds a Doctorate Degree in Computer Science from
          Vanderbilt University and a Masters Degree in Computer Science from the
          University of London, and was a director of the Software Engineering Institute
          at Carnegie-Mellon University from 1986 to 1996. He is Chairman of the Board of
          the Advanced Technology Institute, a private non-profit corporation. Since 2001,
          he has served as a member of the Board of Directors of Environmental Enterprise
          Group, a private environmental clean up company.

General
Robert T. Marsh (Ret.). General Marsh (retired four-star Air Force general), 80, was
elected a director of American Cimflex Corporation (a predecessor to the Company) in 1987.
He served as Chairman of the Board of Thiokol Corporation, an aerospace and defense
contractor company, until his retirement in 1991. On April 20, 2001, General Marsh retired
as Executive Director of the Air Force Aid Society, a non-profit charitable organization
serving the Air Force community, a position he had held since 1995. In 1997, he served as
Chairman of the Presidents Commission on Critical Infrastructure Protection. General
Marsh joined the Board of SI International, a public information technology company, in
December 1998, and continues to serve on its Board. He serves as Chairman of the Board of
Verint Technology Inc., a public company in the communications industry, and he is a
trustee emeritus of MITRE Corporation, a private company specializing in information
technology. General Marsh is Chairman of the Companys Finance and Audit Committee.

2

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Benedict
OMahoney. Mr. OMahoney, 45, is Vice President of Administration and Legal
Affairs of Teknowledge. Mr. OMahoney was elected to the Board in November 1999. Mr.
OMahoney joined the Company in 1996 as Corporate Counsel and he was promoted to Vice
President of Administration and Legal Affairs in October 1999. From 1991 to 1996, Mr.
OMahoney practiced intellectual property law, and he served as General Counsel for
Slatt Mortgage Company from 1988 to 1995. Mr. OMahoney serves on the Board of
Directors of the Virtual Reality Education Foundation, a non-profit organization.

Executive Officers

Dennis  A. Bugbee, 58, has served as
Vice President of Finance,  Chief Financial Officer, and Secretary of the Company since April 2000. Mr. Bugbee
joined the Company in 1990 as the Division Controller for the Knowledge Systems Division
in Palo Alto, California. He was promoted to Director of Finance in March 1993 and shortly
thereafter to the positions of Treasurer and Corporate Secretary. Prior to joining the
Company, Mr. Bugbee held the position of Accounting Manager with TRWs Space and
Defense Sector.

The
Board of Directors has determined that none of its Audit Committee members qualifies as an
audit committee financial expert as defined under Item 401 of Regulation S-B of the
Securities Exchange Act of 1934. The Board of Directors expects to recruit a qualified
audit committee financial expert in 2005.

The
Company has adopted a Code of Ethics that applies to the Companys principal
executive officer, principal financial officer, controller, other officers and managers.
The Companys will provide a copy of the Companys Code of Ethics free of charge
to the requesting party.

Section 16(a) Beneficial
Ownership Reporting Compliance

Section
16 of the Securities Exchange Act of 1934, as amended, requires our executive officers (as
defined under Section 16), directors and persons who beneficially own greater than 10% of
a registered class of our equity securities to file reports of ownership and changes in
ownership with the SEC. We are required to disclose any failure of these executive
officers, directors and 10% stockholders to file these reports by the required deadlines.
Based solely on our review of the copies of these reports received by us or written
representations furnished to us, we believe that all filing requirements were met for the
fiscal year, except for a Form 4 reporting the grant of stock options under the Directors
Option Plan of 3,000 shares each to Messrs. Druffel, Lustig, and Marsh, which were not
timely filed as the result of a clerical error.

Item 10. Executive
Compensation

The
following table sets forth the compensation paid to the Chief Executive Officer and the
two most highly compensated executive officers of the Company whose annual salary and
bonus exceeded $100,000 for all services to the Company in the fiscal years ended December
31, 2004, 2003, and 2002.

SUMMARY COMPENSATION
TABLE

|                                  
|----------------------------------
|
|                                  
|                                  
|Name and Principal Position       
|                                  
|                                  
|Neil Jacobstein, Chair, Pres, CEO 
|                                  
|                                  
|                                  
|Benedict O'Mahoney, VP Adm & Legal
|                                  
|                                  
|                                  
|Dennis Bugbee, VP and CFO         
|                                  
|                                  
|                                  
|                                  

(1)    
          Includes 401(k) deferred compensation and 5% Company matching provision.

FISCAL YEAR-END OPTION
VALUES

The
following table provides the specified information concerning unexercised options held as
of December 31, 2004, by the persons named in the Summary Compensation Table above. There
were no exercises of options by the executive officers named in the Summary Compensation
Table above during the fiscal year ended December 31, 2004.

|                                   |  |                                                                                                         
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------
|                                  
|Name                               |  | Number of Securities
Underlying Unexercised Options at December 31, 2004 (Exercisable/Unexercisable) (#)
|                                  
|Neil Jacobstein, Chair, Pres, CEO  |  | -/-                                                                                                     
|                                  
|Benedict O'Mahoney, VP Adm & Legal |  | 72,000/-                                                                                                
|                                  
|Dennis Bugbee, VP and CFO          |  | 65,000/-                                                                                                
|                                  
|                                   | 

Directors
Compensation

Directors
Fees. Each non-employee member of the Board of Directors is entitled to receive cash
compensation totaling $10,000 per year, which is paid in quarterly increments of $2,500.
However, each non-employee member may elect to receive stock option grants in lieu of cash
compensation in accordance with the terms of the Directors Option Plan described
below. In 2004, Mr. Druffel, Mr. Lustig, and Mr. Marsh elected to receive stock option
grants in lieu of cash compensation for each fiscal quarter. Employee directors are not
compensated for their services as directors of the Company. In addition to their regular
compensation, directors are entitled to be reimbursed for related travel, lodging, and
other expenses in attending board and committee meetings.

Directors
Option Plan. The Company adopted a new Stock Option Plan for Non-Employee Directors that
was approved by the stockholders at the 2002 Annual Meeting. The Directors Plan
provides that each non-employee director shall be granted, on the date such director
becomes a director, an initial option to purchase 3,000 shares of Common Stock, and on the
date of each annual meeting thereafter, each continuing non-employee director shall be
granted an additional option to purchase 3,000 shares of Common Stock. In addition, prior
to any quarter, the Board may elect to grant stock options to each non-employee director
in lieu of the $2,500 quarterly fee for service. The number of shares subject to each
director fee option would be equal to (a) $2,500, divided by (b) the fair market value of
a share of Common Stock on the first business day of the quarter, rounded down to the
nearest whole share. Each stock option granted to a director is fully vested on the date
of grant and has an exercise price per share equal to the fair market value of a share of
Common Stock on the date of grant.

For
information regarding the compensation of executives see Executive
Compensation.

Employment Contracts and Termination of Employment and
Change of Control Arrangements

Neil
Jacobstein, Chairman of the Board, Chief Executive Officer, and President, has an
employment agreement with the Company that provides for a 2005 base salary of $187,200.
Mr. Jacobstein voluntarily reduced his salary starting in 2005 by 20% from the $234,000 he
was paid in 2004. Mr. Jacobstein is eligible for a bonus but he waived his potential
bonuses from prior years until the Company turnaround is complete. He has not
been granted stock options since 1994. Mr. Jacobsteins employment agreement includes
an incentive compensation plan that provides for additional compensation when certain
target objectives are achieved in strategic categories that have been determined and
assessed by the Board of Directors to a maximum of 120% of his annual base salary.
Mr. Jacobstein has a severance package that entitles him to severance benefits equal
to his most recent twelve-month salary and bonus. In the event of a change of control,
defined as any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, Mr. Jacobstein will be entitled to the following
severance benefits: (i) full accrued salary and vacation pay, (ii) accrued
incentive compensation awarded or determined to be awarded by the Board of Directors,
(iii) insurance coverage, (iv) retirement benefits, and (v) a lump sum
severance payment equal to two times the total cash compensation (salary and bonus) for
the previous two years.

4

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Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters

The
following table sets forth certain information concerning the beneficial ownership of
Common Stock as of April 29, 2005 by each of the directors and nominee for director of the
Company, by each of the executive officers named in the Summary Compensation Table, and by
all directors and executive officers of the Company as a group. There are no persons known
to the Company to own beneficially more than 5% of the Common Stock of the Company that are not listed below.

|                                                                                                              
|--------------------------------------------------------------------------------------------------------------
|
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Neil A. Jacobstein(4)                                                                                         
|                                                                                                              
|Dennis A. Bugbee(4)                                                                                           
|                                                                                                              
|Benedict O'Mahoney(4)                                                                                         
|                                                                                                              
|Robert T. Marsh(4)                                                                                            
|                                                                                                              
|Larry E. Druffel(4)                                                                                           
|                                                                                                              
|Henry Partners,  L.P. and Matthew Partners,
L.P,  255 South 17th  Street,  Suite  2501,
Philadelphia, PA 19103
|                                                                                                              
|All  Directors  and  Executive  Officers of                                                                   
|the Company as a Group (5 Persons)                                                                            
|                                                                                                              
|                                                                                                              

*   Less than 1%

|(1) |  | Except as otherwise  indicated,  the persons named in this table have sole voting and investment
power with respect to all shares of Common  Stock  shown as  beneficially  owned by them,  subject  to
community  property  laws,  where  applicable,  and to the information contained in the footnotes to this table.             
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | All share numbers have been adjusted to give effect to a one-for-five  reverse stock split on
December 22, 1998.  Under the rules of the Securities and Exchange  Commission,  a person is deemed to be
the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of options.              
|(3) |  | Calculated on the basis of 5,735,754  shares  outstanding  as of April 29, 2005,  provided that any
additional  shares of Common Stock that a stockholder  has the right to acquire within 60 days after
April 29, 2005 are deemed to be outstanding  for purposes of calculating that stockholder's percentage beneficial ownership.
|(4) |  | The address of all directors and executive  officers is the Company's  Executive  Offices located at
1800 Embarcadero  Road, Palo Alto, California 94303.                                                                                                                                                                            

|(5)  |  | Includes 20,000 shares owned by Mr. Jacobstein's spouse; with respect to which, Mr. Jacobstein
disclaims beneficial ownership.                                                                                  
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  |  | Includes  65,000 shares that may be purchased upon the exercise of employee stock options that are
currently  exercisable or will become exercisable within 60 days of April 29, 2005.                          
|(7)  |  | Includes  72,000 shares that may be purchased upon the exercise of employee stock options that are
currently  exercisable or will become exercisable within 60 days of April 29, 2005.                          
|(8)  |  | Includes  47,586 shares that may be purchased upon the exercise of director stock options that are
currently  exercisable or will become exercisable within 60 days of April 29, 2005.                          
|(9)  |  | Includes  39,586 shares that may be purchased upon the exercise of director stock options that are
currently  exercisable or will become exercisable within 60 days of April 29, 2005.                          
|(10) |  | The  information  regarding  the  beneficial  ownership of Henry  Partners,  L.P. and Matthew
Partners,  L.P. was obtained  from Schedule 13G filed with the Securities and Exchange Commission on
April 4, 2005
|(11) |  | Includes options for 224,172 shares that are currently exercisable or will become
                    exercisable within 60 days of April 29, 2005.                                                             

5

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EQUITY COMPENSATION
PLAN INFORMATION

The
Company currently maintains two compensation plans that provide for the issuance of Common
Stock of the Company to officers and other employees, directors, and consultants. These
consist of the 1998 Stock Option Plan (the 1998 Plan) and the 2002 Stock
Option Plan for Non-Employee Directors (the Director Plan). The following
table sets forth information regarding outstanding options and shares reserved for future
issuance under the foregoing plans as of December 31, 2004.

|                    |  |                                                                  | 
|------------------- |  | ---------------------------------------------------------------- | 
|                   
|Plan category       |  | Number of securities to be                                       | 
|                    |  | issued upon exercise of outstanding options, warrants and rights | 
|                    |  |                                                                  | 
|                    |  | (a)                                                              | 
|                   
|Equity compensation |  | 1,617,419(1)                                                     | 
|plans approved by   | 
|security holders    | 
|                   
|Total               |  | 1,617,419                                                        | 
|                   

|(1) |  | Consists
of 1,477,919 shares subject to options that are outstanding and shares
          available for future issuance under the 1998 Plan and 140,000 shares subject to
          options that are outstanding and shares available for future issuance under the
          Director Plan.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Consists of 608,537 shares that
          are reserved for issuance under the 1998 Plan
          and 8,787 shares reserved for issuance under the Director Plan. Stockholder
          approval is required to increase the number of options available under either
          plan.       

Item 13. Exhibits

(a)(3): Exhibits             Set
forth below is a list of exhibits filed herewith as part
of this Annual Report on Form 10-KSB/A.

Exhibit No. Description

|Exhibit No |  | Description                                                                                           
|---------- |  | ------------------------------------------------------------------------------------------------------
|           |  |                                                                                                       
|31.1       |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2004
|           |  |                                                                                                       
|31.2       |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2004
|           |  |                                                                                                       
|32.1       |  | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2004
|           |  |                                                                                                       
|32.2       |  | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2004

6

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Item 14. Principal
Accountant Fees and Services

The
following table sets forth the aggregate fees billed to the Company for the fiscal years
ended December 31, 2004 and December 31, 2003 by Grant Thornton LLP.

|               | Grant Thornton LLP | 
|-------------- | ------------------ | 
|               |                    | 
|               |                    | 
|               |                    | 
|Audit Fees     |                    | 
|               |                    | 
|Tax Fees       |                    | 
|               |                    | 
|All Other Fees |                    | 

The
Chairman of the Finance and Audit Committee pre-approves all audit and any permissible
non-audit services. There were no non-audit services performed in 2004. Audit fees include
quarterly and annual review of SEC filings and financial results. The preparation of
annual state and federal income tax forms is included in tax fees.

The
Finance and Audit Committee has considered the role of Grant Thornton in providing
consulting, tax services, and other non-audit services to the Company and has concluded
that such services are compatible with Grant Thorntons independence as the
Companys auditors.

7

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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: April 29, 2005 |  | By:/s/ Neil A. Jacobstein         
|                     |  | Neil A. Jacobstein                
|                     |  | Chairman of the Board of Directors
|                     |  | and Chief Executive Officer       

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/ Neil A. Jacobstein         | Chairman of the Board of Directors           | April 29, 2005
|Neil A. Jacobstein             | and Chief Executive Officer                 
|                               | (Principal Executive Officer)                |               
|                              
|                               |                                              |               
|/s/ Dennis A. Bugbee           | Vice President Finance,                      | April 29, 2005
|Dennis A. Bugbee               | Chief Financial Officer                     
|                               | (Principal Financial and Accounting Officer)
|                              
|                               |                                             
|/s/ Benedict O'Mahoney         | Director, Vice President,                    | April 29, 2005
|Benedict O'Mahoney             | Administrationand Legal Affairs             
|                              
|                               |                                              |               
|/s/ Lawrence Druffel           | Director                                     | April 29, 2005
|Lawrence Druffel              
|                              
|                               |                                              |               
|/s/ General Robert T. Marsh    | Director                                     | April 29, 2005
|General Robert T. Marsh (Ret.)
|                              
|                               |                                              |               

8

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