##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 333-106247
 REMOTE KNOWLEDGE, INC.
  Delaware
(State or other jurisdiction of incorporation 
or organization)
    
    74-1664837
(I.R.S. Employer Identification No.)3657 Briarpark, Suite 100
Houston, Texas
(Address of principal executive officers)
    
    77042(Zip Code)
    Common Stock, $.001 par value
 o
 þ o
 þ
 o þ




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##### 



Remote Knowledge, Inc.
 INDEX TO ANNUAL REPORT ON FORM 10-KSB
  
 PART IItem 1.
    
    Description of Business.
    
    
    1Item 2.
    
    Description of Property.
    
    
    7Item 3.
    
    Legal Proceedings.
    
    
    7Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    8PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters
    
    
    9Item 6.
    
    Managements Discussion and Analysis or Plan of Operation.
    
    
    10Item 7.
    
    Financial Statements.
    
    
    18Item 8.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
    
    
    19Item 8A.
    
    Controls and Procedures.
    
    
    19PART IIIItem 9.
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
    
    
    19Item 10.
    
    Executive Compensation.
    
    
    22Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
    
    
    25Item 12.
    
    Certain Relationships and Related Transactions; and Director Independence.
    
    
    29Item 13.
    
    Exhibits.
    
    
    29Item 14.
    
    Principal Accountant Fees and Services.
    
    
    33Guaranteed Bridge Loan Promissory NoteSubscription AgreementPromissory NotePromissory NoteDevelopment AgreementBridge Loan PromissoryGuaranteed Bridge Loan PromissoryExtension of Guaranteed Bridge Loan PromissoryExtension of Guaranteed Bridge Loan PromissoryRule 13a-14 CertificationRule 13a-14 CertificationSection 1350 Certification




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##### Table of Contents



PART I
 
 Item 1. Description of Business.
  Our History
  .
      Our Business Strategy
 1
    Table of Contents     Our Current Marketing Initiatives
    
    
    Creation of product positioning statement
    
    Brand identity and architecture
    
    Packaging and in-package literature
    
    Advertising and media mix
    
    Public relations
    
    Website and multi-media
    
    Sales and POS collateral
    
    Dealer and OEM merchandising
     
    
    Website content creation
    
    Development of product training materials
    
    Virtual concierge global marketing development
 2




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
    
    Commercial maritime marketing development
    
    Feasibility study support
   Our Product and Services Description
 GEO Mobile
    LEO
   
 
 
 
 
  3




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Data management
  Communication Providers
  Our capital-raising efforts
   14,986,647
    
    
    shares of common stock4,339
    
    
    shares of Series A preferred stock convertible into common stock at $0.75 per share6,504
    
    
    shares of Series B preferred stock convertible into common stock at $0.75 per share$
    3,595,000
    
    
    of debt convertible into common stock at $0.75 per share47,017,217
    
    
    warrants to purchase common stock at $0.75 per share$
    2,050,000
    
    
    of debt convertible into common stock at $0.50 per share (upon close of the 2007 private placement)4,100,000
    
    
    warrants to purchase common stock at $0.50 per share2,686,000
    
    
    warrants to purchase common stock at $0.01 to $2.00 per share
   Employees
  Research and Development
  4




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Patents
  1.
    
    Serial No. 09/863,956Filed: 05/23/01Issued: 04/01/03Expires: May 23, 2021Entitled: GPS Antenna ArrayPatent No. 6,542,119B22.
    
    Serial No. 09/835,893Filed: 04/16/01Issued: 07/13/04Patent No. 6,763,241B2Entitled: Data Communications Synchronization Using GPS Receivers3.
    
    Serial No. 09/968.746Filed: 10/01/01Entitled:
Telematics System4.
    
    Serial No. 09/758,581Filed: 01/11/01Issued: 02/28/06
Entitled: Method and System For Improving Data Transmission and
Storage of Markup Language DocumentsPatent No. 7,007,1055.
    
    Serial No. 09/966,325Filed: 09/28/01Entitled: Apparatus and Method for Efficient Live, Web casting and Network Connectivity
 -
 .
   5




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Trade secrets and copyrights
  Competition
 LEO Competition
  GPS and communications products in the marine industry:
  Remote vessel management and monitoring products in the marine industry:
  GEO Mobile Competition
  6




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
    
    ACeS
    
    Globalstar
    
    Intelsat
    
    KVH
    
    Pointshot Wireless
 Government Regulation
    
 Item 2. Description of Property
 Knowledge Bank
 
 Item 3. Legal Proceedings
    7




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Item 4. Submission of Matters to a Vote of Security Holders.
   8




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PART II
 
 Item 5. Market for Common Equity and Related Stockholder Matters
   High
    
    LowYear Ended December 31, 2005:First Quarter
    
    $
    1.01
    
    
    $
    0.62Second Quarter
    
    $
    0.90
    
    
    $
    0.53Third Quarter
    
    $
    0.71
    
    
    $
    0.35Fourth Quarter
    
    $
    0.50
    
    
    $
    0.16Year Ended December 31, 2006:First Quarter
    
    $
    0.80
    
    
    $
    0.35Second Quarter
    
    $
    1.45
    
    
    $
    0.50Third Quarter
    
    $
    1.00
    
    
    $
    0.40Fourth Quarter
    
    $
    0.64
    
    
    $
    0.35
        9




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Recent Sales of Unregistered Securities
  Date
    
    Name
    
    Security Sold
    
    
    
    Consideration10/9/06
    
    Monique G. Balaban
    
    100 Units
    
    (1)
    
    $   100,00010/10/06
    
    Douglas A. Dawson 2006 Gift Trust
    
    75 Units
    
    (1)
    
    $     75,00010/30/06
    
    Penny Bayne
    
    125 Units
    
    (2)
    
    $   125,00012/18/06
    
    Monique G. Balaban
    
    100 Units
    
    (1)
    
    $   100,00012/19/06
    
    Robert Duncan
    
    375 Units
    
    (2)
    
    $   375,00012/27/06
    
    Neil Granader
    
    100 Units
    
    (1)
    
    $   100,00012/29/06
    
    Eugene F. Morris
    
    100 Units
    
    (1)
    
    $   100,00011/13/06-12/22/06
    
    Granader Family
    
    1,550 Units
    
    (2)
    
    $1,550,000
 
 (1)
    
    These units represent an equal number of Series B Preferred shares, convertible into 1,333
common shares per unit, and warrants to purchase 4,000 shares of common stock per unit at
$0.75 per share.(2)
    
    These units represent one unsecured note convertible into 2,000 shares of common stock and a
warrant to purchase 2,000 shares of common stock at $0.50 per share.   
 Item 6. Managements Discussion and Analysis or Plan of Operation.
   We have a limited operating history in our current line of business.
  10




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Our auditors have expressed doubt regarding our ability to continue as a going concern.
    We require additional financing to continue our operations.
     We presently have only one potential source of revenue.
  11




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Our technology is new and needs to develop market acceptance.




We depend on third party satellite providers.






We depend on our suppliers to perform.






We need to be prompt in responding to technological changes and updating our products.




We may be unable to recoup future research and development costs.


12




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New products and services may not be successful.
  Products may contain defects
  
    
    delays in shipping;
    
    cancellation of orders;
    
    additional warranty and insurance expenses;
    
    delays in the collection of receivables;
    
    product returns;
    
    increased risk of litigation and liability exposure;
    
    loss of market acceptance of our products; and
    
    diversion of research and development resources from new product development.
 Poor performance or security problems by third party providers could impair our ability to service
our customers.
  Our market niche is ripe for competition.
   13




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Loss of senior management could substantially harm our business.
  Inability to hire and retain skilled personnel could substantially harm our business.
  We may be unable to protect our intellectual property and proprietary technology
   We may be accused of infringing on others intellectual property
   Our controlling shareholders may act in their own interests
 14
    Table of Contents    Directors and officers liability is limited
  Our Twelve Month Plan of Operation
      Liquidity and Future Capital Requirements
    15




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Results of Operations
        
    
    A 2005 accruals for claims and obligations was not repeated
    
    $
    (1,265,000
    )
    
    Salaries and related taxes and benefits declined reflecting the
termination of several officers in late 2005
    
    
    (243,000
    )
    
    A communication software program was eliminated in 2005
    
    
    (36,000
    )
    
    Amortization of non-employee stock option expense declined
    
    
    (112,000
    )
    
    Insurance costs declined due to better premium rates
    
    
    (72,000
    )
    
    Finder fees for new funds declined
    
    
    (36,000
    )
    
    Stock option expense recorded under 123R increased reflecting new
options granted
    
    
    1,656,000
    
    Placement fees for engineers and programmers hired in 2006
increased
    
    
    61,000
    
    Patent and trademark expenses were up
    
    
    42,000
  16




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Critical Accounting Policies
  Property and equipment
 Income taxes
 Use of estimates
 Long-lived assets
 Share-based compensation
 Accounting Pronouncements
  17




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Off Balance Sheet Arrangements
  Forward-Looking Statements
   
    
    timing of products and new product releases,
    
    research and development expenditures, including the timing, amount and nature thereof,
estimates of additional capital requirements,
    
    sales projections,
    
    repayment of debt,
    
    business strategies,
    
    product pricing and demand, and
    
    expansion and growth of business operations.
   
    
    the availability of additional financing on favorable conditions,
    
    general economic, market and business conditions,
    
    the success of our engineering efforts,
    
    our ability to protect our intellectual property,
    
    business opportunities that may be presented to and pursued by us,
    
    changes in laws or regulations,
    
    successful exploitation of our market opportunities,
    
    our ability to compete against existing or future competitors,
    
    fluctuations in the cost of production for our products, and
    
    fluctuations in the market prices for our products.
  
 Item 7. Financial Statements
  18




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Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 8A. Controls and Procedures
  
 Part III
 
 Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
 Directors and Officers
     19




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Directors term endsat the annual meetingName
    
    Age
    
    Position
    
    in the yearRandy S. Bayne
    
    
    43
    
    
    Director, President and Chief Executive Officer
    
    
    2009Richard C. Webb
    
    
    73
    
    
    Director and Chairman of the Board
    
    
    2009Henry Houston
    
    
    67
    
    
    Director, Executive VP and Chief Financial Officer
    
    
    2008Dan Granader
    
    
    58
    
    
    Director
    
    
    2008Steve Phelps
    
    
    47
    
    
    Director
    
    
    2007William H. Moody
    
    
    67
    
    
    Director
    
    
    2007
      20




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Committees
  Officers
  Section 16(a) Beneficial Reporting Compliance
  Audit Committee and Financial Expert
   Code of Ethics
  
    
    Honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships;
    
    Full, fair, accurate, timely and understandable disclosure in reports and documents that
are filed with, or submitted to, the SEC and in other public communications, made by an
issuer;
 21




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
    
    Compliance with applicable governmental laws, rules and regulations:
    
    The prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and
    
    Accountability for adherence to the code.
 
 Item 10. Executive Compensation.
  Summary Compensation Table
 NonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All otherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    compensation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Randy S. Bayne,
President, CEO, and
Director
    
    
    2006
    
    
    $
    200,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    959,658
    
    
    $
    0
    
    
    $
    0
    
    
    $
    20,444
    
    
    $
    1,180,102Henry Houston,
Vice-President,
CFO, and Director
    
    
    2006
    
    
    $
    200,000
    
    
    $
    0
    
    
    $
    29,581
    
    
    $
    479,829
    
    
    $
    0
    
    
    $
    0
    
    
    $
    4,488
    
    
    $
    713,898Mark Van Eman,
Vice-President of
Operations
    
    
    2006
    
    
    $
    151,333
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    151,333
 Outstanding Equity Awards at December 31, 2006
 Option awardsNumber of
    
    Number ofsecurities
    
    securities
    
    Equity incentive planunderlying
    
    underlying
    
    awards: number ofunexercised
    
    unexercised
    
    securities underlyingoptions
    
    options
    
    unexercised unearned
    
    Option exerciseName
    

(#) Exercisable
    

(#) Unexercisable
    
    options (#)
    
    price ($)
    
    Option expiration dateRandy S. Bayne,
President, CEO, and
Director
    
    
    1,200,000
    
    
    
    0
    
    
    
    0
    
    
    $
    1.00
    
    
    
    10/15/12Randy S. Bayne,
President, CEO, and
Director
    
    
    2,500,000
    
    
    
    0
    
    
    
    0
    
    
    $
    0.50
    
    
    
    3/28/11Henry Houston,
Vice-President,
CFO, and Director
    
    
    300,000
    
    
    
    0
    
    
    
    0
    
    
    $
    1.00
    
    
    
    10/15/12Henry Houston,
Vice-President,
CFO, and Director
    
    
    1,250,000
    
    
    
    0
    
    
    
    0
    
    
    $
    0.50
    
    
    
    3/28/11Mark Van Eman,
Vice-President of
Operations
    
    
    100,000
    
    
    
    0
    
    
    
    0
    
    
    $
    1.00
    
    
    
    10/15/12
 22




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Stock awardsNumber of
    
    Market value of
    
    Equity incentive plan awards:shares or units of
    
    shares or units of
    
    number of unearned shares,
    
    Equity incentive plan awards: market orstock that have
    
    stock that have not
    
    units or other rights that have
    
    payout value of unearned shares,units ornot vested
    
    vested
    
    not vested
    
    other rights that have not vestedName
    
    (#)
    
    ($)
    
    (#)
    
    ($)Randy S. Bayne,
President, CEO, and
Director
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    $
    0Henry Houston,
Vice-President,
CFO, and Director
    
    
    120,000
    
    
    $
    68,400
    
    
    
    0
    
    
    $
    0Mark Van Eman,
Vice-President of
Operations
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    $
    0
 Directors Compensation
 Non-qualifiedFees earned
    
    
    
    
    
    
    
    
    
    Non-equity
    
    deferredor paid in
    
    
    
    
    
    Option
    
    incentive plan
    
    compensation
    
    All othercash
    
    Stock awards
    
    awards
    
    compensation
    
    earnings
    
    compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Richard C. Webb
    
    $
    0
    
    
    $
    0
    
    
    $
    35,612
    
    
    $
    0
    
    
    $
    0
    
    
    $
    207,000
    
    
    $
    242,612Dan Granader
    
    $
    0
    
    
    $
    0
    
    
    $
    22,629
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    22,629Steve Phelps
    
    $
    0
    
    
    $
    0
    
    
    $
    18,036
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    18,036William H. Moody
    
    $
    0
    
    
    $
    0
    
    
    $
    27,054
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    27,054
 Stock Option Plan
  
    
    On November 18, 2004, our shareholders amended our 2003 Incentive Stock Option Plan
so that under the 2004 Incentive Stock Option Plan up to 1,000,000 options for common shares
may be granted. At March  , 2007, 340,000 options had been granted at prices ranging from
$0.35 to $0.45 per share.
    
    Effective September 7, 2006, the Board of Directors established the Omnibus Stock
and Incentive Compensation Plan 2006 to replace the 2004 Non-qualified Stock Option Plan.
The new plan permits the grant of 10,000,000 shares of nonqualified stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares, or
performance units. On March  , 2007, 120,000 restricted shares and options for 6,715,000
shares at prices ranging from $0.50 to $1.60 per share had been granted.
 Long Term Incentive Plans
  Employment Contracts and Termination of Employment Arrangements
  23




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Director Compensation
  Limitation of Liability and Indemnification
    EQUITY COMPENSATION PLAN INFORMATION
  24




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(c)Number of securities(a)
    
    
    
    
    
    Remaining availableNumber of Securities
    
    (b)
    
    For future issuanceto be issued upon
    
    Weighted-average
    
    Under equitableexercise of outstanding
    
    Exercise price of
    
    Compensation plansoptions, warrants and
    
    Outstanding options,
    
    (excluding securitiesPlan Category
    
    rights(1)
    
    Warrants and rights
    
    Reflected in column(s))Equity compensation plans
approved by shareholders
    
    
    7,055,000
    
    
    $
    0.72
    
    
    
    3,945,000Total
    
    
    7,055,000
    
    
    $
    0.72
    
    
    
    3,945,000
 
 (1)
    
    Represents shares issued pursuant to our 2004 Incentive Stock Option Plan and our
Omnibus Stock and Incentive Compensation Plan 2006. 
 Item 11.  Security Ownership of Certain Owners and Management.
    Name and Address of
    
    Shares of Common StockBeneficial Owner
    

Beneficially Owned (1)
    
    Percent of Class Beneficially Owned(1)Randy S.
Bayne, Director
    
    
    3,997,851
    (3)
    
    
    21.0
    %President
& CEO
3657 Briarpark
Suite 100
Houston, TX 77042Henry
Houston, CFO
    
    
    1,572,000
    (5)
    
    
    9.2
    %V. P. & Director
3657 Briarpark
Suite 100
Houston, TX 77471Richard C. Webb, Director
    
    
    840,067
    (4)
    
    
    5.2
    %2500
Citywest Blvd.
Suite 590
Houston, TX 77042Dan Granader, Director
    
    
    8,733,407
    (10) (18)
    
    
    39.4
    %160 Church Road
Goldcreek, MT 59733Steve Phelps, Director
    
    
    355,000
    (11)
    
    
    2.2
    %4207 Fairmont Pkwy
Pasadena, TX 77504William H. Moody, Director
    
    
    120,000
    (16)
    
    
    .8
    %2309 Birkdale
Kerrville, TX 78028All Directors and Executive
    
    
    15,638,324
    
    
    
    55.1
    %Officers
as a Group(6 Persons)
 25




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Name and Address of
    
    Shares of Common StockBeneficial Owner
    

Beneficially Owned (1)
    
    Percent of Class Beneficially Owned(1)George Ball
    
    
    890,675
    (6) (7)
    
    
    5.4
    %Principal
Shareholder
Suite 3100
Houston, TX 77002Ben Morris
    
    
    890,675
    (6) (8)
    
    
    5.4
    %Principal
Shareholder
600 Travis, Suite 3100
Houston, TX 77002Don A. Sanders
    
    
    10,803,347
    (6) (9) (12)
    
    
    41.7
    %Principal
Shareholder
600 Travis
Suite 3100
Houston, TX 77002Estate of Harry L. Bayne
    
    
    750,504
    (2)
    
    
    4.8
    %Principal
Shareholder 
3657 Briarpark
Suite 100
Houston, TX 77042Alan Granader
    
    
    24,826,270
    (13)
    
    
    64.5
    %Principal
Shareholder
5839 West Maple
Suite 103
West Bloomfield, Michigan 48322Estate of Harry Granader
    
    
    9,343,516
    (18) (19)
    
    
    40.7
    %Principal
Shareholder 
18431 Warwick Street
Beverly Hills, Michigan 48025Neil
Granader
Principal Shareholder
1304 Randol Avenue
San Jose, California 95126
    
    
    3,824,181
    (14)
    
    
    21.0
    %Mark Sullivan
    
    
    1,185,000
    (15)
    
    
    3.3
    %Principal
Shareholder
600 South Ripple Creek Drive #3
Houston, TX 77057Robert Duncan
    
    
    4,550,067
    (17)
    
    
    23.4
    %Principal
Shareholder
1900 West Loop South
Suite 1300
Houston, TX 77027
 
 (1)
    
    Rule 13d-3 under the Securities Exchange Act of 1934 provides the determination of beneficial
owners of securities. That rule includes as beneficial owners of securities, any person who
directly or indirectly has, or shares, voting power and/or investment power with respect to
such securities. Rule 13d-3 also includes as a beneficial owner of a security any person who
has the right to acquire beneficial ownership of such security within 60 days through any
means, including the exercise of any option, warrant or conversion of a security. Any
securities not outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person. Those securities are not deemed to
be outstanding for the purpose of computing the percentage of the class owned by any other
person. 26




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(2)
    
    Consists of: (i) 444,416 shares of common stock held in the name of BACO International, which
were issued pursuant to an Equity Agreement dated August 22, 2001, in exchange for the
cancellation of indebtedness; and (ii) 306,088 shares held by Harry Baynes widow and
executrix of the estate.(3)
    
    Consists of: (i) options presently exercisable to purchase 1,200,000 shares of common stock at
a price of $1.00 per share; (ii) 625 shares held by Randy Baynes spouse; (iii)
options presently exercisable to purchase 2,500,000 shares of common stock at a price of
$0.50 per share; (iv) 975,000 shares of common stock; (v) 33,333 shares of common stock
issuable upon the conversion of 25 shares of Series A Preferred Stock; and (vi) warrants to
purchase 16,675 shares of common stock at $0.75 per share issued to Series A shareholders..
Pursuant to the SMH Varitek LLC loan transaction, to the extent that Randy Bayne exercises
any options, he is obligated to transfer to SMH Varitek LLC 25% of the shares acquired upon
such exercise, up to 300,000 shares, and 427,782 shares of common stock as additional
consideration for the loan. Mr. Bayne is the beneficial owner of less than 1% of the
outstanding shares of Series A Preferred Stock.(4)
    
    Consists of (i) 266,667 shares of common stock issuable upon the conversion of 200 shares of
Series A Preferred Stock; (ii) warrants to purchase 133,400 shares of common stock at
$0.75 per share issued to Series A shareholders; (iii) options to purchase 190,000 shares
of common stock at $1.60 per share owned by Richard Webb; and (iv) warrants to purchase
250,000 shares of common stock at $0.75 per share issued to Abshier Webb & Donnelly, LLC.
Mr. Webb is the beneficial owner of 4.5% of the outstanding shares of Series A Preferred
Stock. Although Mr. Webb is a former principal with Sanders Morris Harris, his beneficial
ownership does not include any securities owned by Sanders Morris or SMH Varitek LLC. See
note 9 below.(5)
    
    Consists of: (i) 22,000 shares of common stock; (ii) options presently exercisable to
purchase 300,000 shares of common stock at a price of $1.00 per share; and (iii) options
presently exercisable to purchase 1,250,000 shares of common stock at a price of $0.50.(6)
    
    George Ball is the Chairman of the Board of Directors of Sanders Morris Harris, Inc., Ben Morris
is the CFO and a director of Sanders Morris, and Don Sanders is an executive officer and
director of Sanders Morris. Messrs. Ball, Morris and Sanders are also investors in SMH
Varitek. Messrs. Ball, Morris and Sanders are deemed to be beneficial owners of the securities
of Varitek owned by Sanders Morris. Mr. Sanders is deemed to be the beneficial owner of the
securities of Varitek owned by SMH Varitek.The securities deemed beneficially owned by Messrs. Ball, Morris and Sanders through Sanders
Morris consist of 702,000 shares of common stock issuable upon the exercise of warrants held by
Sanders Morris. The securities deemed beneficially owned by Mr. Sanders through SMH Varitek
consist of: (i) 432,157 shares of common stock owned by SMH Varitek which were transferred by
the Estate of Harry Bayne and Randy Bayne pursuant to a Stockholders Agreement dated November
27, 2002; (ii) warrants presently exercisable to purchase 1,500,000 shares of common stock at a
purchase price of $0.01 per share; and (iii) 300,000 options to purchase common stock held by
Randy Bayne transferable upon exercise to SMH Varitek; (iv) 2,000,000 common shares issuable
upon conversion of 1,500 shares of Series B Preferred stock, and (v) warrants exercisable to
purchase 2,000,000 shares of common stock at $0.75 per share.(7)
    
    Includes (i) 33,333 shares of common stock issuable upon the conversion of 25 shares of Series A
Preferred Stock; (ii) 53,333 shares of common stock issuable upon conversion of 40 shares of
Series B Preferred Stock owned by Mr. Ball; and (iii) 102,008 shares of common stock issuable
upon the exercise of warrants to purchase common stock at $0.75 per share. Mr. Ball is the
beneficial owner of less than 1% of the outstanding shares of Series A and B Preferred Stock.
See note 6.(8)
    
    Includes (i) 33,333 shares of common stock issuable upon the conversion of 25 shares of Series A
Preferred Stock: (ii) 53,333 shares of common stock issuable upon conversion of 40 shares of
Series B Preferred Stock owned by Mr. Morris; and (iii) 102,008 shares of common stock
issuable upon the exercise of warrants to purchase common stock at $0.75 per share. Mr. Morris
is the beneficial owner of less than 1% of the outstanding shares of Series A and B Preferred
Stock. See note 6.(9)
    
    Includes 1,642,524 shares of common stock issuable upon the conversion of shares of Series A
Preferred Stock beneficially owned by Don Sanders and held by: (i) Don Sanders & Tanya Drury
TTE FBO Tanya Drury Non Exempt Trust (21); (ii) Sanders II Investments Ltd. (400); (iii) the
Sanders Opportunity Fund, L.P. (84); (iv) the Sanders Opportunity Fund (Institutional), L.P.
(316). Also includes 547,857 shares of common stock issuable upon the exercise of warrants to
purchase common stock at $0.75 per share. Mr. Sanders is the beneficial owner of 18.9% of the
outstanding shares of Series A Preferred Stock. See note 6. 27




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##### Table of Contents



(10)
    
    Consists of: (i) 2,135,134 shares of common stock; (ii) warrants presently exercisable to
purchase 3,750 shares of common stock at a purchase price of $1.00 per share; (iii) 800,000
shares of common stock issuable at $0.75 per share upon the conversion of secured notes
payable; (iv) 4,360,200 shares of common stock issuable upon exercise of warrants to purchase
common stock at $0.75 per share; and (v) options exercisable to purchase 40,000 shares of
common stock at a purchase price of $1.10 per share, and 50,000 shares of common stock at a
purchase price of $0.50 per share.(11)
    
    Consists of: (i) 100,000 shares of common stock owned by Mr. Phelps; (ii) options exercisable
to purchase 90,000 shares of common stock at prices ranging from $0.80  $1.10 per share;
(iii) warrants to purchase 85,000 shares of common stock with exercise prices ranging from
$0.75 to $1.00 per share, and (iv) 80,000 shares of common stock issuable upon conversion of
60 shares of Series B Preferred Stock. Mr. Phelps is the beneficial owner of less than 1% of
the Series B Preferred Stock.(12)
    
    Includes 600,000 common shares issuable upon the conversion of shares of Series B Preferred
Stock beneficially owned by Don Sanders and held by: (i) the Sanders Opportunity Fund
Institutional, L.P. (169.4); (ii) the Sanders Opportunity Fund L.P. (55.6); and (iii) Don
Sanders (225). Also includes 960,000 common shares issuable to the same funds upon exercise
of warrants at $0.75 per share; 82,333 shares of common stock issuable upon the conversion of
61.75 shares of Series B Preferred Stock held by the Sanders Opportunity Fund L.P.; 82,333
shares of common stock issuable upon exercise of warrants to purchase common stock at $0.75
per share to the Sanders Opportunity Fund L.P.; 251,000 shares of common stock issuable upon
the conversion of 188.25 shares of Series B Preferred Stock held by the Sanders Opportunity
Fund Institutional, L.P.; and 251,000 shares of common stock issuable upon exercise of
warrants to purchase common stock at $0.75 per share to the Sanders Opportunity Fund
Institutional, L.P . Mr. Sanders is the beneficial owner of 33.2% of the Series B Preferred
Stock.(13)
    
    Consists of: (i) 1,876,680 shares of common stock; (ii) warrants presently exercisable to
purchase 151,250 shares of common stock at a purchase price of $1.00 per share; (iii)
1,873,333 shares of common stock issuable upon the conversion of 1,405 shares of Series B
Preferred Stock; (v) 17,725,007 shares of common stock issuable upon exercise of warrants to
purchase common stock at $0.75 per share; and (vi) 3,200,000 shares of common stock issuable
at $0.75 per share upon the conversion of secured notes payable . Alan Granader is the owner
of 21.2% of the Series B Preferred Stock.(14)
    
    Consists of: (i) 1,154,156 shares of common stock; (ii)warrants presently exercisable to
purchase 100,000 shares of common stock at a purchase price of $1.00 per share; (iii) 373,333
shares of common stock issuable upon the conversion of 280 shares of Series B Preferred
Stock; and (iv) 2,096,692 shares of common stock issuable upon exercise of warrants to
purchase common stock at $0.75 per share. Neil Granader is the owner of 4.2% of the Series B
Preferred Stock.(15)
    
    Includes 860,000 shares of common stock and options exercisable to purchase 325,000 shares of
common stock at prices ranging from $1.00  $1.60 per share.(16)
    
    Includes options exercisable to purchase 120,000 shares of common stock at a purchase price of
$0.80 per share.(17)
    
    Consists of: (i) 2,133,400 shares of common stock issuable upon exercise of warrants to
purchase common stock at $0.75 per share; (ii) 266,667 shares of common stock issuable upon
the conversion of 200 shares of Series A Preferred Stock; (iii) 650,000 shares of common
stock; (iv) 750,000 shares of common stock issuable at $0.50 per share upon the conversion of
notes payable; and (v) 750,000 shares of common stock issuable upon exercise of warrants to
purchase common stock at $0.50 per share . Mr. Duncan is the beneficial owner of less than
5% of the Series A Preferred Stock.(18)
    
    Dan and Harry Granader ownership in joint accounts consists of: (i) warrants presently
exercisable to purchase 91,500 shares of common stock at a purchase price of $1.00 per share;
and (ii) warrants presently exercisable to purchase 1,088,117 shares of common stock at a
purchase price of $0.75 per share.(19)
    
    Consists of: (i) 1,911,099 shares of common stock; (ii) 800,000 shares of common stock
issuable at $0.75 per share upon the conversion of secured notes payable; and (iii) 5,452,800
shares of common stock issuable upon exercise of warrants to purchase common stock at $0.75
per share. 28




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##### Table of Contents



Item 12. Certain Relationships and Related Transactions; and Director Independence
         
 Item 13. Exhibits
 (a)
    
    The following exhibits are filed with or incorporated by reference to this
annual report.
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to
the Companys quarterly report on Form 10-QSB filed with the Commission on November 13, 2006
(File No. 333-106247))3.2
    
    Remote Knowledge, Inc. Bylaws (Incorporated by reference to Exhibit 3.4 to the Companys
Registration Statement on Form SB-2/A filed with the Commission on October 27, 2003 (File No.
333-106247))3.3
    
    Certificate of Merger of Varitek Industries, Inc. and Remote Knowledge, Inc. (Incorporated by
reference to Exhibit 3.5 to the Companys Registration Statement on Form SB-2/A filed with the
Commission on October 27, 2003 (File No. 333-106247))
 29




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##### Table of Contents



Exhibit No.
    
    Description4.1
    
    Warrant to purchase 22,500 shares issued to Orrin H. Swayze on March 21, 2002 (Incorporated
by reference to Exhibit 4.1 to the Companys Registration Statement on Form SB-2 filed with
the Commission on June 18, 2003 (File No. 333-106247))4.2
    
    Amended and Restated Warrant to purchase 553,400 shares issued to Sanders Morris Harris, Inc.
on December 5, 2002 (Incorporated by reference to Exhibit 4.2 to the Companys Registration
Statement on Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))4.3
    
    Warrant to purchase 1,500,000 shares issued to SMH Varitek LLC on November 27, 2002
(Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form SB-2
filed with the Commission on June 18, 2003 (File No. 333-106247))4.4
    
    Form of warrant issued to noteholders on January 31, 2003 (Incorporated by reference to
Exhibit 4.4 to the Companys Registration Statement on Form SB-2 filed with the Commission on
June 18, 2003 (File No. 333-106247))4.5
    
    Form of warrant issued to noteholders on April 16, 2003 (Incorporated by reference to Exhibit
4.5 to the Companys Registration Statement on Form SB-2 filed with the Commission on June 18,
2003 (File No. 333-106247))4.6
    
    Series B Preferred Stock Designation (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Commission on April 5, 2004 (File No.
333-106247))4.7
    
    Form of Warrant issued in connection with Issuance of Series B Preferred Stock on March 30,
2004 Designation (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on April 5, 2004 (File No. 333-106247))10.1
    
    Employment Agreement of Randy S. Bayne (Incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form SB-2 filed with the Commission on June 18, 2003 (File
No. 333-106247))10.2
    
    Employment Agreement of Henry Houston (Incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))10.3
    
    Employment Agreement of Mark Sullivan (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Commission on May 23, 2005 (File No.
333-106247))10.4
    
    Varitek Industries, Inc. 2002 Stock Option Plan as amended and ISO Plan (Incorporated by
reference to Exhibit 10.2 to the Companys Registration Statement on Form SB-2/A filed with
the Commission on August 22, 2003 (File No. 333-106247))10.5
    
    Equity Agreement dated as of August 22, 2001, between Varitek and BACO International
(Incorporated by reference to Exhibit 10.3 to the Companys Registration Statement on Form
SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.6
    
    First Amendment to Equity Agreement between Varitek and BACO International dated as of March
20, 2002 (Incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.7
    
    Voting Agreement dated as of March 21, 2002, among Sanders Morris Harris Inc., Varitek, Harry
Bayne, BACO International, Randy Bayne and Arthur Goetze (Incorporated by reference to Exhibit
10.5 to the Companys Registration Statement on Form SB-2 filed with the Commission on June
18, 2003 (File No. 333-106247))10.8
    
    Placement Agent Agreement between Varitek and Sanders Morris Harris, Inc. dated March 21,
2002 (Incorporated by reference to Exhibit 10.6 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.9
    
    Amendment 1 to Placement Agent Agreement dated November 26, 2002 (Incorporated by reference
to Exhibit 10.7 to the Companys Registration Statement on Form SB-2 filed with the Commission
on June 18, 2003 (File No. 333-106247))
 30




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##### Table of Contents



Exhibit No.
    
    Description10.10
    
    Financial Advisory Agreement between Varitek and Sanders Morris Harris Inc. dated September
28, 2001 (Incorporated by reference to Exhibit 10.8 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.11
    
    Stockholders Agreement dated as of November 27, 2002, among SMH Varitek LLC, Varitek, Harry
Bayne, BACO International and Randy Bayne (Incorporated by reference to Exhibit 10.10 to the
Companys Registration Statement on Form SB-2 filed with the Commission on June 18, 2003 (File
No. 333-106247))10.12
    
    Letter Agreement dated as of November 27, 2002, between SMH Varitek LLC and Randy Bayne
(Incorporated by reference to Exhibit 10.11 to the Companys Registration Statement on Form
SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.13
    
    Guaranteed Promissory Note in the principal amount of $500,000 dated as of June 28, 2005,
issued by Robert Duncan and guaranteed by Alan Granader, Daniel Granader and Harry Granader
(Incorporated by reference to Exhibit 10.3 to the Companys Form 10-QSB filed with the
Commission on August 12, 2005 (File No. 333-106247))10.14
    
    Secured Promissory Notes in the principal amount of $3,600,000
dated as of August 19, 2005,
issued by the Alan Granader Irrevocable Family Trust, Daniel Granader, Alan Granader, Harry
Granader, and Neil Granader (Incorporated by reference to
Exhibit 10.14 to the Companys Annual Report on Form 10-KSB
filed with the Commission March 31, 2006 (File
No. 333-106247))10.15
    
    License Agreement between Cislunar and Varitek (Incorporated by reference to Exhibit 10.34
to the Companys Registration Statement on Form SB-2 filed with the Commission on October 27,
2003 (File No. 333-106247))10.16
    
    Dan Goodhall Settlement Agreement Amended (Incorporated by reference to Exhibit 10.19 to the
Companys Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))10.17
    
    Sprint Advantage Agreement (Incorporated by reference to Exhibit 10.37 to the Companys
Registration Statement on Form SB-2/A filed with the Commission on December 22, 2003 (File No.
333-106247))10.18
    
    Oracle Settlement Agreement (Incorporated by reference to Exhibit 10.20 to the Companys
Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))10.19
    
    Guaranteed Promissory Note in the principal amount of $800,000 dated as of March 13, 2006,
issued by Robert Duncan and guaranteed by Alan Granader, Daniel Granader and Harry Granader
(Incorporated by reference to Exhibit 10-19 to the Companys Annual Report on Form 10-KSB
filed with the commission of March 31, 2006 (File No. 333-106247))10.20
    
    Guaranteed Promissory Note dated March 14, 2006 in the amount of $800,000 payable to Robert
D. Duncan (incorporated by reference to Exhibit 10.2 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.21
    
    Put Agreement dated March 9, 2006 for 400,000 common shares at $0.50 with Robert D. Duncan
(incorporated by reference to Exhibit 10.3 to the Companys quarterly report on Form 10-QSB
filed with the Commission on August 11, 2006 (File No. 333-106247))10.22
    
    Guaranteed Promissory Note dated March 31, 2006 in the amount of $200,000 payable to Hydie
McAlister (incorporated by reference to Exhibit 10.4 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.23
    
    Put Agreement dated March 28, 2006 for 100,000 common shares at $0.50 with Hydie McAlister
(incorporated by reference to Exhibit 10.5 to the Companys quarterly report on Form 10-QSB
filed with the Commission on August 11, 2006 (File No. 333-106247))10.24
    
    Bridge Loan Promissory Note dated May 22, 2006 in the amount of $750,000 payable to Robert
D. Duncan (incorporated by reference to Exhibit 10.6 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.25
    
    Bridge Loan Promissory Note dated May 22, 2006 in the amount of $750,000 payable to John R.
Huff (incorporated by reference to Exhibit 10.7 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))
 31




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##### Table of Contents



Exhibit No.
    
    Description10.26
    
    Subscription Agreement dated May 10, 2006 for 45 units (Series B Preferred Stock and
Warrants) with 6C Ranches (incorporated by reference to Exhibit 10.8 to the Companys
quarterly report on Form 10-QSB filed with the Commission on August 11, 2006 (File No.
333-106247))10.27
    
    Bridge Loan Promissory Note dated July 25, 2006 in the amount of $250,000 payable to Lewis
Ventures, L.P. (incorporated by reference to Exhibit 10.2 to the Companys quarterly report on
Form 10-QSB filed with the Commission on November 13, 2006 (File No. 333-106247))10.28
    
    Bridge Loan Promissory Note dated September 8, 2006 in the amount of $200,000 payable to
Ralph H. Lord (incorporated by reference to Exhibit 10.3 to the Companys quarterly report on
Form 10-QSB filed with the Commission on November 13, 2006 (File No. 333-106247))10.29
    
    Subscription Agreement dated July 10, 2006 for 100 Units (Series B Preferred Stock and
Warrants) with OSA Pension & Trust Eugene F. Morris (incorporated by reference to Exhibit 10.4
to the Companys quarterly report on Form 10-QSB filed with the Commission on November 13,
2006 (File No. 333-106247))10.30
    
    Omnibus Stock and Incentive Compensation Plan 2006 effective as of September 7, 2006
(incorporated by reference to Exhibit 10.5 to the Companys quarterly report on Form 10-QSB
filed with the Commission on November 13, 2006 (File No. 333-106247))10.31
    
    Guaranteed Bridge Loan Promissory Note dated December 19, 2006 in the amount of $375,000
payable to Robert D. Duncan*10.32
    
    Subscription Agreement dated December 19, 2006 for 375 Units (Convertible Promissory Note
and Warrants), Convertible Promissory Note for $375,000, and warrants with Robert D. Duncan*10.33
    
    Promissory Note dated December 20, 2006 in the amount of $95,730.80 payable to Daniel
Goodhall*10.34
    
    Promissory Note dated December 31, 2006 in the amount of $385,000 payable to Lockheed Martin
Services, Inc.*10.35
    
    Development Agreement between the
Company and Raymarine plc dated January 5, 2007*  **10.36
    
    Bridge Loan Promissory Note dated March 5, 2007 in the amount of $50,000 payable to Fielding
L. Cocke*10.37
    
    Guaranteed Bridge Loan Promissory Note dated March 5, 2007 in the amount of $300,000 payable
to Jeffrey J. Bell*10.38
    
    Extension of Guaranteed Bridge Loan Promissory Note dated January 31, 2007 in the amount of
$250,000 payable to Lewie Ventures LP*10.39
    
    Extension of Guaranteed Bridge Loan Promissory Note dated March 15, 2007 in the amount of
$200,000 payable to Ralph H. Lord*14
    
    Code of Ethics (Incorporated by
reference to Exhibit 14 to the Companys Annual Report on
Form 10-KSB filed with the Commission March 31, 2006 (File
No. 333-106247))31.1
    
    Rule 13a-14 Certification.*31.2
    
    Rule 13a-14 Certification.*32.1
    
    Section 1350 Certification.*
 
 *
    
    Filed herewith**
    
    Confidential Treatment has been requested for portions of
this exhibit. 32




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##### Table of Contents



2004
    
    2005
    
    20061) Audit Fees
    
    $
    95,000
    
    
    $
    99,000
    
    
    $
    90,0002) Audit related fees and services
    
    $
    
    
    
    $
    
    
    
    $
    3) Fees for tax related services
    
    $
    
    
    
    $
    
    
    
    $
    4) All other fees
    
    $
    
    
    
    $
    17,500
    
    
    $
    
 33




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##### Table of Contents



REMOTE KNOWLEDGE, INC.
(A Development Stage Enterprise)
 December 31, 2006 and 2005




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Share-Based Payment
  Hein & Associates llp




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 BALANCE SHEET
 December 31,2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    519,583Accounts receivable
    
    
    4,715Prepaid and other current assets
    
    
    86,346Total current assets
    
    
    610,644Property and Equipment,net
    
    
    387,487Total assets
    
    $
    998,131LIABILITIES AND SHAREHOLDERS DEFICITCurrent Liabilities:Accounts payable  trade
    
    $
    244,976Accrued expenses
    
    
    2,182,418Payable to shareholder
    
    
    127,926Shareholder advances
    
    
    1,775,000Notes payable-related party-net of discount of $72,390
    
    
    355,110Notes payable-net of discount of $28,030
    
    
    934,611Total current liabilities
    
    
    5,620,041Notes payable-related party-long-term, net of discount of $2,102,643
    
    
    1,842,357Total liabilities
    
    
    7,462,398Commitments and Contingencies (notes 3 and 9)Shareholders Deficit:Preferred stock  series A, $.001 par value; 15,000 shares
authorized; 4,339 shares issued and outstanding
    
    
    4Preferred stock  series B, $.001 par value; 20,000 shares
authorized; 6,504 shares issued and outstanding
    
    
    7Common stock, $.001 par value; 150,000,000 shares authorized;
14,986,647 shares issued and outstanding
    
    
    14,987Additional paid-in capital
    
    
    63,937,036Deferred compensation
    
    
    (43,192
    )Shareholder receivable
    
    
    (45,000
    )Accumulated deficit
    
    
    (10,234,380
    )Deficit accumulated during development stage
    
    
    (60,093,729
    )Total shareholders deficit
    
    
    (6,464,267
    )Total liabilities and shareholders deficit
    
    $
    998,131
 See accompanying notes to these financial statements.
 - 2 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Operations
 Period
FromJanuary 1,2001(inception ofdevelopment stage)to DecemberYears ended December 31,
    
    
    31,2006
    
    
    2005
    
    
    2006Revenues
    
    $
    31,517
    
    
    $
    7,317
    
    
    $
    82,564Cost of Goods Sold
    
    
    31,135
    
    
    
    5,922
    
    
    
    76,033Gross Profit
    
    
    382
    
    
    
    1,395
    
    
    
    6,531Operating Costs and Expenses:Advisory services
    
    
    
    
    
    
    
    
    
    
    4,169,146Research and development
    
    
    606,291
    
    
    
    1,340,415
    
    
    
    6,192,313Loss on impairment of assets
    
    
    98,589
    
    
    
    660,329
    
    
    
    2,284,164Professional fees
    
    
    353,939
    
    
    
    511,443
    
    
    
    2,880,008Advertising and promotion fees
    
    
    194,756
    
    
    
    165,648
    
    
    
    1,658,110General and administrative expenses
    
    
    4,125,547
    
    
    
    4,140,255
    
    
    
    18,807,386Total operating costs and expenses
    
    
    5,379,122
    
    
    
    6,818,090
    
    
    
    35,991,127Loss from Operations
    
    
    (5,378,740
    )
    
    
    (6,816,695
    )
    
    
    (35,984,596
    )Other Expense (Income):Interest expense
    
    
    2,187,716
    
    
    
    1,429,510
    
    
    
    6,320,296Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Interest income
    
    
    
    
    
    
    
    
    
    
    (27,420
    )Other income
    
    
    (18,277
    )
    
    
    (3,075
    )
    
    
    (21,352
    )Other expense
    
    
    
    
    
    
    5,198
    
    
    
    12,698Debt forgiveness
    
    
    (323,413
    )
    
    
    
    
    
    
    (1,708,391
    )Total other expense
    
    
    1,846,026
    
    
    
    1,431,633
    
    
    
    5,764,263Net Loss
    
    $
    (7,224,766
    )
    
    $
    (8,248,328
    )
    
    $
    (41,748,859
    )
 See accompanying notes to these financial statements.
 - 3 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Operations (continued)
 Period FromJanuary 1,2001(inception ofdevelopment stage)to DecemberYears ended December 31,
    
    31,2006
    
    2005
    
    2006Effective Dividend from Amortization of
Discount Related to Beneficial Conversion of
Mandatorily Redeemable Series A Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    (5,554,000
    )Warrants Issued For Release of Redemption
Provision of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (1,291,912
    )Effective Dividend from Amortization of
Discount Related to Beneficial Conversion of
Series B Preferred Stock and warrants
    
    
    (486,765
    )
    
    
    (2,321,700
    )
    
    
    (11,498,958
    )Net Loss Attributable to Common Shares
    
    $
    (7,711,531
    )
    
    $
    (10,570,028
    )
    
    $
    (60,093,729
    )Net Loss Per Share:Basic and diluted
    
    $
    (0.54
    )
    
    $
    (1.19
    )
    
    $
    (8.26
    )Number of Shares Used in Calculating Net
Loss Per Share:Basic and diluted
    
    
    14,257,908
    
    
    
    8,886,891
    
    
    
    7,274,074
 See accompanying notes to these financial statements.
 - 4 -




---



##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Shareholders Deficit  Period from January 1, 2001 (Inception of Development Stage) to December 31, 2006
 PREFERRED STOCKDeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DuringSERIES A
    
    
    SERIES B
    
    
    Common Stock
    
    

PaidIn
    
    
    Deferred
    
    
    Shareholder
    
    
    accumulated
    
    
    DevelopmentShares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Capital
    
    
    Compensation
    
    
    Receivable
    
    
    Deficit
    
    
    Stage
    
    
    TotalBalances, January 1, 2001 (inception of
development stage)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    3,142,774
    
    
    $
    3,143
    
    
    $
    8,125,719
    
    
    $
    
    
    
    $
    (226,413
    )
    
    $
    (10,234,380
    )
    
    $
    
    
    
    $
    (2,331,931
    )Sale of common stock ($2.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451,900
    
    
    
    452
    
    
    
    903,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903,800Issuance of common stock for services
($2.08  $8.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    978,709
    
    
    
    979
    
    
    
    4,600,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,601,733Issuance of common stock for related
party debt ($2.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    444,416
    
    
    
    444
    
    
    
    888,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888,832Stockbased compensation ($2.00  $4.00
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,288Contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,900Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,868,125
    )
    
    
    (9,868,125
    )Balances, December 31, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,017,799
    
    
    
    5,018
    
    
    
    14,730,397
    
    
    
    
    
    
    
    (226,413
    )
    
    
    (10,234,380
    )
    
    
    (9,868,125
    )
    
    
    (5,593,503
    )Issuance of common stock for debt ($4.00
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    175
    
    
    
    699,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,000Issuance of common stock for services
($1.30  $3.80 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,125
    
    
    
    230
    
    
    
    408,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408,762Stockbased compensation ($2.00  $2.25
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,271Retirement
of common stock ($0.00 
$4.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (185,750
    )
    
    
    (186
    )
    
    
    (79,814
    )
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    Issuance of
warrants for loans ($0.01 
$1.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,107,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,107,208Effective dividend related to beneficial
conversion of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,655,852
    )
    
    
    (3,655,852
    )Capital contributed for placement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,188,432
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,188,432Discount on mandatorily redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,554,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,554,000Offering costs of mandatorily redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (513,967
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (513,967
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,584,048
    )
    
    
    (4,584,048
    )Balances, December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,237,174
    
    
    
    5,237
    
    
    
    23,138,884
    
    
    
    
    
    
    
    (146,413
    )
    
    
    (10,234,380
    )
    
    
    (18,108,025
    )
    
    
    (5,344,697
    )
 See
accompanying notes to these financial statements.




---



##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Shareholders Deficit (continued)  Period from January 1, 2001 (Inception of Development Stage) to December 31, 2006
 PREFERRED STOCKDeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DuringSERIES A
    
    
    SERIES B
    
    
    Common Stock
    
    

PaidIn
    
    
    Deferred
    
    
    Shareholder
    
    
    accumulated
    
    
    DevelopmentShares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Capital
    
    
    Compensation
    
    
    Receivable
    
    
    Deficit
    
    
    Stage
    
    
    TotalIssuance of common stock for debt
($2.50  $3.30 per share)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    164,113
    
    
    $
    164
    
    
    $
    456,950
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    457,114Issuance of common stock for services
($1.60 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,891
    
    
    
    169
    
    
    
    270,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,225Issuance of common stock for assets
($1.60 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5
    
    
    
    7,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Issuance of common stock options for
services ($1.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849,695
    
    
    
    (333,977
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515,718Stockbased compensation ($1.00 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,000
    
    
    
    (77,725
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311,275Issuance of warrants for loans ($1.00
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903,811
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903,811Issuance of warrants for services
($1.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,826
    
    
    
    (27,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,295Effective dividend related to
beneficial conversion of preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,898,148
    )
    
    
    (1,898,148
    )Issuance of common stock upon
conversion of preferred stock ($1.00
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    20
    
    
    
    19,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Forgiveness of receivable from sale of
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,413
    
    
    
    
    
    
    
    
    
    
    
    146,413Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,258,865
    )
    
    
    (7,258,865
    )Balances, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,595,178
    
    
    
    5,595
    
    
    
    26,087,197
    
    
    
    (439,233
    )
    
    
    
    
    
    
    (10,234,380
    )
    
    
    (27,265,038
    )
    
    
    (11,845,859
    )Issuance of common stock for rent
($0.90 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50
    
    
    
    44,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000Issuance of common stock options for
services ($1.00 - $1.60 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410,779
    
    
    
    (410,779
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred stock for services
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    554,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    554,597Issuance of Series B preferred stock
(each share of preferred stock
convertible into 1,333 shares of common
stock)
    
    
    
    
    
    
    
    
    
    
    4,499
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    4,499,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,499,502Commissions and fees associated with
raising equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,429
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,429
    )Conversion of notes payable to Series B
preferred stock
    
    
    
    
    
    
    
    
    
    
    4,201
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4,200,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,201,000Reclassification of mandatorily
redeemable preferred stock to equity
    
    
    5,534
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,533,994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,534,000
 See accompanying notes to these financial statements.




---



##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Shareholders Deficit (continued)  Period from January 1, 2001 (Inception of Development Stage) to December 31, 2006
 PREFERRED STOCKDeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DuringSERIES A
    
    
    SERIES B
    
    
    Common Stock
    
    

PaidIn
    
    
    Deferred
    
    
    Shareholder
    
    
    accumulated
    
    
    DevelopmentShares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Capital
    
    
    Compensation
    
    
    Receivable
    
    
    Deficit
    
    
    Stage
    
    
    TotalIssuance of common stock upon
conversion of preferred stock
    
    
    (759
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    1,012,505
    
    
    
    1,013
    
    
    
    (1,012
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants issued for release of
redemption provision on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,291,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,291,912
    )
    
    
    Effective dividend related to
beneficial conversion of preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,690,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,690,493
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,564,727
    )
    
    
    (4,564,727
    )Balances, December 31, 2004
    
    
    4,775
    
    
    $
    5
    
    
    
    8,712
    
    
    $
    9
    
    
    
    6,657,683
    
    
    $
    6,658
    
    
    $
    50,596,377
    
    
    $
    (295,415
    )
    
    $
    
    
    
    $
    (10,234,380
    )
    
    $
    (41,812,170
    )
    
    $
    (1,738,916
    )Common stock grant ($0.80 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    799,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,000Issuance of preferred stock for interest
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Issuance of warrants for interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,836Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,000Issuance of Series B preferred stock
(each share of preferred stock
convertible into 1,333 shares of common
stock)
    
    
    
    
    
    
    
    
    
    
    2,322
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2,313,998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,314,000Issuance of common stock upon
conversion of Series A preferred stock
    
    
    (371
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    494,914
    
    
    
    495
    
    
    
    (494
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock upon
conversion of Series B preferred stock
    
    
    
    
    
    
    
    
    
    
    (3,835
    )
    
    
    (4
    )
    
    
    5,094,000
    
    
    
    5,094
    
    
    
    (5,090
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Discount on notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,795Discount on convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,658,693
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,658,693Discount related to beneficial
conversion of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    946,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    946,092Unamortized discount issued in advance
of subsequent funding of convertible
debt related to beneficial conversion
of convertible debt ($946,092)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354,785
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354,785
    )Effective dividend related to
beneficial conversion of preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,321,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,321,700
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,248,328
    )
    
    
    (8,248,328
    )Balances, December 31, 2005
    
    
    4,414
    
    
    $
    4
    
    
    
    7,199
    
    
    $
    7
    
    
    
    13,246,597
    
    
    $
    13,247
    
    
    $
    58,753,120
    
    
    $
    (113,413
    )
    
    $
    
    
    
    $
    (10,234,380
    )
    
    $
    (52,382,198
    )
    
    $
    (3,963,613
    )
 See accompanying notes to these financial statements.




---



##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Shareholders Deficit (continued)  Period from January 1, 2001 (Inception of Development Stage) to December 31, 2006
 PREFERRED STOCKDeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DuringSERIES A
    
    
    SERIES B
    
    
    Common Stock
    
    

PaidIn
    
    
    Deferred
    
    
    Shareholder
    
    
    accumulated
    
    
    DevelopmentShares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Shares
    
    
    Capital
    
    
    Capital
    
    
    Compensation
    
    
    Receivable
    
    
    Deficit
    
    
    Stage
    
    
    TotalSale of Series B preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    
    
    
    
    (45,000
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,221Issuance of Series B preferred stock
(each share of preferred stock
convertible into 1,333 shares of common
stock)
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    519,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    520,000Stock-based compensation ($0.35 - $1.10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,656,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,656,392Issuance of common stock upon
conversion of Series A preferred stock
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,050
    
    
    
    100
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock upon
conversion of Series B preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,215
    )
    
    
    (1
    )
    
    
    1,640,000
    
    
    
    1,640
    
    
    
    (1,639
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Discount on notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797,500Discount on convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,173,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,173,193Discount related to beneficial
conversion of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551,806Effective dividend related to
beneficial conversion of preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (486,765
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,224,766
    )
    
    
    (7,224,766
    )Balances, December 31, 2006
    
    
    4,339
    
    
    $
    4
    
    
    
    6,504
    
    
    $
    7
    
    
    
    14,986,647
    
    
    $
    14,987
    
    
    $
    63,937,036
    
    
    $
    (43,192
    )
    
    $
    (45,000
    )
    
    $
    (10,234,380
    )
    
    $
    (60,093,729
    )
    
    $
    (6,464,267
    )
 See accompanying notes to these financial statements.




---



##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Cash Flows
 Period FromJanuary 1, 2001(inception ofdevelopmentstage) toYears Ended December 31,
    
    
    December 312006
    
    
    2005
    
    
    2006Cash Flows From Operating Activities:Net loss
    
    $
    (7,224,766
    )
    
    $
    (8,428,328
    )
    
    $
    (41,748,859
    )Adjustments to reconcile net loss to net cash used in
operating activities:Accretion of debt discount and discount related to
beneficial conversion of convertible debt
    
    
    1,808,664
    
    
    
    1,123,567
    
    
    
    4,943,250Depreciation
    
    
    239,502
    
    
    
    229,529
    
    
    
    931,482Loss on impairment of fixed assets
    
    
    
    
    
    
    
    
    
    
    1,564,282Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Equity issued for services and interest
    
    
    1,726,612
    
    
    
    1,096,836
    
    
    
    9,785,612Provision for loss on inventory
    
    
    98,589
    
    
    
    660,329
    
    
    
    758,918Debt forgiveness
    
    
    (323,413
    )
    
    
    
    
    
    
    (1,708,391
    )Charge off of receivables
    
    
    
    
    
    
    
    
    
    
    446,414Changes in assets and liabilities:Accounts receivable
    
    
    (815
    )
    
    
    17,165
    
    
    
    (4,715
    )Inventory
    
    
    54,302
    
    
    
    (483,074
    )
    
    
    (836,393
    )Prepaid and other current assets
    
    
    24,101
    
    
    
    78,848
    
    
    
    (53,850
    )Accounts payable  trade
    
    
    (376,787
    )
    
    
    267,704
    
    
    
    1,126,512Accrued expenses
    
    
    (126,369
    )
    
    
    1,121,519
    
    
    
    1,502,292Related party payable
    
    
    
    
    
    
    
    
    
    
    399,259Net cash used in operating activities
    
    
    (4,100,380
    )
    
    
    (4,135,905
    )
    
    
    (21,705,755
    )Cash Flows From Investing Activities:Additions of fixed assets
    
    
    (80,674
    )
    
    
    (75,400
    )
    
    
    (1,011,723
    )Related party receivable
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net cash used in investing activities
    
    
    (80,764
    )
    
    
    (75,400
    )
    
    
    (1,311,723
    )Cash Flows From Financing Activities:Payments of notes payable
    
    
    (1,970,767
    )
    
    
    (1,163,827
    )
    
    
    (3,395,594
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    27,900Proceeds from SMH note payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Proceeds from short term note payable
    
    
    2,950,000
    
    
    
    585,000
    
    
    
    3,535,000Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    903,800Proceeds from other notes payable
    
    
    71,413
    
    
    
    178,465
    
    
    
    3,358,741Net proceeds from sale of mandatorily redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    5,040,033Net proceeds from sale of series B preferred stock
    
    
    475,000
    
    
    
    2,314,000
    
    
    
    7,114,073Proceeds from related party note payable
    
    
    3,170,000
    
    
    
    2,250,000
    
    
    
    5,420,000Net cash provided by financing activities
    
    
    4,695,646
    
    
    
    4,163,638
    
    
    
    23,503,953Net Change in Cash and Cash Equivalents
    
    
    514,592
    
    
    
    (47,667
    )
    
    
    486,475Cash and Cash Equivalents, beginning of period
    
    
    4,991
    
    
    
    52,658
    
    
    
    33,108Cash and Cash Equivalents, end of period
    
    $
    519,583
    
    
    $
    4,991
    
    
    $
    519,583
 See accompanying notes to these financial statements.




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Statements of Cash Flows (continued)
 Period FromJanuary 1, 2001(inception ofdevelopmentstage) toYears Ended December 31,
    
    
    December 312006
    
    
    2005
    
    
    2006Non-Cash Transactions:Issuance of common stock for related party debt
    
    $
    
    
    
    $
    
    
    
    $
    888,832Issuance of common stock for debt
    
    $
    
    
    
    $
    
    
    
    $
    1,157,114Issuance of common stock for assets
    
    $
    
    
    
    $
    
    
    
    $
    8,000Conversion of accounts payable to notes payable
    
    $
    
    
    
    $
    
    
    
    $
    766,484Conversion of notes payable to equity
    
    $
    
    
    
    $
    
    
    
    $
    4,201,000Contribution of capital by shareholders for financing costs
    
    $
    
    
    
    $
    
    
    
    $
    1,188,432Issuance of common stock (100,050 shares; 494,914 shares;
and 1,607,469 shares, respectively) upon conversion of
Series A preferred stock
    
    $
    100
    
    
    $
    1,507
    
    
    $
    1,607Issuance of common stock (1,640,000 shares; 5,094,000
shares; and 6,734,000 shares, respectively) upon conversion
of Series B preferred stock
    
    $
    1,640
    
    
    $
    5,094
    
    
    $
    6,734Issuance of common stock upon conversion of mandatorily
redeemable preferred stock classified as debt
    
    $
    
    
    
    $
    
    
    
    $
    20,000Reclassification of mandatorily redeemable preferred stock
to equity
    
    $
    
    
    
    $
    
    
    
    $
    5,534,000Discount related to beneficial conversion of mandatorily
redeemable Series A preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    5,554,000Warrants issued for release of redemption provision of
Series A preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    1,291,912Discount related to beneficial conversion of Series B
preferred stock and warrants
    
    $
    486,765
    
    
    $
    2,321,700
    
    
    $
    11,498,958Reclassification of demo units from inventory to property
and equipment
    
    $
    
    
    
    $
    77,475
    
    
    $
    77,475Discount related to notes payable
    
    $
    2,522,500
    
    
    $
    2,662,007
    
    
    $
    5,184,507Conversion of note payable into convertible debt
    
    $
    375,000
    
    
    $
    
    
    
    $
    375,000Conversion of accrued expenses into note payable
    
    $
    87,028
    
    
    $
    
    
    
    $
    87,028Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    202,390
    
    
    $
    88,569
    
    
    $
    383,122
 See accompanying notes to these financial statements.




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 1.
    
    OrganizationRemote Knowledge, Inc. (the Company) was originally incorporated in Texas in 1970 and
reincorporated in 2003 in Delaware. It spun off its only operating activities at the end of
2000. Since January 1, 2001, the Company has been in a development stage. The Company
develops, delivers and supports proprietary in-motion communication and entertainment
products servicing the global marine market. The Companys technology platforms supply
in-motion high-speed Internet and voice services combined with advance on-board concierge and
entertainment content. The platforms also support e-mail and text messaging services as well
as remote monitoring and control of vessels shipboard systems.2.
    
    Significant Accounting PoliciesCash and Cash Equivalents  The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.Property and Equipment  Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred; costs of major additions and betterments are
capitalized. Depreciation is determined on a straight-line basis using estimated useful
lives ranging from three to five years. Depreciation expense for the years ended December
31, 2006 and 2005 was $239,502 and $229,529, respectively and $931,482 since the inception of
the Development Stage.Revenue Recognition  The Company recognizes revenue when persuasive evidence exists
(which is evident by a written purchase agreement), delivery has occurred and title has
passed to the customer (title passes to the customer when the device is received by the
customer or the communication service is performed by the Company, in accordance with the
sales agreement), the selling price is fixed and determinable, and the collectibility of the
resulting receivable is reasonably assured. The Company makes estimates to allow for an
appropriate allowance for uncollectible receivables, as well as for sales returns expected
from its customers.Income Taxes  Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and liabilities that
will
result in taxable or deductible amounts in the future based on enacted laws and rates
applicable to the periods in which the differences are expected to affect taxable income
(loss). A valuation allowance is established when necessary to reduce deferred tax assets to
the amount expected to be realized. The likelihood of the Company to utilize its
substantial loss carryforwards is highly uncertain and therefore no deferred tax assets are
recorded.
 - 11 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 Use of Estimates
 Long-lived Assets
 Comprehensive Loss
 Share-Based Compensation
  - 12 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
   Pro-Forma Stock Compensation Expense for the Year Ended December 31, 2005
  - 13 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 Period fromJanuary 1, 2001(Inception ofDevelopmentYear Ended
    
    
    Stage) toDecember 31, 2005
    
    
    December 31, 2005Net loss attributable to common shareholders as reported
    
    $
    (10,570,028
    )
    
    $
    (52,382,198
    )Add: Stock-based employee compensation included in
reported net loss
    
    
    21,764
    
    
    
    608,558Deduct: Stock-based employee compensation expense,
determined under fair value method for all awards
    
    
    (307,312
    )
    
    
    (5,535,446
    )Net loss  pro-forma
    
    $
    (10,855,576
    )
    
    $
    (57,309,086
    )Loss per share  basic and diluted, as reported
    
    $
    (1.19
    )
    
    $
    (8.91
    )Loss per share  basic and diluted, pro-forma
    
    $
    (1.22
    )
    
    $
    (9.75
    )
   Stock Based Incentive Plans as of the Year Ended December 31, 2006
  
    
    Under the 2004 Incentive Stock Option Plan, employees providing material services to
the Company or any subsidiary of the Company may be awarded options.
    
    Effective September 7, 2006, the Board of Directors established the Omnibus Stock and
Incentive Compensation Plan 2006 to replace the 2004 Non-qualified Stock Option Plan.
The new plan permits the grant of nonqualified stock options, stock appreciation rights,
restricted stock, restricted stock units, performance shares, and performance units and
is available to Directors, employees and agents of the Company.
  - 14 -




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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
  Weighted
    
    
    Weighted AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual Term
    
    
    IntrinsicNumber of Shares
    
    
    Price
    
    
    (in years)
    
    
    ValueOptions outstanding at January 1, 2006
    
    
    3,675,000
    
    
    $
    0.99Granted
    
    
    3,970,000
    
    
    
    0.59Exercised
    
    
    (0
    )
    
    
    0.00Canceled or forfeited
    
    
    (590,000
    )
    
    
    1.00Options outstanding at December 31, 2006
    
    
    7,055,000
    
    
    $
    0.72
    
    
    
    5.31
    
    
    $
    0Options exercisable at December 31, 2006
    
    
    6,446,666
    
    
    $
    0.72
    
    
    
    4.99
    
    
    $
    0
   Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Contractual
    
    
    Exercise
    
    
    Options
    
    
    ExerciseExercise prices
    
    Outstanding
    
    
    Life (in years)
    
    
    price
    
    
    Exercisable
    
    
    Price$0.35
    
    
    100,000
    
    
    
    4.05
    
    
    
    
    
    
    
    00.45
    
    
    240,000
    
    
    
    8.95
    
    
    
    
    
    
    
    145,0000.50
    
    
    3,870,000
    
    
    
    4.38
    
    
    
    
    
    
    
    3,800,0000.80
    
    
    375,000
    
    
    
    7.89
    
    
    
    
    
    
    
    250,0000.90
    
    
    120,000
    
    
    
    4.61
    
    
    
    
    
    
    
    10,0001.00
    
    
    1,850,000
    
    
    
    5.84
    
    
    
    
    
    
    
    1,775,0001.10
    
    
    150,000
    
    
    
    7.59
    
    
    
    
    
    
    
    116,6661.60
    
    
    350,000
    
    
    
    7.27
    
    
    
    
    
    
    
    350,0007,055,000
    
    
    
    5.31
    
    
    $
    0.72
    
    
    
    6,446,666
    
    
    $
    0.72
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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2006
    
    
    2005Weighted average grant date fair value
    
    $
    0.40
    
    $
    0.38Weighed average assumptions used:Volatility
    
    
    149
    %
    
    145%Expected option term
    
    2 1/2 years
    
    3 yearsRisk-free interest rate
    
    
    4.8
    %
    
    4.3%Expected dividend yield
    
    
    0
    %
    
    0%Intrinsic value of options exercised
or converted
    
    $
    0
    
    $
    0
 Modifications of Stock Options Granted
  Restricted Stock
  Loss Per Share
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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 Reclassifications  Certain reclassifications have been made to prior year amounts to conform to current year
presentation.New Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151). This
Statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). SFAS 151 requires that those items be recognized as current-period
charges. In addition, this Statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production facilities. The
provisions of SFAS 151 are effective for inventory costs incurred in fiscal years beginning
after June 15, 2005. The Company believes that the adoption of this standard will have no
material impact on the results of operations, financial position or cash flow.In July 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes.
FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attributable for
the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures and
transitions. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company is currently evaluating the
impact on its financial statements of FIN 48 upon adoption
effective in fiscal year 2007.In September 2006, the FASB issued SFAS No. 157
Fair Value Measurements. This statement establishes a
framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The provisions of SFAS
No. 157 should be applied prospectively as of the beginning of
the fiscal year in which SFAS No. 157 is initially applied, except in
limited circumstances. The Company expects to adopt SFAS No. 157
beginning January 1, 2008. The Company is currently evaluating
the impact that this interpretation may have on its consolidated
financial statements.3.
    
    Going Concern/Management PlansThe Companys net losses for the years ended December 31, 2006 and 2005 amounted to
$7,224,766 and $8,248,328, respectively and $41,748,859 since inception of Development Stage.
In addition, the Company to date has minimal revenue and does not expect any meaningful
revenue until the first quarter of 2008. As a result of these losses, and the fact the
Company has minimal revenue, the Companys working capital position at December 31, 2006 was
a negative $5,009,397. Its ability to generate sufficient cash flows from operations to meet
its operating and capital requirements is uncertain, and the Company must raise additional
capital in order to continue. These matters raise substantial doubt about the Companys
ability to continue as a going concern.From January 1, 2001 (Inception of Development Stage) through December 31, 2006 the Company
has raised approximately $25,000,000, via various offerings, in order to meet its working
capital needs. For further discussion, see Note 5  Related Party Transactions, Note 6 
Notes Payable, and Note 7  Shareholders Deficit.On January 5, 2007, the Company entered into an exclusive development, services and supply
agreement (the Agreement) with Raymarine plc (Raymarine). Under the terms of the Agreement,
the Company will design, develop and manufacture an in-motion communication and entertainment
platform servicing the global marine market (the Product). The Company will design, develop and
manufacture the Product at the Companys expense. The Company has also agreed to provide all
communications, content and support services for the Product during the term of the Agreement and
for an
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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 additional five years after the termination of the Agreement. In exchange for paying a
licensing fee to the Company, for the term of the Agreement, Raymarine has received an
exclusive license to market, offer, sell, brand and distribute the Product and the services
related thereto and a non-exclusive license to use the Companys name, logo and other
trademarks for marketing of the Product. The licensing fee payable by Raymarine is up to
$250,000, with $62,500 payable on the date of the Agreement and the remaining amount due in
$62,500 installments upon achieving certain milestones, which shall be determined at the
discretion of Raymarine.The Company is currently pursuing the private placement of approximately $10,000,000 which
the Company believes will permit it to continue its operations through the later part of 2008
at which time the Company believes it will be cash flow positive as a result of the Raymarine
contract. However, there can be no assurance that there will be subscribers to this offering
or that the Company can become cash flow positive before additional funds are required.4.
    
    Property and EquipmentProperty and equipment consisted of the following:
 Estimated
    
    
    December 31,Useful Life
    
    
    2006Satellite Earth Station and Communications Technology
    
    
    5
    
    
    $
    561,749Computer and related equipment
    
    
    3
    
    
    
    158,030Software, tools and website
    
    
    3
    
    
    
    133,835Other
    
    
    5
    
    
    
    180,8201,034,434Less  Accumulated depreciation
    
    
    
    
    
    
    (646,947
    )Total property and equipment, net
    
    
    
    
    
    $
    387,487
 5.
    
    Related Party TransactionsPayable to Shareholder  The Company has an unsecured payable to the Estate of
Harry Bayne at December 31, 2006 of $127,926.Notes Payable  On January 30, 2005, the Company converted $52,500 (all from related
parties) of accrued interest into notes payable.
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
  Shareholder Advances
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
  December 31,2006Payable to shareholder
    
    $
    127,926Shareholder advances
    
    
    1,775,000Notes payable, net of discount
    
    
    355,110Long-term notes payable, net of discount
    
    
    1,842,357
 Interest
 Stock Grant
 Consulting Fee
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##### Table of Contents



REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 6. Notes Payable
  December 31,2006Secured note bearing 6% interest payable June 30, 2007 (a)
    
    $
    385,000Unsecured note, principal and interest payable March 31, 2004 (b)
    
    
    25,000Secured and guaranteed note principal payable January 31, 2007,
net of discount (c)
    
    
    236,403Secured and guaranteed note principal payable March 15, 2007,
net of discount (d)
    
    
    185,567Note bearing 10% interest payable March 31, 2007 (e)
    
    
    95,731Finance insurance payments at 8.91% payable February 6, 2007
    
    
    6,910Current notes payable
    
    $
    934,611
 
 (a)
    
    In December 2002, the Company signed a note payable of $480,484 to a
vendor for its engineering and programming services, bearing interest at 8% payable
August 31, 2003. The note is collateralized by the vendors work product and the
equipment in the Companys data center. The note and interest were not paid when due.
In June 2004, the Company paid $12,500 in interest and added the remainder of the
interest due, $35,259, to the note balance, and the due date was extended until June 30,
2005. In June 2005, the interest rate was changed to 6% and the due date was extended
until June 30, 2006. In June 2006, the Company paid $10,822, which brought the
outstanding principal to $445,000, and extended the note until December 31, 2006. The
interest rate remained at 6%. In December 2006, the Company paid $12,788, which brought
the outstanding principal to $385,000, and extended the note until June 30, 2007. The
interest rate remained at 6%.(b)
    
    In March 2004, various note holders were required to convert their debt, in the
amount of $4,201,000, to equity. However, one holder has not yet converted. - 23 -




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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 (c)
    
    In July 2006, the Company signed a note payable of $250,000 to a non-related party
due January 31, 2007. The note is secured by 750,000 shares of common stock owned by
three related parties. In lieu of interest, the three related parties delivered 83,333
shares of common stock. At the end of each month following default in payment of
principal, the three related parties shall deliver 27,778 shares of common stock held as
security, as additional interest. The note is guaranteed by three related parties. The
Company recognized a debt discount of $83,333, which is being amortized using the
straight line method over the life of the note. The amount of discount amortization
under the straight line method does not materially differ from the effective interest
method. Subsequently, the due date of the note was extended to October 31, 2007.(d)
    
    In September 2006, the Company signed a note payable of $200,000 to a non-related
party due March 31, 2007. The note is secured by 600,000 shares of common stock owned
by two related parties. In lieu of interest, the two related parties delivered 66,667
shares of common stock. At the end of each month following default in payment of
principal, the three related parties shall deliver 22,222 shares of common stock held as
security, as additional interest. The note is guaranteed by two
related parties. The Company recognized a debt discount of $36,667, which is being
amortized using the straight line method over the life of the note. The amount of
discount amortization under the straight line method does not materially differ from the
effective interest method. Subsequently, the due date of the note was extended to
October 31, 2007.(e)
    
    In December 2006, the Company signed a note payable of $95,731 with a
non-related party due March 31, 2007. The note sets forth a payment plan relating to a
prior judgment against the Company.(f)
    
    In May 2006, the Company financed the insurance premium for the Directors &
Officers and Employment Practices policies over ten payments with the final payment due
February 6, 2007.
 7.
    
    Shareholders DeficitThe Company reincorporated in Delaware in July 2003 and increased its authorized common stock
to 100,000,000 and assigned a par value of $.001/share. This par value has been reflected
retroactively to all periods presented herein. In October 2006, the Company increased the
number of authorized common shares from 100,000,000 to 150,000,000.Preferred Stock  The Company has authorized 10,000,000 shares of preferred stock
with a par value of $.001 per share, of which 15,000 shares have been designated as Series A
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
   Warrants Issued
 ExerciseWarrants
    
    
    Price
    
    
    TermBalance, December 31, 2004
    
    
    23,600,512Issued in connection with sale of
preferred stock
    
    
    9,101,333
    
    
    
    .75
    
    
    7 YearsIssued in connection with borrowing of
money
    
    
    521,372
    
    
    
    .75
    
    
    7 YearsIssued in connection with convertible debt
    
    
    14,400,000
    
    
    
    .75
    
    
    7 YearsBalance, December 31, 2005
    
    
    47,623,217Issued in connection with sale of
preferred stock
    
    
    2,080,000
    
    
    
    .75
    
    
    7 YearsIssued in connection with convertible debt
    
    
    750,000
    
    
    
    .50
    
    
    7 YearsBalance, December 31, 2006
    
    
    50,453,217
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
 8.
    
    Income TaxesThe approximate tax effects of significant temporary differences representing the deferred
tax assets and liabilities at December 31, 2006 were as follows:
 Net operating loss carryforward
    
    $
    11,000,000Other
    
    
    (21,000)Valuation allowance
    
    
    (10,979,000
    )Net deferred tax asset
    
    $
    
  Years Ended December 31,2006
    
    
    2005Federal income tax benefit at 34%
    
    $
    2,456,000
    
    
    $
    2,804,000Accretion of debt discount
    
    
    (616,000
    )
    
    
    (382,000
    )Stock based compensation
    
    
    (587,000
    )
    
    
    (334,000
    )Other
    
    
    (7,000
    )
    
    
    (11,000
    )Deferred tax benefit not currently recognized
    
    
    (1,246,000
    )
    
    
    (2,077,000
    )$
    
    
    
    $
    
  9.
    
    Commitments and ContingenciesEmployment Agreements  The Company entered into employment agreements with three
key employees for terms of two to five years. The agreements include the employees base
salary, incentive compensation plans as well as options to purchase the Companys common
stock. These obligations approximate $900,000 annually.Breach of Settlement Terms of Litigation  During 2004 and 2005 the Company settled
three matters of litigation by agreeing to a monthly schedule of payments totaling
approximately $36,000 per month. The Company on several occasions has not been able to make
these payments, but would subsequently make payments. In this manner several missed monthly
payments have accumulated currently, and the Company is in breach of
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REMOTE KNOWLEDGE, INC.  (A Development Stage Enterprise)
 Notes to Financial Statements
  Leases
   Fiscal Year2007
    
    $
    205,6682008
    
    
    164,8092009
    
    
    159,1602010
    
    
    13,332Total
    
    $
    542,969
 Estimated Costs of Other Disputes
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##### Table of Contents



SIGNATURES
  REMOTE KNOWLEDGE, INC.Date:
March 29, 2007By:
    
    /s/ Randy S. BayneRandy S. Bayne, Chief Executive OfficerBy:
    
    /s/ D. Henry HoustonD. Henry Houston, Chief Financial
Officer
  Signature
    
    Title
    
    Date/s/
Randy S. Bayne
Randy S. Bayne
    
    President, Chief Executive
Officer and Director
    
    March 29, 2007/s/
D. Henry Houston
D. Henry Houston
    
    Executive Vice President, Chief
Financial Officer and Director
    
    March 29, 2007/s/
Richard C. Webb
Richard C. Webb
    
    Director
and Chairman of the Board
    
    March 29, 2007/s/
Dan Granader
Dan Granader
    
    Director
    
    March 29, 2007/s/
Steve Phelps
Steve Phelps
    
    Director
    
    March 29, 2007/s/
William H. Moody
William H. Moody
    
    Director
    
    March 29, 2007
 34




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Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to
the Companys quarterly report on Form 10-QSB filed with the Commission on November 13, 2006
(File No. 333-106247))3.2
    
    Remote Knowledge, Inc. Bylaws (Incorporated by reference to Exhibit 3.4 to the Companys
Registration Statement on Form SB-2/A filed with the Commission on October 27, 2003 (File No.
333-106247))3.3
    
    Certificate of Merger of Varitek Industries, Inc. and Remote Knowledge, Inc. (Incorporated by
reference to Exhibit 3.5 to the Companys Registration Statement on Form SB-2/A filed with the
Commission on October 27, 2003 (File No. 333-106247))4.1
    
    Warrant to purchase 22,500 shares issued to Orrin H. Swayze on March 21, 2002 (Incorporated
by reference to Exhibit 4.1 to the Companys Registration Statement on Form SB-2 filed with
the Commission on June 18, 2003 (File No. 333-106247))4.2
    
    Amended and Restated Warrant to purchase 553,400 shares issued to Sanders Morris Harris, Inc.
on December 5, 2002 (Incorporated by reference to Exhibit 4.2 to the Companys Registration
Statement on Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))4.3
    
    Warrant to purchase 1,500,000 shares issued to SMH Varitek LLC on November 27, 2002
(Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form SB-2
filed with the Commission on June 18, 2003 (File No. 333-106247))4.4
    
    Form of warrant issued to noteholders on January 31, 2003 (Incorporated by reference to
Exhibit 4.4 to the Companys Registration Statement on Form SB-2 filed with the Commission on
June 18, 2003 (File No. 333-106247))4.5
    
    Form of warrant issued to noteholders on April 16, 2003 (Incorporated by reference to Exhibit
4.5 to the Companys Registration Statement on Form SB-2 filed with the Commission on June 18,
2003 (File No. 333-106247))4.6
    
    Series B Preferred Stock Designation (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Commission on April 5, 2004 (File No.
333-106247))4.7
    
    Form of Warrant issued in connection with Issuance of Series B Preferred Stock on March 30,
2004 Designation (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on April 5, 2004 (File No. 333-106247))10.1
    
    Employment Agreement of Randy S. Bayne (Incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form SB-2 filed with the Commission on June 18, 2003 (File
No. 333-106247))10.2
    
    Employment Agreement of Henry Houston (Incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))10.3
    
    Employment Agreement of Mark Sullivan (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Commission on May 23, 2005 (File No.
333-106247))




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##### Table of Contents



Exhibit No.
    
    Description10.4
    
    Varitek Industries, Inc. 2002 Stock Option Plan as amended and ISO Plan (Incorporated by
reference to Exhibit 10.2 to the Companys Registration Statement on Form SB-2/A filed with
the Commission on August 22, 2003 (File No. 333-106247))10.5
    
    Equity Agreement dated as of August 22, 2001, between Varitek and BACO International
(Incorporated by reference to Exhibit 10.3 to the Companys Registration Statement on Form
SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.6
    
    First Amendment to Equity Agreement between Varitek and BACO International dated as of March
20, 2002 (Incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.7
    
    Voting Agreement dated as of March 21, 2002, among Sanders Morris Harris Inc., Varitek, Harry
Bayne, BACO International, Randy Bayne and Arthur Goetze (Incorporated by reference to Exhibit
10.5 to the Companys Registration Statement on Form SB-2 filed with the Commission on June
18, 2003 (File No. 333-106247))10.8
    
    Placement Agent Agreement between Varitek and Sanders Morris Harris, Inc. dated March 21,
2002 (Incorporated by reference to Exhibit 10.6 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.9
    
    Amendment 1 to Placement Agent Agreement dated November 26, 2002 (Incorporated by reference
to Exhibit 10.7 to the Companys Registration Statement on Form SB-2 filed with the Commission
on June 18, 2003 (File No. 333-106247))10.10
    
    Financial Advisory Agreement between Varitek and Sanders Morris Harris Inc. dated September
28, 2001 (Incorporated by reference to Exhibit 10.8 to the Companys Registration Statement on
Form SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.11
    
    Stockholders Agreement dated as of November 27, 2002, among SMH Varitek LLC, Varitek, Harry
Bayne, BACO International and Randy Bayne (Incorporated by reference to Exhibit 10.10 to the
Companys Registration Statement on Form SB-2 filed with the Commission on June 18, 2003 (File
No. 333-106247))10.12
    
    Letter Agreement dated as of November 27, 2002, between SMH Varitek LLC and Randy Bayne
(Incorporated by reference to Exhibit 10.11 to the Companys Registration Statement on Form
SB-2 filed with the Commission on June 18, 2003 (File No. 333-106247))10.13
    
    Guaranteed Promissory Note in the principal amount of $500,000 dated as of June 28, 2005,
issued by Robert Duncan and guaranteed by Alan Granader, Daniel Granader and Harry Granader
(Incorporated by reference to Exhibit 10.3 to the Companys Form 10-QSB filed with the
Commission on August 12, 2005 (File No. 333-106247))10.14
    
    Secured Promissory Notes in the principal amount of $3,600,000 dated as of August 19, 2005,
issued by the Alan Granader Irrevocable Family Trust, Daniel Granader, Alan Granader, Harry
Granader, and Neil Granader (Incorporated by reference to Exhibit 10.14 to the Companys Annual Report on Form 10-KSB
filed with the Commission March 31, 2006 (File No. 333-106247))10.15
    
    License Agreement between Cislunar and Varitek (Incorporated by reference to Exhibit 10.34
to the Companys Registration Statement on Form SB-2 filed with the Commission on October 27,
2003 (File No. 333-106247))10.16
    
    Dan Goodhall Settlement Agreement Amended (Incorporated by reference to Exhibit 10.19 to the
Companys Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))10.17
    
    Sprint Advantage Agreement (Incorporated by reference to Exhibit 10.37 to the Companys
Registration Statement on Form SB-2/A filed with the Commission on December 22, 2003 (File No.
333-106247))10.18
    
    Oracle Settlement Agreement (Incorporated by reference to Exhibit 10.20 to the Companys
Annual Report on Form 10-KSB filed with the Commission on March 31, 2005 (File No.
333-106247))




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##### Table of Contents



Exhibit No.
    
    Description10.19
    
    Guaranteed Promissory Note in the principal amount of $800,000 dated as of March 13, 2006,
issued by Robert Duncan and guaranteed by Alan Granader, Daniel Granader and Harry Granader
(Incorporated by reference to Exhibit 10-19 to the Companys Annual Report on Form 10-KSB
filed with the commission of March 31, 2006 (File No. 333-106247))10.20
    
    Guaranteed Promissory Note dated March 14, 2006 in the amount of $800,000 payable to Robert
D. Duncan (incorporated by reference to Exhibit 10.2 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.21
    
    Put Agreement dated March 9, 2006 for 400,000 common shares at $0.50 with Robert D. Duncan
(incorporated by reference to Exhibit 10.3 to the Companys quarterly report on Form 10-QSB
filed with the Commission on August 11, 2006 (File No. 333-106247))10.22
    
    Guaranteed Promissory Note dated March 31, 2006 in the amount of $200,000 payable to Hydie
McAlister (incorporated by reference to Exhibit 10.4 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.23
    
    Put Agreement dated March 28, 2006 for 100,000 common shares at $0.50 with Hydie McAlister
(incorporated by reference to Exhibit 10.5 to the Companys quarterly report on Form 10-QSB
filed with the Commission on August 11, 2006 (File No. 333-106247))10.24
    
    Bridge Loan Promissory Note dated May 22, 2006 in the amount of $750,000 payable to Robert
D. Duncan (incorporated by reference to Exhibit 10.6 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.25
    
    Bridge Loan Promissory Note dated May 22, 2006 in the amount of $750,000 payable to John R.
Huff (incorporated by reference to Exhibit 10.7 to the Companys quarterly report on Form
10-QSB filed with the Commission on August 11, 2006 (File No. 333-106247))10.26
    
    Subscription Agreement dated May 10, 2006 for 45 units (Series B Preferred Stock and
Warrants) with 6C Ranches (incorporated by reference to Exhibit 10.8 to the Companys
quarterly report on Form 10-QSB filed with the Commission on August 11, 2006 (File No.
333-106247))10.27
    
    Bridge Loan Promissory Note dated July 25, 2006 in the amount of $250,000 payable to Lewis
Ventures, L.P. (incorporated by reference to Exhibit 10.2 to the Companys quarterly report on
Form 10-QSB filed with the Commission on November 13, 2006 (File No. 333-106247))10.28
    
    Bridge Loan Promissory Note dated September 8, 2006 in the amount of $200,000 payable to
Ralph H. Lord (incorporated by reference to Exhibit 10.3 to the Companys quarterly report on
Form 10-QSB filed with the Commission on November 13, 2006 (File No. 333-106247))10.29
    
    Subscription Agreement dated July 10, 2006 for 100 Units (Series B Preferred Stock and
Warrants) with OSA Pension & Trust Eugene F. Morris (incorporated by reference to Exhibit 10.4
to the Companys quarterly report on Form 10-QSB filed with the Commission on November 13,
2006 (File No. 333-106247))10.30
    
    Omnibus Stock and Incentive Compensation Plan 2006 effective as of September 7, 2006
(incorporated by reference to Exhibit 10.5 to the Companys quarterly report on Form 10-QSB
filed with the Commission on November 13, 2006 (File No. 333-106247))10.31
    
    Guaranteed Bridge Loan Promissory Note dated December 19, 2006 in the amount of $375,000
payable to Robert D. Duncan*10.32
    
    Subscription Agreement dated December 19, 2006 for 375 Units (Convertible Promissory Note
and Warrants), Convertible Promissory Note for $375,000, and warrants with Robert D. Duncan*10.33
    
    Promissory Note dated December 20, 2006 in the amount of $95,730.80 payable to Daniel
Goodhall*10.34
    
    Promissory Note dated December 31, 2006 in the amount of $385,000 payable to Lockheed Martin
Services, Inc.*




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##### Table of Contents



Exhibit No.
    
    Description10.35
    
    Development Agreement between the Company and Raymarine plc dated January 5, 2007* **10.36
    
    Bridge Loan Promissory Note dated March 5, 2007 in the amount of $50,000 payable to Fielding
L. Cocke*10.37
    
    Guaranteed Bridge Loan Promissory Note dated March 5, 2007 in the amount of $300,000 payable
to Jeffrey J. Bell*10.38
    
    Extension of Guaranteed Bridge Loan Promissory Note dated January 31, 2007 in the amount of
$250,000 payable to Lewie Ventures LP*10.39
    
    Extension of Guaranteed Bridge Loan Promissory Note dated March 15, 2007 in the amount of
$200,000 payable to Ralph H. Lord*14
    
    Code of Ethics (Incorporated by reference to Exhibit 14 to the Companys
Annual Report on Form 10-KSB filed with the Commission March 31, 2006 (File No. 333-106247))31.1
    
    Rule 13a-14 Certification.*31.2
    
    Rule 13a-14 Certification.*32.1
    
    Section 1350 Certification.*