UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended September 30, 2008





o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from __________ to ___________





Commission
File Number: 333-106247





Remote
Knowledge, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            74-1664837(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification number)





3657
      Briarpark Drive, Suite 100, Houston, Texas
                77042(Address
      of Principal Executive offices)
                (Zip
      Code)





Issuer’s
telephone number: (281) 599-4800





Check
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No T





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer” and
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer   o
            Smaller
      reporting company x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No T.





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.


Yes o No x.





As of
November 1, 2008, there were 29,664,467 shares of $.001 par value common
stock.







1





RemoteKnowledge, Inc.





INDEX
TO QUARTERLY REPORT ON FORM 10-Q





PagePART
      IItem 1. Financial Statements
                3Item 2. Management’s Discussion and Analysis or Plan of
      Operation
                12Item 4T. Controls and Procedures
                15PART
      IIItem 1. Legal Proceedings
                16Item 1A. Risk Factors
                16Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
                16Item 5. Other Information
                16Item 6. Exhibits
                16





2
 Index





PARTI — FINANCIAL INFORMATION





Item
1. Financial Statements.








Remote
Knowledge, Inc.


(A
Development Stage Enterprise)


Condensed
Balance Sheet








September 30, 2008
                
                
                December 31, 2007(unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                
                $
                744,711
                
                
                $
                1,206Other
      receivables
                
                
                11,089
                
                
                
                166,303Prepaid
      and other current assets
                
                
                394,745
                
                
                
                42,836Total
      current assets
                
                
                1,150,545
                
                
                
                210,345Property
      and equipment, net
                
                
                93,916
                
                
                
                195,414Deferred
      financing costs, net
                
                
                275,825
                
                
                
                -Other
      noncurrent assets
                
                
                12,510
                
                
                
                11,703Total
      assets
                
                $
                1,532,796
                
                
                $
                417,462LIABILITIES
      AND SHAREHOLDERS’ DEFICITCurrent
      Liabilities:Accounts
      payable — trade
                
                $
                372,807
                
                
                $
                482,142Accrued
      expenses
                
                
                3,761,558
                
                
                
                3,316,383Notes
      payable-related party, net of discount of $0 and $4,457,
      respectively
                
                
                3,258,759
                
                
                
                3,258,802Notes
      payable
                
                
                1,575,000
                
                
                
                2,122,105Derivative
      liability
                
                
                1,472,122
                
                
                
                -Total
      current liabilities
                
                
                10,440,246
                
                
                
                9,179,432Notes
      payable-related party, net of discount of $2,461,854 and $939,894,
      respectively
                
                
                4,554,349
                
                
                
                3,005,106Total
      liabilities
                
                
                14,994,595
                
                
                
                12,184,538Shareholders’
      Deficit:Preferred
      stock — series A, $.001 par value; 15,000 shares authorized; 4,274 shares
      issued and outstanding
                
                
                4
                
                
                
                4Preferred
      stock — series B, $.001 par value; 20,000 shares authorized; 6,204 and
      6,229 shares issued and outstanding, respectively
                
                
                6
                
                
                
                6Common
      stock, $.001 par value; 150,000,000 shares authorized; 16,800,588 and
      16,767,254 shares issued and outstanding, respectively
                
                
                16,801
                
                
                
                16,767Additional
      paid-in capital
                
                
                67,652,713
                
                
                
                65,052,217Subscriptions
      receivable
                
                
                (45,000
                )
                
                
                (45,000
                )Accumulated
      deficit
                
                
                (10,234,380
                )
                
                
                (10,234,380
                )Deficit
      accumulated during development stage
                
                
                (70,851,943
                )
                
                
                (66,556,690
                )Total
      shareholders’ deficit
                
                
                (13,461,799
                )
                
                
                (11,767,076
                )Total
      liabilities and shareholders’ deficit
                
                $
                1,532,796
                
                
                $
                417,462








The
accompanying notes are an integral part of these financial
statements.





3
 Index





remote
knowledge, inc.


(a
development stage enterprise)


Unaudited
Condensed Statements of Operations





Three-Month
      Periods Ended
                  
                  
                  Nine-Month
      Periods Ended
                  
                  
                  Period
      from
                    January
      1, 2001
                    (Inception
      of
                    Dvelopments
      stage)September
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,
                  
                  
                  to September
      30,2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2008Revenues
                  
                  $
                  3,151
                  
                  
                  $
                  (62,500
                  )
                  
                  $
                  9,297
                  
                  
                  $
                  (74,829
                  )
                  
                  $
                  16,128Cost
      of Goods Sold
                  
                  
                  —
                  
                  
                  
                  ---
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  76,033Gross
      Profit (Loss)
                  
                  
                  3,151
                  
                  
                  
                  (62,500
                  )
                  
                  
                  9,297
                  
                  
                  
                  (74,829
                  )
                  
                  
                  (59,905
                  )Operating
      Costs and Expenses:Advisory
      services
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,169,146Research
      and development
                  
                  
                  204,412
                  
                  
                  
                  176,253
                  
                  
                  
                  637,213
                  
                  
                  
                  560,605
                  
                  
                  
                  7,606,006Loss
      on impairment of assets
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,284,164Professional
      fees
                  
                  
                  25,747
                  
                  
                  
                  175,905
                  
                  
                  
                  229,696
                  
                  
                  
                  267,746
                  
                  
                  
                  3,424,121Advertising
      and promotion fees
                  
                  
                  —
                  
                  
                  
                  ---
                  
                  
                  
                  2,354
                  
                  
                  
                  —
                  
                  
                  
                  1,660,464General
      and administrative expenses
                  
                  
                  729,880
                  
                  
                  
                  431,012
                  
                  
                  
                  2,150,655
                  
                  
                  
                  1,341,086
                  
                  
                  
                  23,015,614Total
      operating costs and expenses
                  
                  
                  960,039
                  
                  
                  
                  783,170
                  
                  
                  
                  3,019,918
                  
                  
                  
                  2,169,437
                  
                  
                  
                  42,159,515Loss
      from Operations
                  
                  
                  (956,888
                  )
                  
                  
                  (845,670
                  )
                  
                  
                  (3,010,621
                  )
                  
                  
                  (2,244,266
                  )
                  
                  
                  (42,219,420
                  )Other
      Expense (Income):Interest
      expense
                  
                  
                  709,035
                  
                  
                  
                  171,169
                  
                  
                  
                  1,675,838
                  
                  
                  
                  1,059,166
                  
                  
                  
                  9,762,210Amortization
      of deferred financing costs
                  
                  
                  —
                  
                  
                  
                  4,675
                  
                  
                  
                  —
                  
                  
                  
                  4,675
                  
                  
                  
                  1,193,107Change
      in fair value of derivative liability
                  
                  
                  —
                  
                  
                  
                  1,472,122
                  
                  
                  
                  —
                  
                  
                  
                  1,472,122
                  
                  
                  
                  1,472,122Interest
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (27,420
                  )Other
      income
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  (567
                  )
                  
                  
                  —
                  
                  
                  
                  (21,919
                  )Other
      expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  52
                  
                  
                  
                  12,750Debt
      forgiveness
                  
                  
                  (627
                  )
                  
                  
                  (441,969
                  )
                  
                  
                  (627
                  )
                  
                  
                  (485,030
                  )
                  
                  
                  (2,203,197
                  )Total
      other expense (income)
                  
                  
                  708,408
                  
                  
                  
                  1,205,997
                  
                  
                  
                  1,674,644
                  
                  
                  
                  2,050,985
                  
                  
                  
                  10,187,653Net
      Loss
                  
                  
                  (1,665,296
                  )
                  
                  
                  (2,051,667
                  )
                  
                  
                  (4,685,265
                  )
                  
                  
                  (4,295,251
                  )
                  
                  
                  (52,407,073
                  )Effective
      Dividend from  Series A Preferred Stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (5,554,000
                  )Warrants
      Issued Series A Preferred Stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,291,912
                  )Effective
      Dividend from Series B Preferred Stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (100,000
                  )
                  
                  
                  —
                  
                  
                  
                  (11,598,958
                  )Net
      Loss Attributable to Common Shares
                  
                  $
                  (1,665,296
                  )
                  
                  $
                  (2,051,667
                  )
                  
                  $
                  (4,785,265
                  )
                  
                  $
                  (4,295,251
                  )
                  
                  $
                  (70,851,943
                  )Net
      Loss Per Share:Basic
      and Diluted
                  
                  $
                  (.10
                  )
                  
                  $
                  (.12
                  )
                  
                  $
                  (.30
                  )
                  
                  $
                  (.26
                  )
                  
                  $
                  (7.59
                  )Number
      of Shares Used in Calculating Net Loss Per Share:Basic
      and Diluted
                  
                  
                  16,428,868
                  
                  
                  
                  16,800,588
                  
                  
                  
                  15,887,773
                  
                  
                  
                  16,786,546
                  
                  
                  
                  9,334,108








The
accompanying notes are an integral part of these financial
statements.





4
 Index








remote
knowledge, inc.


(a
development stage enterprise)


Unaudited
Condensed Statements of Cash Flows





NINE-MONTH PERIODS
      ENDED
                
                
                Period
      From
                  January
      1, 2001
                  (inception
      of
                  development
                  stage)
      toSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,2007
                
                
                2008
                
                
                2008Cash
      Flows From Operating Activities:Net
      loss
                
                $
                (4,685,265
                )
                
                $
                (4,295,251
                )
                
                $
                (52,407,073
                )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
                
                
                1,351,053
                
                
                
                700,588
                
                
                
                7,407,390Depreciation
                
                
                163,970
                
                
                
                129,044
                
                
                
                1,274,855Loss
      on impairment of fixed assets
                
                
                —
                
                
                
                —
                
                
                
                1,564,282Amortization
      of deferred financing costs
                
                
                2,070
                
                
                
                4,675
                
                
                
                1,193,107Equity
      issued for services and interest
                
                
                328,394
                
                
                
                382,439
                
                
                
                10,623,363Provision
      for loss on inventory
                
                
                —
                
                
                
                —
                
                
                
                758,918Debt
      forgiveness
                
                
                —
                
                
                
                (361,561
                )
                
                
                (2,079,728
                )Change
      in fair value of derivative liability
                
                
                —
                
                
                
                1,472,122
                
                
                
                1,472,122Charge
      off of receivables
                
                
                —
                
                
                
                —
                
                
                
                446,414Changes
      in assets and liabilities:Accounts
      receivable
                
                
                660
                
                
                
                —
                
                
                
                —Inventory
                
                
                —
                
                
                
                (45,000
                )
                
                
                (881,393
                )Other
      receivables
                
                
                (166,303
                )
                
                
                155,214
                
                
                
                (11,089
                )Prepaid
      and other current assets
                
                
                88
                
                
                
                (306,909
                )
                
                
                (317,249
                )Other
      noncurrent assets
                
                
                (51,948
                )
                
                
                (807
                )
                
                
                (12,510
                )Accounts
      payable – trade
                
                
                221,329
                
                
                
                (109,335
                )
                
                
                1,264,119Accrued
      expenses
                
                
                345,723
                
                
                
                472,614
                
                
                
                3,058,700Deferred
      revenue
                
                
                53,322
                
                
                
                (27,441
                )
                
                
                22,730Related
      party payable
                
                
                —
                
                
                
                —
                
                
                
                399,259Net
      cash used in operating activities
                
                
                (2,436,907
                )
                
                
                (1,829,608
                )
                
                
                (26,223,781
                )Cash
      Flows From Investing Activities:Additions
      of fixed assets
                
                
                (22,256
                )
                
                
                (27,546
                )
                
                
                (1,061,525
                )Related
      party receivable
                
                
                —
                
                
                
                —
                
                
                
                (300,000
                )Net
      cash used in investing activities
                
                
                (22,256
                )
                
                
                (27,546
                )
                
                
                (1,361,525
                )Cash
      Flows From Financing Activities:Payments
      of notes payable
                
                
                (43,756
                )
                
                
                (185,544
                )
                
                
                (3,640,843
                )Capital
      contributions
                
                
                —
                
                
                
                —
                
                
                
                27,900Payments
      of deferred financing costs
                
                
                —
                
                
                
                (280,500
                )
                
                
                (280,500
                )Proceeds
      from notes payable
                
                
                —
                
                
                
                3,071,203
                
                
                
                4,571,203Proceeds
      from short term note payable
                
                
                950,000
                
                
                
                —
                
                
                
                4,635,000Proceeds
      from sale of common stock
                
                
                —
                
                
                
                —
                
                
                
                903,800Proceeds
      from other notes payable
                
                
                124,208
                
                
                
                —
                
                
                
                3,477,910Net
      proceeds from sale of mandatory redeemable preferred stock
                
                
                —
                
                
                
                —
                
                
                
                5,040,033Net
      proceeds from sale of series B preferred stock with
    warrants
                
                
                —
                
                
                
                
                
                
                
                7,114,073Payment
      of advance from related party
                
                
                4,500
                
                
                
                (4,500
                )
                
                
                —Proceeds
      from related party note payable
                
                
                905,000
                
                
                
                —
                
                
                
                6,448,333Net
      cash provided by financing activities
                
                
                1,939,952
                
                
                
                2,600,659
                
                
                
                28,296,909Net
      Change in Cash and Cash Equivalents
                
                
                (519,211
                )
                
                
                743,505
                
                
                
                711,603Cash and Cash
      Equivalents, beginning of
      period
                
                
                519,583
                
                
                
                1,206
                
                
                
                33,108Cash and Cash
      Equivalents, end of
      period
                
                $
                372
                
                
                $
                744,711
                
                
                $
                744,711





(Continued)





The
accompanying notes are an integral part of these financial
statements.





5
 Index





remote
knowledge, inc.


(a
development stage enterprise)


Unaudited
Condensed Statements of Cash Flows (continued)








NINE-MONTH
      PERIODS ENDED
                                        
                                        
                                        Period
      From
                                          January
      1, 2001
                                          (inception
      of
                                          development
                                          stage)
      toSeptember
      30,
                                        
                                        
                                        September
      30,
                                        
                                        
                                        September
      30,2007
                                        
                                        
                                        2008
                                        
                                        
                                        2008Non-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 and other debt to equity
                                        
                                        $
                                        100,000
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        4,301,000Contribution
      of capital by shareholders for financing costs
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        1,188,432Issuance
      of common stock (86,710 shares; 0 shares; and 1,694,179 shares,
      respectively) upon conversion of Series A preferred stock
                                        
                                        $
                                        86
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        1,693Issuance
      of common stock (466,670 shares; 33,334 shares; and 7,267,338 shares,
      respectively) upon conversion of Series B preferred stock
                                        
                                        $
                                        467
                                        
                                        
                                        $
                                        34
                                        
                                        
                                        $
                                        7,268Issuance
      of common stock upon conversion of mandatorily redeemable preferred stock
      classified as debt
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        20,000Reclassification
      of mandatory redeemable preferred stock to equity
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        5,534,000Discount
      related to beneficial conversion of mandatory 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
                                        
                                        $
                                        100,000
                                        
                                        
                                        $
                                        
                                        
                                        
                                        $
                                        11,598,958Reclassification
      of demo units from inventory to property and equipment
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        77,475Discount
      related to notes payable
                                        
                                        $
                                        471,085
                                        
                                        
                                        $
                                        2,218,091
                                        
                                        
                                        $
                                        7,907,438Conversion
      of notes payable into convertible debt
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        375,000Conversion
      of accrued expenses into notes payable
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        87,028Issuance
      of common stock (1,073,893 shares; 0 shares; and 1,073,893 shares,
      respectively) as interest on bridge loans
                                        
                                        $
                                        1,074
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        1,074Issuance
      of common stock (90,000 shares; 0 shares; and 90,000 shares, respectively)
      associated with restricted stock grant
                                        
                                        $
                                        90
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        90Total
      noncash transactions
                                        
                                        $
                                        672,802
                                        
                                        
                                        $
                                        2,218,125
                                        
                                        
                                        $
                                        40,765,798Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
                                        
                                        $
                                        22,495
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        408,748





The
accompanying notes are an integral part of these financial
statements.





6
 Index





Note
1 — Basis of Presentation





The
unaudited condensed financial statements have been prepared by the Company
pursuant to the rules and regulations of the United States Securities and
Exchange Commission (the “SEC”). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such SEC rules and regulations; nevertheless, the Company believes
that the disclosures are adequate to make the information presented not
misleading. The condensed financial statements and notes should be read in
conjunction with financial statements and notes thereto included in the
Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007. In
the opinion of the Company, all adjustments, including normal recurring
adjustments necessary to present fairly, in all material respects, the financial
position of the Company, as of September 30, 2008, and the results of its
operations and cash flows for the three months and nine months then ended, have
been included. The results of operations for the interim period are not
necessarily indicative of the results for the full year.





Note
2 — Significant Accounting Policies





Share-Based
Compensation – Effective January 1, 2006, the Company adopted the fair
value recognition provisions of Statement of Financial Accounting Standard No.
123(R) “Share-Based
Payment-Revised 2004”(“SFAS 123(R)”).  The stock compensation
expense for the quarter and nine month period ended September 30, 2008 amounted
to 85,958 and 382,439, respectively.  For the quarter and nine month
period ended September 30, 2008 this expense increased basic and diluted loss
per share by less than $0.01 and $0.02, respectively, compared to reported basic
and diluted loss per share of $0.12 and $0.26, respectively. The stock
compensation expense for the quarter and nine month period ended September 30,
2007 amounted to $103,706 and $194,924, respectively.  For the quarter
and nine month period ended September 30, 2007 this expense increased basic and
diluted loss per share by less than $0.01 and $0.01, respectively, compared to
reported basic and diluted loss per share of $0.10 and $0.30, respectively. The
Company did not recognize a tax benefit from the stock compensation expense
because the Company considers it more likely than not that the related deferred
tax assets, which have been reduced by a full valuation allowance, will not be
realized.





The
Black-Scholes option-pricing model was used to estimate the option fair values.
The option-pricing model requires a number of assumptions, of which the most
significant are, expected stock price volatility, the expected pre-vesting
forfeiture rate and the expected option term (the amount of time from the grant
date until the options are exercised or expire). Expected volatility was
calculated based upon actual historical stock price movements over the most
recent periods ending on the grant date equal to the expected option term.
Expected pre-vesting forfeitures were estimated based on actual historical
pre-vesting forfeitures over the most recent periods ending on the grant date
for the expected option term. The expected option term was calculated using the
“simplified” method permitted by SAB 107.





The
Company has never had any exercise of stock options. SFAS 123(R) requires tax
benefits resulting from tax deductions in excess of the compensation cost
recognized for those options (“excess tax benefits”) to be classified and
reported as both an operating cash outflow and a financing cash inflow upon
adoption of SFAS 123(R). As a result of the Company’s net operating losses, the
excess tax benefits that would otherwise be available to reduce income taxes
payable have the effect of increasing the Company’s net operating loss carry
forwards. Accordingly, because the Company is not able to realize these excess
tax benefits, such benefits will not be recognized in the condensed statements
of cash flow until such time as benefits can be used.





Derivative
Liabilities – Statement of Financial Accounting Standard No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”)
established financial accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. These derivatives, including embedded
derivatives in our structured borrowings, are separately valued and accounted
for on our balance sheet. Fair values for exchange-traded securities and
derivatives are based on quoted market prices. Where market prices are not
readily available, fair values are determined using market based pricing models
incorporating readily observable market data and requiring judgment and
estimates. The pricing model we use for determining fair values of our
derivatives is the Lattice Model. Valuations derived from this model are subject
to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates, exchange rates and option
volatilities. Selection of these inputs involves management’s judgment and may
impact results of our operations.





In
September 2000, the Emerging Issues Task Force issued EITF 00-19, "Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in, a
Company's Own Stock" ("EITF 00-19"), which requires freestanding contracts that
are settled in a company's own stock, including warrants to purchase common
stock, to be designated as an equity instrument, asset or a liability. Under the
provisions of EITF 00-19, a contract designated as an asset or a liability must
be carried at fair value on a company’s balance sheet, with any changes in fair
value recorded in the company’s results of operations. A contract designated as
an equity instrument must be included within equity, and no fair value
adjustments are required. In accordance with EITF 00-19, in December 2005, we
determined that our outstanding warrants to purchase our common stock and the
embedded conversion feature of convertible debt are not required to be
separately accounted for as liabilities.





7
 Index





As of
September 30, 2008, we have determined that we do not have sufficient authorized
and unissued shares to settle certain Company obligations to issue shares
pursuant to outstanding warrants or restricted stock grants, as default
interest, and other outstanding debt.  Such commitments are more fully
described in Note 5. The contracts representing the excess shares required for
distribution must be reclassified and treated as derivative liabilities. The
Company utilizes a sequencing method under which the earliest issued instruments
are reclassified as derivative liabilities.





We use
the sequencing method to identify the warrants requiring reclassification as
derivatives. Then we use a lattice valuation model to value the warrants which
were reclassified as derivatives under the sequencing method. As a result, we
report the value of these derivatives as current liabilities on our balance
sheet and we report changes in the value of these derivatives as non-operating
gains or losses in our statement of operations. The value of derivatives is
required to be recalculated (and resulting non-operating gains or losses
reflected in our statement of operations and resulting adjustments to the
associated liability amounts reflected on our balance sheet) on a quarterly
basis.





Our Form
10-Q for the period ending June 30, 2008, included a pro forma capitalization
table projecting our equity following issuance of all shares which could be
required as a result of the August 21, 2008 financing.  As a
result of the foregoing reclassification of excess shares as derivative
liabilities, we have not included a similar pro forma calculation in
this 3rd Quarter 10-Q. We advise investors that the pro forma
capitalization table included in the Form 10-Q for the 2nd Quarter 2008 may be
incomplete and/or inaccurate in light of the foregoing. As a condition
of the credit agreement executed in connection with the August 21, 2008
financing, the holders of no less than 51% of the outstanding shares of the
Company entered into a voting agreement which, among other
things, commits such shareholders to vote to amend the Articles of
Incorporation to authorize additional shares at such time as the Company calls
for a vote on such an amendment.  We will disclose additional information
regarding our capitalization as data becomes available and appropriate
calculations are completed, including any action to increase the authorized
capital of the Company.





Note
3 — Notes Payable





From
January 1, 2008 through September 30, 2008, the Company received $3,071,203 in
cash from affiliated parties.  These funds were part of the funding
closed on August 21, 2008.  The outstanding principal and interest on
these notes are convertible to common shares according to their
terms.   See Note 5 – “Recent Financing” for more
information.





Note
4 — Net Loss Per Common Share





Net loss
per share (LPS) is computed by dividing the net loss for the period attributable
to common shares by the weighted-average number of common shares outstanding for
the period. Diluted LPS is based on the weighted-average number of shares of
common stock and common stock equivalents outstanding for the
period.  For the three and nine month periods ended September 30,
2007, and 2008, respectively, common stock equivalents have been excluded from
the calculation of weighted-average shares for purposes of calculating diluted
loss per share, as such inclusion was anti-dilutive.





Note 5 — Recent
Financing





Senior
Loan





On August
21, 2008 (the “Closing Date”), we entered into a credit agreement with SLW
International, LLC, a Delaware limited liability company (“SLWI”), pursuant to
which SLWI agreed to lend to us $800,000 (the “Senior Loan”).  The
Senior Loan was made in accordance with, and secured by, a note (the “Senior
Note”) and security agreement (the “Senior Security Agreement”) between us and
SLWI.  This Senior Note was executed in renewal of a promissory note
dated May 30, 2008, executed by us and payable to the order of Muragai LLC, a
Delaware limited liability company and a wholly-owned subsidiary of SLWI
(“Muragai”).  The May 30, 2008 note was executed by us in renewal of a
promissory note dated February 25, 2008, payable to the order of Muragai in the
original principal amount of $250,000, which prior promissory notes had been
assigned to SLWI by Muragai pursuant to that certain Assignment of Note and
Liens dated as of July 30, 2008.  The funds from the Senior Loan were
used to refinance the initial principal and additional amounts loaned by Muragai
to us.  All principal outstanding under the Senior Note pursuant to
the renewal, extension and conversion of the prior notes bears interest
retroactive to the date of initial funding and prior to maturity at a rate equal
to the lesser of (i) the maximum, nonusurious rate allowed by law and (ii)
fifteen percent (15%) per annum.  As of September 30, 2008, the entire
$800,000 had been received by us.





8
 Index





A
mandatory prepayment of the advanced Loan Funds may be required by Lenders after
we have achieved a positive cash flow from operations for any three consecutive
fiscal quarters.   The total principal advanced, and accrued
interest thereon, is due and payable August 21, 2013. Accrued and unpaid
interest must be paid upon the payment or prepayment of any advanced Loan Funds;
upon a request by Lenders made after we have achieved a positive cash flow for
at least one fiscal quarter, in an amount reasonably determined by Lenders;
and/or on the maturity date.





Junior
Loan





On August
21, 2008 we also entered into a credit agreement (the “Credit Agreement”) made
between us and a group of accredited investors represented by Muragai (such
group being collectively referred to herein as (“Lenders”), under which Lenders
made a commitment to extend credit to us in the form of a convertible advancing
term loan (the “Junior Loan”) in the total commitment amount of $4,000,000 (the
“Loan Funds”). The Credit Agreement provides for the Loan Funds to be advanced
to us in increments following requests by us, as may be made from time to time,
up to the total committed Loan Funds.  The Junior Loan is made in
accordance with, and secured by a note (the “Junior Note”) and security
agreement (the “Junior Security Agreement”) between us and
Lenders.  In connection with the financing transaction, we agreed to
pay to Muragai an arrangement fee in the amount of $50,000 on the Closing
Date.  As of September 30, 2008, a total of $2,271,203 of the total
principal amount of $4,000,000 had been funded.





A
mandatory prepayment of the advanced Loan Funds may be required by Lenders after
we have achieved a positive cash flow for any three consecutive fiscal
quarters.   The total principal advanced, and accrued interest
thereon, is due and payable August 21, 2013.  Interest accrues on any
advanced funds at the rate of twelve percent (12%) per annum or the maximum,
nonusurious rate allowed by law, whichever is lesser.  Accrued and
unpaid interest must be paid upon the payment or prepayment of any advanced Loan
Funds; upon a request by Lenders made after we have achieved a positive cash
flow for at least one fiscal quarter, in an amount reasonably determined by
Lenders; and on the maturity date.





Convertible Feature of
Senior Loan and Junior Loan





At any
time, SLWI or the Lenders may elect, upon not less than seventy-five (75) days
notice to the Company, at their sole discretion, by written notice to the
Company, to convert or exchange all or any part of the amounts outstanding under
the Senior or Junior Note and any accrued and unpaid interest thereon into the
Company’s common stock.  Each $0.04 of the outstanding balance of the
Senior Note or Junior Note (the “Conversion Price”) may be converted into or
exchanged for one (1) share of the Company’s common stock based on 62,500,000
outstanding shares of the Company’s stock (the “Common Stock”) on a fully
diluted basis.  The Conversion Price shall be subject to adjustment
from time to time as provided in the Senior Note and Junior Note in order to
prevent the dilution of SLWI’s or the Lenders’ right to acquire shares of
Company’s common stock.  The Company is obligated to retain sufficient
authorized but unissued shares to satisfy such conversions.





Warrants





In
connection with the Credit Agreement, we issued to the Junior and Senior Loan
lenders warrants executable for shares of the Company’s common stock in the
aggregate amount of 15,000,000 shares (the “Lender Warrants”).  The
Lender Warrants bear an exercise price of $0.04 per share, and are exercisable
any time for a period of ten (10) years from the Closing Date.




Per APB
No. 14, we determined a discount on the convertible notes payable based on the
relative fair values of the convertible notes payable and the warrants. We used
the Black-Scholes pricing model to value the warrants using the following
assumptions: proceeds as set forth in the convertible note payable; closing
stock price as of the effective date of the note; no expected dividend yield;
expected volatility of 315%; risk free interest rate of 3.84%; and an expected
life of 5 years. The discount is being amortized as interest expense on a
straight line basis over the life of the convertible notes payable as the funds
are received. We have determined that the difference in interest expense
resulting from amortizing the debt discount under the straight line method and
the required effective interest method would not be material.  Based
on EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios” and EITF 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments,” the Company
determined the relative fair value of the entire debt and the warrants to
calculate the value of a beneficial conversion. However, since the timing of the
funds will occur over approximately three months, the Company is recording the
interest expense related to the amortization of the discount associated
with the beneficial conversion, in direct proportion to the percentage of funds
received. As of September 30, 2008 the Company has recorded $41,113 of interest
expense related to the beneficial conversion. This leaves an unamortized
discount balance of $1,835,733 related to the beneficial
conversion.





9
 Index





Settlement with
Creditors





As a
condition of the Credit Agreement, the Company also entered into settlements
with several creditors, including current and former employees, under which
outstanding debts of the Company will be exchanged for the issuance of common
stock at a fixed price of $0.75 per share.  The Company expects
to issue approximately 16,000,000 shares of common stock related to these
settlements.  The various settlements are expected to include
approximately 5,700,000 shares of common stock related to the extinguishment of
outstanding bridge loans in the amount of $2,953,000; approximately 6,900,000
shares of common stock to settle outstanding note payables in the amount of
$4,500,000 including accrued interest of approximately $1,000,000; approximately
2,400,000 shares of common stock to settle an additional four debt instruments
in the amount of $180,000; approximately 900,000 shares of common stock to
resolve various other settlements; approximately 400,000 shares of common stock
to settle back pay related to certain current and former employees; and
approximately 23,000 shares of common stock to settle outstanding balances owed
to legacy expenses related to accounts payable.





As of
September 30, 2008, no shares had yet been issued for any aforementioned
settlements.  As of November 10, 2008, a total of 12,823,879 shares
have been issued to settle outstanding debts of the Company.  See Note
7 – Pro Forma Financial Information (unaudited) for additional
information.  Certain debts of the Company were settled with cash,
resulting in the recording of debt forgiveness income for the three and nine
month periods ended September 30, 2008.





Note 6 — other Stockholders’
equity transactions





On July
31, 2008, the following Company directors tendered their resignation: D. Henry
Houston and William H. Moody.  Mr Houston had previously resigned as
the Company’s Chief Financial Officer on March 31, 2008. On August 21, 2008, Mr.
Farid Nagji, Mr. Ricardo A. Gijon, and Mr. L. Byron Way were elected to the
board of directors, filling existing vacancies.  Subsequently, the
following Company directors tendered their resignation: Randy Bayne; Richard C.
Webb; and Steve Phelps.  These changes to the composition of the board
of directors were a pre-condition to the financing transaction described in Note
5.





On
October 23, 2008, Mr. Gijon resigned as Chairman of the Audit Committee and Mr.
L. Byron Way was subsequently appointed in his place.  Mr. Gijon was
subsequently appointed the Company’s acting Chief Accounting
Officer.





In
connection with the change of certain executives’ positions within the Company
and significant changes in personnel, the Company negotiated cancellation of all
outstanding stock options.





In
connection with the change of certain executives’ positions within the Company,
the Company agreed to grant restricted shares of the Company’s common stock
under the Company’s Omnibus Stock Incentive Compensation Plan 2006 to the
persons, and in the amounts, as follows:





C. Gregory Peters -
1,000,000 shares of common stock


Randy Bayne - 1,000,000
shares of common stock


Mark Van Eman -
500,000 shares of common stock





The
aforementioned grants vest contingent and upon the Company reaching certain
product development and sales benchmarks, and subject to certain terms and
conditions as may be deemed appropriate by the chairman of the
board.





The
Company also agreed to grant warrants to its directors (as described below) to
purchase restricted shares of the Company’s common stock:





Farid Nagji - 500,000
shares of common stock at the purchase price of $0.04 per share.


Ricardo A. Gijon -
350,000 shares of common stock at the purchase price of $0.04 per
share.


L. Byron Way -
350,000 shares of common stock at the purchase price of $0.04 per
share.


Dan Granader - 350,000
shares of common stock at the purchase price $0.04 per share.





Using the
Black-Scholes model and an expected life of 6.5 years, volatility of 202% and a
risk-free interest rate of 2.62%, the Company determined the warrants had a fair
value of $87,162 as of the date of grant.  The Company is amortizing
this amount to compensation expense over the vesting period of the
warrants.





10
 Index





Note 7 — Pro Forma Financial
Information (unaudited)





Many of
the transactions contemplated in the August 21, 2008 financing were completed
between October 1, 2008 and the date of this filing.  Summarized below
is an unaudited pro forma balance sheet that reflects such
transactions:




September
      30, 2008 (unaudited)
                  
                  
                  Pro
      Forma Adjustments
                  
                  
                  Pro
      Forma Balance (unaudited)ASSETSCurrent
      Assets
                  
                  $
                  1,150,545
                  
                  
                  $
                  1,728,797
                  
                  
                  $
                  2,879,342Property
      and equipment, net
                  
                  
                  93,916
                  
                  
                  
                  -
                  
                  
                  
                  93,916Deferred
      financing costs, net
                  
                  
                  275,825
                  
                  
                  
                  -
                  
                  
                  
                  275,825Other
      noncurrent assets
                  
                  
                  12,510
                  
                  
                  
                  -
                  
                  
                  
                  12,510Total
      assets
                  
                  $
                  1,532,796
                  
                  
                  $
                  1,728,797
                  
                  
                  $
                  3,261,593LIABILITIES
      AND SHAREHOLDERS’ DEFICITCurrent
      Liabilities:Accounts
      payable — trade
                  
                  
                  372,807
                  
                  
                  
                  -
                  
                  
                  
                  372,807Accrued
      expenses
                  
                  
                  3,761,558
                  
                  
                  
                  (975,104
                  )
                  
                  
                  2,786,454Notes
      payable-related party
                  
                  
                  3,258,759
                  
                  
                  
                  (3,258,759
                  )
                  
                  
                  -Notes
      payable
                  
                  
                  1,575,000
                  
                  
                  
                  (1,575,000
                  )
                  
                  
                  -Derivative
      liability
                  
                  
                  1,472,122
                  
                  
                  
                  -
                  
                  
                  
                  1,472,122Total
      current liabilities
                  
                  
                  10,440,246
                  
                  
                  
                  (5,808,863
                  )
                  
                  
                  4,631,383Notes
      payable-related party-long-term
                  
                  
                  4,554,349
                  
                  
                  
                  (3,167,166
                  )
                  
                  
                  1,387,183Total
      liabilities
                  
                  
                  14,994,595
                  
                  
                  
                  (8,976,029
                  )
                  
                  
                  6,018,566Shareholders’
      Deficit:Total
      shareholders’ deficit
                  
                  
                  (13,461,799
                  )
                  
                  
                  10,704,826
                  
                  
                  
                  (2,756,973
                  )Total
      liabilities and shareholders’ deficit
                  
                  $
                  1,532,796
                  
                  
                  $
                  1,728,797
                  
                  
                  $
                  3,261,593




As of
November 15, 2008, not all of the approximately 16,000,000 shares have been
issued to the various creditors.


11
 Index





Item2. Management’s
Discussion and Analysis or Plan of Operation.





The
following discussion of our financial condition and results of operations should
be read in conjunction with our financial statements and related notes, and the
other financial information included in this quarterly report, current reports
filed by the Company for this reporting year, and in the Company’s Annual Report
on Form 10-KSB for the year ended December 31, 2007. With respect to this
discussion, the terms “Remote Knowledge,” “Company”, “we,” “us,” and “our” refer
to Remote Knowledge, Inc.





Risk
Factors





For a
detailed discussion of the risk factors that should be understood by any
investor contemplating investment in our stock, please refer to the section
entitled, “Risk Factors” in our 2007 Form 10-KSB, and subsequent sections of
this Management’s Discussion and Analysis.





Forward-Looking
Statements





Except
for historical information contained herein, this Item 2, and other sections of
this Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements that are not statements of
historical fact should be deemed to be forward-looking statements. Such
statements reflect the current views and assumptions of the Company management
and are not guarantees of future performance. These statements are subject to
various risks and uncertainties. The Company’s actual results could differ
materially from those anticipated in these forward-looking statements as a
result of the risk factors described in this Form 10-Q, the Company’s 2007 Form
10-KSB, and its other reportings. The Company expressly disclaims any obligation
to release publicly any updates or revisions to any forward-looking statement to
reflect any changes in expectations, or any change in events or circumstances on
which those statements are based, unless otherwise required by law.





Any and
all forward-looking statements contained herein are not guarantees of future
performance and actual results could differ materially from those expressed or
implied in such statements as a result of certain factors, including those set
forth in “Plan of Operation,” and elsewhere in this report. All statements,
other than statements of historical facts, included in this report that address
activities, events or developments that we expect, believe, intend or anticipate
may occur in the future, without limitation are forward looking statements
including the following matters:





•
            continuing
      or new business relationships,


•
            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,


•
            expansion
      and growth of business operations,
and


•
            estimates
      of cash flow, including amounts and timing of expect
    receipts








These
statements are based on certain assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
in the circumstances. These forward-looking statements are subject to risks and
uncertainties, including those associated with:





•
            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, and


•
            successful
      exploitation of our market
opportunities,


•
            changes
      in control of our management and/or board of directors,
  and


•
            actions
      by activist shareholders.





12
 Index





Significant
factors that could prevent us from achieving our stated goals
include:





•
            our
      inability to obtain financing for research and development, manufacturing,
      and marketing expenditures,


•
            our
      inability to compete against existing or future
    competitors,


•
            a
      substantial increase in the cost of our
  products,


•
            declines
      in the market prices for our products,
and


•
            adverse
      changes in our target markets.





The
cautionary statements contained or referred to in this report should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by us or persons acting on our
behalf.





Description of Business and
Plan of Operation





Remote
Knowledge, Inc., a Houston, Texas based company, develops, delivers and supports
proprietary communications and data-management products.  Our platform
development strategy proposes combining our proprietary technologies (hardware
design, embedded firmware, software and ongoing software applications) with
off-the-shelf communications services to create a product platform with the
ability to provide high-speed internet, voice, e-mail, text messaging, and
entertainment and content applications. In addition, our solutions will allow
for two-way data transfer as well as customized remote monitoring and control of
vessels shipboard systems. The initial result of this strategy has been the
creation of our high speed communication platform which we call “GEO
Mobile.”





In the
near term, we plan to focus efforts on preparing our GEO Mobile technology for
marketing. We expect that our GEO Mobile platform will be available for purchase
by leisure boat consumers in fiscal 2009.  However, we do not
anticipate that achievement of a marketable GEO Mobile platform will immediately
correlate to positive cash flow.





Recent Financing and
Additional Risk Factors





On August
21, 2008, the Company entered into a credit agreement with SLW International,
LLC, a Delaware limited liability company (“SLWI”), pursuant to which
SLWI  agreed to lend to the Company $800,000 (the “Senior Loan”), and
a credit agreement made between the Company and a group of accredited investors
represented by Muragai, Inc. (such group being collectively referred to herein
as (“Lenders”), under which Lenders agree to extend credit to the Company in the
form of a convertible advancing term loan (the “Junior Loan”) in the principal
amount of $4,000,000.  See  Footnote 5 to the financial
statements provided hereinabove for additional information regarding these
agreements (collectively referred to herein as the “2008
Financing”).  The terms of the 2008 Financing include, among other
items, provisions that could affect Company management and
operations.  These provisions include:





·
            The
      Company must provide a description of the anticipated uses of any funds
      requested against the Senior Loan commitment, and such requests are
      subject to approval by the board of
directors;


·
            Holders
      of not less than fifty-one (51%) of percent of the outstanding shares of
      the Company were required to accept a voting agreement providing for
      amendment of the Company’s Bylaws and/or Articles of Incorporation as
      necessary to effect certain terms of the credit agreement, and providing
      that two of the Company’s directors will be designated by SLWI (along with
      the chairman of the board) and two by
Muragai.


·
            Holders
      of preferred shares of the Company’s stock agreed to relinquish certain
      preferences associated with those preferred
  shares;





Further
information can be obtained through examination of the Credit Agreement attached
as an exhibit.  In part, these provisions of the credit agreement
expose the Company to possible pressure or control by the Lenders who hold
debt  convertible to shares in the Company, and can authorize
distribution of loan advances.





In
addition, in connection with the change of certain executives’ positions within
the Company, the Company agreed to grant restricted shares of the Company’s
common stock under the Company’s Omnibus Stock Incentive Compensation Plan 2006
to the persons, and in the amounts, as follows:





C. Gregory Peters -
1,000,000 shares of common stock.


Randy Bayne - 1,000,000
shares of common stock.


Mark Van Eman -
500,000 shares of common stock.





13
 Index





The
aforementioned grants vest contingent and upon the Company reaching certain
product development and sales benchmarks, and subject to certain terms and
conditions as may be deemed appropriate by the chairman of the
board.





The
Company also agreed to grant warrants to purchase restricted shares of the
Company’s common stock:





Farid Nagji - 500,000
shares of common stock at the purchase price of $0.04 per share.


Ricardo A. Gijon -
350,000 shares of common stock at the purchase price of $0.04 per
share.


L. Byron Way -
350,000 shares of common stock at the purchase price of $0.04 per
share.


Dan Granader - 350,000
shares of common stock at the purchase price $0.04 per share.





Management
anticipates seeking, and intends to take actions with the goal of making the
Company attractive to, additional loan commitments and/or equity investment by
Lenders and/or other third party investors.  Such future financing
could dilute existing shareholders or offer new investors terms preferable to
those that currently exist.





Liquidity and Capital
Resources





Recent
turmoil in the financial markets may cause significant disruptions in our
ability to raise additional capital to fund the Company’s operations in the near
term.  In addition, an anticipated downturn in the global economy may
cause less demand for our products and services.  As a result of the
recent financing (see “Recent Financing” Note 5 above), the Company believes it
has sufficient capital to fund its operations through the end of
2008.  The Company believes it will have a product in the later stages
of development at that point.  Assuming the product is deemed
successful and marketable, the Company will seek additional capital to fund
efforts in preparation for market introduction and revenue stage in
2009.  The Company believes it will need an additional $7 million to
fund remaining development and market introduction and provide necessary working
capital beginning as early as first quarter 2009.  While the Company
may experience short periods of positive cash flow, sustainable positive cash
flow is not anticipated until 2011.  The Company may seek additional
funds through equity financing, debt financing or other sources, which may
result in substantial dilution of the equity ownership of our
shares.  There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms.





Our
auditors included an explanatory paragraph in their opinion on our financial
statements for the year ended December 31, 2007 to state that our accumulated
losses, working capital deficit and shareholders’ deficit at December 31, 2007
raised substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent upon receiving the
additional capital and achieving profitable operations through the manufacture
and sale of our product. We cannot assure you that we will be able to obtain
additional capital or that sales of our product will generate significant
profits.





As of
September 30, 2008, we had a cash balance of $744,711 and negative working
capital of $9,289,701.  We have maintained minimal operations during
the first nine months of 2008, until we received the additional funds discussed
in “Recent Financing” above.  Our projected cash “burn rate” is
approximately $250,000 per month. Before we experience significant revenue, if
at all, we expect to need about $7 million of additional cash. From January 1,
2008 through September 30, 2008, we have expended approximately $2,362,000,
largely in raising financing, administrative and professional expenses, and
research and development.





Results of
Operations





We have
had minimal revenues to date, and our expenses have consisted primarily of
research and development, professional fees, advertising and promotion fees, and
general and administrative expenses, resulting in an operating loss since
January 1, 2001 as a development stage company through September 30, 2008 of
$42,219,420.





Research
and development costs have been expensed as incurred. Research and development
costs for the three months ended September 30, 2008 compared to the same period
in 2007 decreased by $28,159 primarily due to a lack of capital
resources.  Research and development costs for the first nine months
of 2008, as compared with the same period in 2007, decreased $76,608 due to the
reduction of personnel as result of lack of capital resources.  In the
last half of 2007 and early 2008 we had a reduction of 3 employees in the
research and development department.





Professional
fees for the three months ended September 30, 2008 compared to the same period
in 2007 increased by $150,158.  For the nine month period ended
September 30, 2008 compared to the same period in 2007, professional fees
increased by $38,050 to $267,746. The increase in both periods is primarily the
result of additional professional fees incurred in the third quarter of 2008 as
we began to work on completing our delinquent public company filings and
arranging the recent financing described above.





14
 Index





General
and administrative expenses for the three months ended September 30, 2008 as
compared to the same period in 2007 decreased $298,868 to $431,012. The decrease
is mainly attributable to a decrease in personnel and related personnel
costs.  General and administrative expenses for the nine months ended
September 30, 2008 compared to the same period in 2007 decreased $809,569 to
$1,341,086. The decrease is also mainly attributable to a decrease in personnel
and related personnel costs.  The reduction consists of an approximate
$419,000 decrease related to payroll and related expenses; an approximate
$83,000 reduction in travel expenses; an approximate $73,000 reduction in
insurance expenses; an approximate $146,000 reduction in communication costs; an
approximate reduction of $153,000 in manufacturing costs; an approximate
reduction of $35,000 in depreciation expense; and approximate $89,000 of other
reductions offset by an approximate $188,000 increase in stock-based
compensation expense.





Interest
expense for the third quarter and the first nine months of 2008 decreased
$537,866 and $616,672, respectively, as compared to 2007.  The
decrease primarily reflects less debt discount amortization associated with
short term funding.





Debt
forgiveness income was $441,969 and $485,030 for the three and nine month
periods ended September 30, 2008, respectively, as compared to minimal income
for the same periods in 2007 as we wrote off certain old accounts payable
amounts and settled various outstanding amounts in 2008.  Debt
forgiveness income stated here for the three or nine months ended September 30,
2008 does not relate to or reflect those settlements made or entered into as
part of the 2008 Financing as any and all of these settlements were or will be
finalized and completed subsequent to September 30, 2008.  See pro
forma information in Note 7 for more details.




Item 3. Quantitative and Qualitative Disclosures
About Market Risk.









Item4T. Controls and Procedures.





(a)Management
had concluded that its internal controls over financial reporting were not
effective as of December 31, 2007 due to a lack of qualified accounting and
financial reporting personnel who are primarily responsible for information
management in the areas of highest risk. This material weakness continued to
exist to the date of this filing. The Company has engaged outside consultants to
address this material weakness and to further enhance and improve its internal
control environment. The Company expects to have effective controls in place by
the end of 2008.





(b)
Changes in internal control over financial reporting. Except as described
herein, there were no changes in our internal control over financial reporting
during the first nine months of 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. On March 31, 2008, our Chief Financial Officer resigned from the
Company.  Because of significant capital constraints, we have not
hired a replacement.  In October 2008, our controller resigned from
the Company.  On October 23, 2008, Mr. Ricardo A. Gijon was appointed
the Company’s Acting Chief Accounting Officer.  Mr. Gijon holds a
Master of Business Administration degree from the Harvard University Graduate
School of Business and holds a Certified Public Accountant designation in the
state of Texas.





15
 Index





PART
II — OTHER INFORMATION





Item1. Legal
Proceedings — None





Item1A.  Risk Factors.





Additional
risk factors are addressed in Management’s Discussion and Analysis, provided
above, and investors are also encouraged to review those risk factors described
in the Company’s Annual Report on Form 10-KSB for the year ended December 31,
2007 in detail before making any investment in the Company’s
securities.





Item2. Unregistered Sales of Equity Securities and Issuance of
Notes and Use of Proceeds.





On August
21, 2008 the Company entered into a credit agreement which resulted in the
Company issuing two types of convertible securities (the Senior Loan and the
Junior Loan).  In addition, warrants were issued to the Senior Loan
and Junior Loan lenders.  Also, the Company entered into settlements
with several general creditors, including current and former employees, under
which outstanding debts of the Company will be  settled in exchange
for issuance of common stock.





See
Footnote 5 to the financial statements above, entitled “Recent Financing,” for a
full description of these transactions.  Additionally, see the
documents attached as exhibits hereto for further information, including the
Credit Agreement, Senior and Junior Convertible Notes, and Form
Warrant.





Item5. Other Information





On
October 23, 2008, Mr. Gijon resigned as Chairman of the Audit Committee and Mr.
L. Byron Way was subsequently appointed in his place.  Mr. Gijon was
subsequently appointed the Company’s Acting Chief Accounting
Officer.





On July
31, 2008, the following Company Directors tendered their resignation: D. Henry
Houston and William H. Moody.  On August 21, 2008, Mr. Farid Nagji,
Mr. Ric A. Gijon, and Mr. L. Byron Way were elected to the board of directors,
filling existing vacancies.  Subsequently, the following Company
directors tendered their resignation: Randy Bayne; Richard C. Webb; and Steve
Phelps.





Amendments
to Bylaws





On August
21, 2008, the Company’s Board of Directors voted to amend the Company’s Bylaws
to change the number of directors of the Company from nine (9) to five
(5).





Item6. Exhibits.





The
following exhibits are furnished as part of this report:


Exhibit
      10.1
                Senior
      Convertible Note Dated August 21, 2008 between the Company and SLW
      International, LLC (Incorporated by reference to the Company’s Current
      Report on Form 8-K filed with the Commission on August 27, 2008 (File No.
      333-106247))Exhibit
      10.2
                Security
      Agreement (Senior) Dated August 21, 2008 between the Company and SLW
      International, LLC (Incorporated by reference to the Company’s Current
      Report on Form 8-K filed with the Commission on August 27, 2008 (File No.
      333-106247))Exhibit
      10.3
                Credit
      Agreement Dated August 21, 2008 between the Company and Muragai LLC
      (Incorporated by reference to the Company’s Current Report on Form 8-K
      filed with the Commission on August 27, 2008 (File No.
      333-106247))Exhibit
      10.4
                Form
      of Junior Convertible Note Dated August 21, 2008 (Incorporated by
      reference to the Company’s Current Report on Form 8-K filed with the
      Commission on August 27, 2008 (File No. 333-106247))Exhibit
      10.5
                Security
      Agreement (Junior) Dated August 21, 2008 between the Company and Muragai
      LLC (Incorporated by reference to the Company’s Current Report on Form 8-K
      filed with the Commission on August 27, 2008 (File No.
      333-106247))Exhibit
      10.6
                Form
      of Warrant to Purchase Common Stock of Remote Knowledge, Inc.
      (Incorporated by reference to the Company’s Current Report on Form 8-K
      filed with the Commission on August 27, 2008 (File No.
      333-106247))Exhibit
      10.6
                Form
      of Warrant to Purchase Common Stock of Remote Knowledge, Inc.
      (Incorporated by reference to the Company’s Current Report on Form 8-K
      filed with the Commission on August 27, 2008 (File No.
      333-106247))
  16
 Index
  Exhibit 10.7
                Employment
      Agreement for C. Gregory PetersExhibit 10.8
                Employment
      Agreement for Randy BayneExhibit 10.9
                Employment
      Agreement for Mark Van EmanExhibit 31.1
                Certification
      required by Section 302 of the Sarbanes-Oxley Act of
  2002Exhibit 31.2
                Certification
      required by Section 302 of the Sarbanes-Oxley Act of
  2002Exhibit 32.1
                Certification
      required by Section 906 of the Sarbanes-Oxley Act of
  2002Exhibit 32.2
                Certification
      required by Section 906 of the Sarbanes-Oxley Act of
  2002


17
 Index




SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Remote
      Knowledge, Inc.By:
                            /s/ C. Gregory PetersC.
      Gregory Peters,and
      as Chief Executive OfficerBy:
                            /s/ Ricard A. GijonRicardo
      A. GijonChief
      Accounting
Officer








Date:
November 19, 2008






18