##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
   Remote Knowledge, Inc.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    74-1664837
(I.R.S. Employer
Identification number)
 3657 Briarpark Drive, Suite 100, Houston, Texas 77042
(Address of Principal Executive offices) (Zip Code)
   R £
  £ R
  £ R




---



Remote Knowledge, Inc.
 INDEX TO QUARTERLY REPORT ON FORM 10-QSB
 PagePART IItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    9Item 3. Controls and Procedures
    
    
    14PART IIItem 1. Legal Proceedings
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 6. Exhibits and Reports on Form 8-K
    
    
    15Summary of Director CompensationLoan AgreementCertification required by Section 302Certification required by Section 302Certification required by Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
  remote knowledge, inc.(a development stage enterprise)Condensed Balance Sheetunaudited
 September 30, 2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    101,511Accounts receivable
    
    
    23,504Inventory
    
    
    806,156Prepaid and other current assets
    
    
    284,107Total current assets
    
    
    1,215,278Property and Equipment, net
    
    
    531,476Total assets
    
    $
    1,746,754LIABILITIES AND SHAREHOLDERS DEFICITCurrent Liabilities:Accounts payable  trade
    
    $
    857,545Accrued expenses
    
    
    1,182,480Payable to shareholder
    
    
    132,150Notes payable
    
    
    1,170,693Total current liabilities
    
    
    3,342,868Shareholders Deficit:Preferred stock  series A, $.001 par
value; 15,000 shares authorized; 4,419
shares issued and outstanding
    
    
    4Preferred stock  series B, $.001 par
value; 13,500 shares authorized; 9,781
shares issued and outstanding
    
    
    9Common stock, $.001 par value; 100,000,000
shares authorized; 9,743,927 shares issued
and outstanding
    
    
    9,744Deferred compensation
    
    
    (158,384
    )Additional paid-in capital
    
    
    58,036,921Accumulated deficit
    
    
    (10,234,380
    )Deficit accumulated during development stage
    
    
    (49,250,028
    )Total shareholders deficit
    
    
    (1,596,114
    )Total liabilities and shareholders deficit
    
    $
    1,746,754
 The accompanying notes are an integral part of these financial statements.
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remote knowledge, inc.(a development stage enterprise)unaudited
 Condensed Statements of Operations
 Period FromJanuary 1, 2001(inception ofThree-Month Periods Ended
    
    
    Nine-Month Periods Ended
    
    
    development stage)September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    to September30,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005Revenues
    
    $
    
    
    
    $
    
    
    
    $
    20,172
    
    
    $
    
    
    
    $
    63,902Cost of Goods Sold
    
    
    
    
    
    
    
    
    
    
    19,684
    
    
    
    
    
    
    
    58,660Gross Profit
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    5,242Operating Costs and
Expenses:Advisory
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,169,146Research and development
    
    
    167,085
    
    
    
    4,691
    
    
    
    423,520
    
    
    
    118,366
    
    
    
    4,669,127Loss on impairment of
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525,246Professional fees
    
    
    70,431
    
    
    
    81,087
    
    
    
    349,211
    
    
    
    246,340
    
    
    
    2,363,837Advertising and promotion
fees
    
    
    109,888
    
    
    
    62,890
    
    
    
    173,367
    
    
    
    107,481
    
    
    
    1,471,073General and administrative
expenses
    
    
    712,131
    
    
    
    891,581
    
    
    
    3,028,913
    
    
    
    2,411,938
    
    
    
    13,570,497Total operating costs
and expenses
    
    
    1,059,535
    
    
    
    1,040,249
    
    
    
    3,975,011
    
    
    
    2,884,125
    
    
    
    27,768,926Other Expense (Income):Interest expense
    
    
    1,068,541
    
    
    
    45,481
    
    
    
    1,194,212
    
    
    
    436,709
    
    
    
    3,897,282Amortization of deferred
financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,188,432Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (364
    )
    
    
    (27,420
    )Other income
    
    
    
    
    
    
    
    
    
    
    (3,075
    )
    
    
    
    
    
    
    (3,075
    )Other expense
    
    
    
    
    
    
    
    
    
    
    5,198
    
    
    
    
    
    
    
    12,698Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Total other expense
(income)
    
    
    1,068,541
    
    
    
    45,481
    
    
    
    1,196,335
    
    
    
    436,345
    
    
    
    3,682,939Net Loss
    
    
    (2,128,076
    )
    
    
    (1,085,730
    )
    
    
    (5,170,858
    )
    
    
    (3,320,470
    )
    
    
    (31,446,623
    )Effective Dividend Related to
Beneficial Conversion of Series
B Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (2,267,000
    )
    
    
    (6,622,993
    )
    
    
    (10,957,493
    )Effective Dividend Related to
Beneficial Conversion of Series
A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,554,000
    )Warrants issued for release of
redemption provision on
preferred stock  series A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,291,912
    )
    
    
    (1,291,912
    )Net Loss Attributable to Common
Shares
    
    $
    (2,128,076
    )
    
    $
    (1,085,730
    )
    
    $
    (7,437,858
    )
    
    $
    (11,235,375
    )
    
    $
    (49,250,028
    )Net Loss Per Share:BASIC AND DILUTED
    
    $
    (.26
    )
    
    $
    (.17
    )
    
    $
    (0.99
    )
    
    $
    (1.86
    )
    
    $
    (8.96
    )Number of Shares Used in
Calculating Net Loss Per Share:BASIC AND DILUTED
    
    
    8,284,897
    
    
    
    6,480,480
    
    
    
    7,489,114
    
    
    
    6,056,057
    
    
    
    5,498,734
 The accompanying notes are an integral part of these financial statements.
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remote knowledge, inc.(a development stage enterprise)Condensed Statements of Cash Flowsunaudited
 Period FromJanuary 1, 2001(inception ofdevelopmentNINE-MONTH PERIODS ENDED
    
    
    stage) toSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005Cash Flows From Operating Activities:Net loss
    
    $
    (5,170,858
    )
    
    $
    (3,320,470
    )
    
    $
    (31,446,623
    )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
    
    
    987,451
    
    
    
    209,906
    
    
    
    2,998,470Depreciation
    
    
    161,126
    
    
    
    136,954
    
    
    
    623,577Loss on impairment of fixed assets
    
    
    
    
    
    
    77,819
    
    
    
    1,564,282Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Equity issued for services and interest
    
    
    1,002,653
    
    
    
    524,365
    
    
    
    7,964,817Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Charge off of receivables
    
    
    
    
    
    
    
    
    
    
    446,414Changes in assets and liabilities:Accounts receivable
    
    
    (2,439
    )
    
    
    
    
    
    
    (23,504
    )Inventory
    
    
    (398,535
    )
    
    
    (127,577
    )
    
    
    (806,156
    )Prepaid and other current assets
    
    
    (94,812
    )
    
    
    (21,179
    )
    
    
    (251,611
    )Accounts payable  trade
    
    
    180,073
    
    
    
    (312,479
    )
    
    
    1,415,668Accrued expenses
    
    
    (91,816
    )
    
    
    17,928
    
    
    
    415,326Related party payable
    
    
    
    
    
    
    
    
    
    
    399,259Net cash used in operating activities
    
    
    (3,427,157
    )
    
    
    (2,814,733
    )
    
    
    (16,896,627
    )Cash Flows From Investing Activities:Additions of fixed assets
    
    
    (69,633
    )
    
    
    (112,771
    )
    
    
    (925,282
    )Related party receivable
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net cash used in investing activities
    
    
    (69,633
    )
    
    
    (112,771
    )
    
    
    (1,225,282
    )Cash Flows From Financing Activities:Payments of notes payable
    
    
    (1,116,822
    )
    
    
    (309,000
    )
    
    
    (1,377,822
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    27,900Proceeds from SMH note payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Proceeds from short term note payable
    
    
    545,000
    
    
    
    
    
    
    
    545,000Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    903,800Proceeds from other notes payable
    
    
    178,465
    
    
    
    249,000
    
    
    
    3,287,328Proceeds from advance from related party
    
    
    90,000
    
    
    
    
    
    
    
    90,000Payment of advance from related party
    
    
    (90,000
    )
    
    
    
    
    
    
    (90,000
    )Net proceeds from sale of mandatory redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    5,040,033Proceeds from related party note payable
    
    
    1,680,000
    
    
    
    
    
    
    
    1,680,000Net proceeds from sale of series B preferred stock
    
    
    2,259,000
    
    
    
    2,978,069
    
    
    
    6,584,073Net cash provided by financing activities
    
    
    3,545,643
    
    
    
    2,918,069
    
    
    
    18,190,312Net Change in Cash and Cash Equivalents
    
    
    48,853
    
    
    
    (9,435
    )
    
    
    68,403Cash and Cash Equivalents, beginning of period
    
    
    52,658
    
    
    
    18,728
    
    
    
    33,108Cash and Cash Equivalents, end of period
    
    $
    101,511
    
    
    $
    9,293
    
    
    $
    101,511
 (Continued)
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September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005Non-Cash Transactions:Issuance of warrants for loans
    
    $
    
    
    
    $
    
    
    
    $
    2,011,019Issuance 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 accrued expenses to notes payable
    
    
    
    
    
    
    32,259
    
    
    
    Conversion of notes payable to equity
    
    
    
    
    
    
    4,226,000
    
    
    
    4,201,000Contribution of capital by shareholders for
financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Issuance of common stock upon conversion of
Series A preferred stock
    
    
    488,244
    
    
    
    235,000
    
    
    
    1,520,749Issuance of common stock upon conversion of
Series B preferred stock
    
    
    1,598,000
    
    
    
    
    
    
    
    1,598,000Issuance of common stock upon conversion of
mandatorily redeemable preferred stock
classified as debt
    
    
    
    
    
    
    
    
    
    
    20,000Reclassification of mandatory redeemable
preferred stock to equity
    
    
    
    
    
    
    
    
    
    
    5,534,000Effective dividend from amortization of
discount 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
    
    
    
    
    
    
    1,291,912
    
    
    
    1,291,912Effective dividend from amortization of
discount related to beneficial conversion of
Series B preferred stock and warrants
    
    $
    2,267,000
    
    
    $
    6,622,993
    
    
    $
    10,957,493Supplemental Disclosure of Cash Flow
Information:Cash paid for interest
    
    $
    52,480
    
    
    $
    70,608
    
    
    $
    144,643
 The accompanying notes are an integral part of these financial statement.
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Remote Knowledge, Inc.Notes To Condensed Financial Statements
 Note 1  Basis of Presentation
  Note 2  Significant Accounting Policies
 Stock-Based Compensation
  PERIOD FROMJANUARY 1, 2001(INCEPTION OFDEVELOPMENTSTAGE) TOTHREE-MONTH PERIODS ENDED
    
    
    NINE-MONTH PERIODS ENDED
    
    
    SEPTEMBER 30,SEPTEMBER 30, 2005
    
    
    SEPTEMBER 30, 2004
    
    
    SEPTEMBER 30, 2005
    
    
    SEPTEMBER 30, 2004
    
    
    2005Net loss attributable to common
shareholders as reported
    
    $
    (2,128,076
    )
    
    $
    (1,085,730
    )
    
    $
    (7,437,858
    )
    
    $
    (11,235,375
    )
    
    $
    (49,250,028
    )Stock based employee
compensation included in
reported net loss
    
    
    5,441
    
    
    
    42,109
    
    
    
    816,323
    
    
    
    42,109
    
    
    
    1,403,117Total stock-based employee
compensation expense determined
under fair-value based method
for all options
    
    
    (63,914
    )
    
    
    (98,354
    )
    
    
    (1,038,286
    )
    
    
    (264,178
    )
    
    
    (6,266,420
    )Pro forma net loss
    
    $
    (2,186,549
    )
    
    $
    (1,141,975
    )
    
    $
    (7,659,821
    )
    
    $
    (11,457,444
    )
    
    $
    (54,113,331
    )Basic and diluted loss per shareAs reported
    
    
    (0.26
    )
    
    
    (0.17
    )
    
    
    (0.99
    )
    
    
    (1.86
    )
    
    
    (8.96
    )Pro forma
    
    
    (0.26
    )
    
    
    (0.18
    )
    
    
    (1.02
    )
    
    
    (1.89
    )
    
    
    (9.84
    )
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Note 3  Notes Payable
     Note 4  Stock Grant
  Note 5  Net Loss Per Share
  8




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Item 2. Managements Discussion and Analysis or Plan of Operation.
 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,
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##### Table of Contents




    
    changes in laws or regulations, and
    
    successful exploitation of our market opportunities.
  
    
    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.
  Non-GAAP Financial Measures
  OVERVIEW AND COMPANY STATUS
  Plan of Operation
 Revenue Goals
  10




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Operational Goals
    Communication Assets
   Financial Position
     11




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Results of Operations
       12




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Non-GAAP Reconciliation
 PERIOD FROM JANUARY 1,2001 (INCEPTION OFTHREE-MONTH PERIODS ENDED
    
    
    NINE-MONTH PERIODS ENDED
    
    
    DEVELOPMENT STAGE) TOSEPTEMBER 30, 2005
    
    
    SEPTEMBER 30, 2004
    
    
    SEPTEMBER 30, 2005
    
    
    SEPTEMBER 30, 2004
    
    
    SEPTEMBER 30, 2005Net loss attributable to common
shareholders
    
    $
    (2,128,076
    )
    
    $
    (1,085,730
    )
    
    $
    (7,437,858
    )
    
    $
    (11,235,375
    )
    
    $
    (49,250,028
    )Equity issued for services and
interest (Note 1)
    
    
    110,595
    
    
    
    
    
    
    
    1,002,653
    
    
    
    
    
    
    
    7,964,817Effective dividend related to
beneficial conversion on
preferred stock
(Note 2)
    
    
    
    
    
    
    
    
    
    
    2,267,000
    
    
    
    6,622,993
    
    
    
    10,957,493Accretion of debt discount and
discount related to beneficial
conversion of convertible debt
(Note 3)
    
    
    966,618
    
    
    
    121,672
    
    
    
    987,451
    
    
    
    209,606
    
    
    
    2,998,470Warrants issued for release of
redemption on preferred stock
(Note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,291,912
    
    
    
    1,291,912Effective dividend related to
beneficial conversion on
preferred stock
(Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,554,000Amortization of deferred
financing costs (Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,188,432Core operating loss
    
    $
    (1,050,863
    )
    
    $
    (964,058
    )
    
    $
    (3,180,754
    )
    
    $
    (3,110,864
    )
    
    $
    (19,294,904
    )Basic and diluted loss per shareAs reported
    
    
    (0.26
    )
    
    
    (0.17
    )
    
    
    (0.99
    )
    
    
    (1.86
    )
    
    
    (8.96
    )Pro forma
    
    
    (0.13
    )
    
    
    (0.15
    )
    
    
    (0.42
    )
    
    
    (0.51
    )
    
    
    (3.51
    )
 Note 1:
 Note 2:
 Note 3:
 Note 4:
 Note 5:
 Note 6:
 13




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Item 3. Controls and Procedures.
  14




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings  None
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
      
 Item 6. Exhibits and Reports on Form 8-K.
  1.
    
    Exhibit 10.1
    
    Summary of Director Compensation2.
    
    Exhibit 10.2
    
    Loan Agreement in the amount of $3,600,000 with the Alan Granader
Irrevocable Family Trust, Daniel Granader, Alan Granader, Harry Granader, and Neil Granader3.
    
    Exhibit 31.1
    
    Certification required by Section 302 of the Sarbanes-Oxley Act of 20024.
    
    Exhibit 31.2
    
    Certification required by Section 302 of the Sarbanes-Oxley Act of 20025.
    
    Exhibit 32
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  Remote Knowledge, Inc.By:
    
    /s/ Randy S. BayneRandy S. Bayne
Chief Executive OfficerDate: November 14, 2005
    
    By:
    
    /s/ D. Henry HoustonD. Henry Houston
Chief Financial and Accounting Officer
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Exhibit Index
 1.
    
    Exhibit 10.1
    
    Summary of Director Compensation2.
    
    Exhibit 10.2
    
    Loan Agreement in the amount of $3,600,000 with the Alan Granader
Irrevocable Family Trust, Daniel Granader, Alan Granader, Harry Granader, and Neil Granader3.
    
    Exhibit 31.1
    
    Certification required by Section 302 of the Sarbanes-Oxley Act of 20024.
    
    Exhibit 31.2
    
    Certification required by Section 302 of the Sarbanes-Oxley Act of 20025.
    
    Exhibit 32
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002