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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
 For the quarterly period ended: March 31, 2006
 Commission File Number: 333-106247
 Remote Knowledge, Inc.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    74-1664837
(I.R.S. Employer
Identification number)
 
   þ o
  o þ
  o þ




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##### 



Remote Knowledge, Inc.
 INDEX TO ANNUAL REPORT ON FORM 10-QSB
 PagePART IItem 1. Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    11Item 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
    
    
    16Summary of Director CompensationCertification required by Section 302Certification required by Section 302Certification required by Section 906
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
  remote knowledge, inc.  (a development stage enterprise)  Condensed Balance Sheet  unaudited
 March 31, 2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    226,682Accounts receivable
    
    
    16,205Inventory
    
    
    154,958Prepaid and other current assets
    
    
    87,664Total current assets
    
    
    485,509Property and Equipment,net
    
    
    478,120Total assets
    
    $
    963,629LIABILITIES AND SHAREHOLDERS DEFICITCurrent Liabilities:Accounts payable  trade
    
    $
    778,776Accrued expenses
    
    
    2,459,491Payable to shareholder
    
    
    128,682Notes payable to related parties
    
    
    1,146,944Notes payable
    
    
    1,111,541Total current liabilities
    
    
    5,625,434Shareholders Deficit:Preferred stock  series A, $.001 par value; 15,000 shares
authorized; 4,414 shares issued and outstanding
    
    
    4Preferred stock  series B, $.001 par value; 13,500 shares
authorized; 6,504 shares issued and outstanding
    
    
    6Common stock, $.001 par value; 100,000,000 shares authorized;
14,193,264 shares issued and outstanding
    
    
    14,194Additional paid-in capital
    
    
    61,024,821Deferred compensation
    
    
    (88,156
    )Accumulated deficit
    
    
    (10,234,380
    )Deficit accumulated during development stage
    
    
    (55,378,294
    )Total shareholders deficit
    
    
    (4,661,805
    )Total liabilities and shareholders deficit
    
    $
    963,629
 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 ofdevelopmentthree-Month Periods Ended
    
    
    stage) toMARCH 31,
    
    
    MARCH 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006Revenues
    
    $
    13,421
    
    
    $
    
    
    
    $
    64,468Cost of Goods Sold
    
    
    11,494
    
    
    
    
    
    
    
    56,392Gross Profit
    
    
    1,927
    
    
    
    
    
    
    
    8,076Operating Costs and Expenses:Advisory services
    
    
    
    
    
    
    
    
    
    
    4,169,146Research and development
    
    
    122,561
    
    
    
    99,283
    
    
    
    5,708,583Loss on impairment of assets
    
    
    
    
    
    
    
    
    
    
    2,185,575Professional fees
    
    
    185,886
    
    
    
    246,207
    
    
    
    2,711,955Advertising and promotion fees
    
    
    71,044
    
    
    
    40,908
    
    
    
    1,534,398General and administrative expenses
    
    
    2,046,675
    
    
    
    733,503
    
    
    
    16,728,514Total operating costs and expenses
    
    
    2,426,166
    
    
    
    1,119,901
    
    
    
    33,038,171Other Expense (Income):Interest expense
    
    
    567,427
    
    
    
    50,315
    
    
    
    4,700,007Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Other income
    
    
    (4,946
    )
    
    
    (2,675
    )
    
    
    (8,021
    )Other expense
    
    
    9,376
    
    
    
    
    
    
    
    22,074Interest income
    
    
    
    
    
    
    
    
    
    
    (27,420
    )Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Total other expense (income)
    
    
    571,857
    
    
    
    47,640
    
    
    
    4,490,094Net Loss
    
    
    (2,996,096
    )
    
    
    (1,167,541
    )
    
    
    (37,520,189
    )Effective Dividend from Amortization of
Discount Related to Beneficial Conversion of
Mandatorily Redeemable Series A Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    (5,554,000
    )Warrants Issued for Release of Redemption
Provision of Series A Preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,291,912
    )Effective Dividend from Amortization of
Discount Related to Beneficial Conversion of
Series B Preferred Stock and Warrants
    
    
    
    
    
    
    (1,537,538
    )
    
    
    (11,012,193
    )Net Loss Attributable to Common Shares
    
    $
    (2,996,096
    )
    
    $
    (2,705,079
    )
    
    $
    (55,378,294
    )Net Loss Per Share:Basic and Diluted
    
    $
    (.22
    )
    
    $
    (.40
    )
    
    $
    (8.89
    )Number of Shares Used in Calculating Net Loss
Per Share:Basic and Diluted
    
    
    13,323,301
    
    
    
    6,733,796
    
    
    
    6,227,737
 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 Flows  unaudited
 Period FromJanuary 1,2001(inception ofdevelopmentthree-Month Periods Ended
    
    
    stage) toMarch 31,
    
    
    March 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006Cash Flows From Operating Activities:Net loss
    
    $
    (2,996,096
    )
    
    $
    (1,167,541
    )
    
    $
    (37,520,189
    )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
    
    
    371,969
    
    
    
    
    
    
    
    3,506,555Depreciation
    
    
    58,611
    
    
    
    49,298
    
    
    
    750,591Loss on impairment of fixed assets
    
    
    9,376
    
    
    
    
    
    
    
    1,573,658Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Equity issued for services and interest
    
    
    1,502,904
    
    
    
    47,089
    
    
    
    9,561,904Provision for loss on inventory
    
    
    
    
    
    
    
    
    
    
    660,329Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Charge off of receivables
    
    
    
    
    
    
    
    
    
    
    446,414Changes in assets and liabilities:Accounts receivable
    
    
    (12,305
    )
    
    
    
    
    
    
    (16,205
    )Inventory
    
    
    (2,067
    )
    
    
    (512,810
    )
    
    
    (892,762
    )Prepaid and other current assets
    
    
    19,315
    
    
    
    11,022
    
    
    
    (58,636
    )Accounts payable  trade
    
    
    (166,400
    )
    
    
    185,597
    
    
    
    1,336,899Accrued expenses
    
    
    63,676
    
    
    
    68,676
    
    
    
    1,692,337Related party payable
    
    
    
    
    
    
    
    
    
    
    399,259Net cash used in operating activities
    
    
    (1,151,017
    )
    
    
    (1,318,669
    )
    
    
    (18,756,392
    )Cash Flows From Investing Activities:Additions of fixed assets
    
    
    (8,292
    )
    
    
    (56,751
    )
    
    
    (939,341
    )Sale of fixed assets
    
    
    8,500
    
    
    
    
    
    
    
    8,500Related party receivable
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net cash provided by (used in) investing activities
    
    
    208
    
    
    
    (56,751
    )
    
    
    (1,230,841
    )Cash Flows From Financing Activities:Payments of notes payable
    
    
    (22,500
    )
    
    
    (251,966
    )
    
    
    (1,447,327
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    27,900Proceeds from SMH note payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Proceeds from short term note payable
    
    
    800,000
    
    
    
    
    
    
    
    1,385,000Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    903,800Proceeds from other notes payable
    
    
    
    
    
    
    20,000
    
    
    
    3,287,328Proceeds from advance from related party
    
    
    
    
    
    
    
    
    
    
    90,000Payment of advance from related party
    
    
    
    
    
    
    
    
    
    
    (90,000
    )Net proceeds from sale of mandatorily redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    5,040,033Net proceeds from sale of Series B preferred stock
    
    
    
    
    
    
    1,570,000
    
    
    
    6,639,073Proceeds from related party note payable
    
    
    595,000
    
    
    
    
    
    
    
    2,845,000Net cash provided by financing activities
    
    
    1,372,500
    
    
    
    1,338,034
    
    
    
    20,180,807Net Change in Cash and Cash Equivalents
    
    
    221,691
    
    
    
    (37,386
    )
    
    
    193,574Cash and Cash Equivalents, beginning of period
    
    
    4,991
    
    
    
    52,658
    
    
    
    33,108Cash and Cash Equivalents, end of period
    
    $
    226,682
    
    
    $
    15,272
    
    
    $
    226,682
 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 Flows  unaudited  (continued)
 Non-Cash Transactions:Issuance of common stock for related party debt
    
    $
    
    
    
    $
    
    
    
    $
    888,832Issuance of common stock for debt
    
    $
    
    
    
    $
    
    
    
    $
    1,157,114Issuance of common stock for assets
    
    $
    
    
    
    $
    
    
    
    $
    8,000Conversion of accounts payable to notes payable
    
    $
    
    
    
    $
    
    
    
    $
    766,484Conversion of notes payable to equity
    
    $
    
    
    
    $
    
    
    
    $
    4,201,000Contribution of capital by shareholders for financing costs
    
    $
    
    
    
    $
    
    
    
    $
    1,188,432Issuance of common stock upon conversion of Series A
preferred stock
    
    $
    
    
    
    $
    150,742
    
    
    $
    1,507,419Issuance of common stock upon conversion of Series B
preferred stock
    
    $
    947,000
    
    
    $
    
    
    
    $
    6,041,000Issuance of common stock upon conversion of mandatorily
redeemable preferred stock classified as debt
    
    $
    
    
    
    $
    
    
    
    $
    20,000Reclassification of mandatorily redeemable preferred stock
to equity
    
    $
    
    
    
    $
    
    
    
    $
    5,534,000Effective dividend from amortization of discount related to
beneficial conversion of mandatorily redeemable Series A
preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    5,554,000Warrants issued for release of redemption provision of
Series A preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    1,291,912Effective dividend from amortization of discount related to
beneficial conversion of Series B preferred stock and
warrants
    
    $
    
    
    
    $
    1,537,538
    
    
    $
    11,012,193Reclassification of demo units from inventory to fixed assets
    
    $
    
    
    
    $
    
    
    
    $
    77,475Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    
    
    
    $
    460
    
    
    $
    180,732
 The accompanying notes are an integral part of these financial statements.
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Remote Knowledge, Inc.  Notes To Condensed Financial Statements
 Note 1  Basis of Presentation
  Note 2  Significant Accounting Policies
 Share-Based Compensation Share-Based
Payment-Revised 2004 Share-Based Payment
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Remote Knowledge, Inc.  Notes To Condensed Financial Statements
 Pro-Forma Stock Compensation Expense for the Quarterly Period Ended March 31, 2005
  Three MonthsEndedMarch 31,2005Net loss
    
    $
    (2,705,079
    )Deduct: Stock-based employee compensation expense,
determined under fair value method for all awards
    
    
    (97,666
    )Net loss
    
    $
    (2,802,745
    )Loss per share  basic, as reported
    
    $
    (0.40
    )Loss per share  diluted, as adjusted
    
    $
    (0.42
    )
  Stock Options as of the Quarterly Period Ended March 31, 2006
  
    
    Under the 2004 Incentive Stock Option Plan, employees providing material services to the
Company or any subsidiary of the Company may be awarded options. As of March 31, 2006,
employees have received awards.
    
    Under the 2004 Stock Option Plan, employees, Directors of and consultants to the Company
and its affiliates may be awarded options. As of March 31, 2006, employees, Directors and
consultants have received awards.
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Remote Knowledge, Inc.  Notes To Condensed Financial Statements
  Outstanding OptionsWeightedAverageRemainingWeighted
    
    
    Contractual
    
    
    AggregateAverage
    
    
    Term
    
    
    IntrinsicNumber of Shares
    
    
    Exercise Price
    
    
    (in years)
    
    
    ValueOptions outstanding at January 1, 2006
    
    
    3,675,000
    
    
    $
    0.99Granted
    
    
    3,750,000
    
    
    
    0.50Exercised
    
    
    (0
    )
    
    
    0.00Canceled or forfeited
    
    
    (590,000
    )
    
    
    1.00Options outstanding at March 31, 2006
    
    
    6,835,000
    
    
    $
    0.72
    
    
    
    6.10
    
    
    $
    0Options exercisable at March 31, 2006
    
    
    4,364,916
    
    
    $
    0.71
    
    
    
    5.68
    
    
    $
    0
   WeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedNumber of
    
    Contractual
    
    Average
    
    Number of
    
    AverageOptions
    
    Life
    
    Exercise
    
    Options
    
    ExerciseExercise prices
    
    Outstanding
    
    (in years)
    
    price
    
    Exercisable
    
    Price$0.45
    
    
    240,000
    
    
    
    9.70
    
    
    
    
    
    
    
    65,0000.50
    
    
    3,870,000
    
    
    
    5.13
    
    
    
    
    
    
    
    3,770,0000.80
    
    
    375,000
    
    
    
    8.65
    
    
    
    
    
    
    
    150,0001.00
    
    
    1,850,000
    
    
    
    6.59
    
    
    
    
    
    
    
    1,775,0001.10
    
    
    150,000
    
    
    
    8.35
    
    
    
    
    
    
    
    83,3331.60
    
    
    350,000
    
    
    
    8.02
    
    
    
    
    
    
    
    290,0006,835,000
    
    
    
    6.10
    
    
    $
    0.72
    
    
    
    6,133,333
    
    
    $
    0.71
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Remote Knowledge, Inc.  Notes To Condensed Financial Statements
  Three Months EndedMarch 31,2006
    
    2005Volatility
    
    
    147
    %
    
    NAExpected option term
    
    2 1/2 years
    
    NARisk-free interest rate
    
    
    4.8
    %
    
    NAExpected dividend yield
    
    
    0
    %
    
    NADiscount used for post-vesting restrictions
    
    None
    
    NA
  Modifications of Stock Options Granted
  Note 3  Notes Payable
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Remote Knowledge, Inc.  Notes To Condensed Financial Statements
 Note 3  Net Loss Per Share
  - 10 -




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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,
    
    changes in laws or regulations, and
    
    successful exploitation of our market opportunities.
  
    
    our inability to obtain financing for research and development, manufacturing, and marketing
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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.
  OVERVIEW AND COMPANY STATUS
  Twelve Month Plan of Operation
       - 12 -




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Financial Position
       - 13 -




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Results of Operations
       
 Item 3. Controls and Procedures.
   - 14 -




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
     - 15 -




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Item 6. Exhibits and Reports on Form 8-K.
 (a)
    
    The following exhibits are furnished as part of this report:1.
    
    
    Exhibit 10.1
    
    Summary of Director Compensation2.
    
    
    Exhibit 31.1
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 2002.3.
    
    
    Exhibit 31.2
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 2002.4.
    
    
    Exhibit 32
    
    Certification required by Section 906 of the
Sarbanes-Oxley Act of 2002.(b)
    
    Reports on Form 8-K: None
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Remote Knowledge, Inc.By:

/s/
Randy S. BayneRandy S. BayneChief Executive OfficerDate: May 12, 2006
    By:

/s/
D. Henry HoustonD. Henry HoustonChief Financial and Accounting Officer - 17 -




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Index
to Exhibits
 1.
    
    Exhibit 10.1
    
    Summary of Director Compensation2.
    
    Exhibit 31.1
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 2002.3.
    
    Exhibit 31.2
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 2002.4.
    
    Exhibit 32
    
    Certification required by Section 906 of the
Sarbanes-Oxley Act of 2002.