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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
   Remote Knowledge, Inc.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    74-1664837
(I.R.S. Employer
Identification number)
     þ o
  o þ




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##### Table of Contents



Remote Knowledge, Inc.
 INDEX TO QUARTERLY REPORT ON FORM 10-QSB
 PART I
    
    
    
    PageItem 1.
    
    Financial Statements
    
    
    2Item 2.
    
    Managements Discussion and Analysis or Plan of
Operation
    
    
    8Item 3.
    
    Controls and Procedures
    
    
    12PART IIItem 1.
    
    Legal Proceedings
    
    
    13Item 2.
    
    Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    13Item 5.
    
    Other Information
    
    
    13Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    14Summary of Director CompensationPromissory NoteCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 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
 June 30, 2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    86,069Accounts receivable
    
    
    23,504Inventory
    
    
    878,951Prepaid and other current assets
    
    
    347,284Total current assets
    
    
    1,335,808Property and Equipment,net
    
    
    581,284Total assets
    
    $
    1,917,092LIABILITIES AND SHAREHOLDERS DEFICITCurrent Liabilities:Accounts payable  trade
    
    $
    963,051Accrued expenses
    
    
    1,242,162Payable to shareholder
    
    
    132,150Notes payable
    
    
    710,369Total current liabilities
    
    
    3,047,732Shareholders Deficit:Preferred stock  series A, $.001 par value; 15,000 shares authorized; 4,472 shares issued and outstanding
    
    
    4Preferred stock  series B, $.001 par value; 13,500 shares authorized; 10,980 shares issued and outstanding
    
    
    11Common stock, $.001 par value; 100,000,000 shares authorized; 8,061,885 shares issued and outstanding
    
    
    8,062Deferred compensation
    
    
    (203,355
    )Additional paid-in capital
    
    
    56,420,970Accumulated deficit
    
    
    (10,234,380
    )Deficit accumulated during development stage
    
    
    (47,121,952
    )Total shareholders deficit
    
    
    (1,130,640
    )Total liabilities and shareholders deficit
    
    $
    1,917,092
 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
    
    
    six-Month Periods Ended
    
    
    development stage)JUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,
    
    
    to JUNE 30,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005Revenues
    
    $
    20,172
    
    
    $
    
    
    
    $
    20,172
    
    
    $
    
    
    
    $
    63,902Cost of Goods Sold
    
    
    19,684
    
    
    
    
    
    
    
    19,684
    
    
    
    
    
    
    
    58,660Gross Profit
    
    
    488
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    5,242Operating Costs and Expenses:
Advisory services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,169,146Research and development
    
    
    157,152
    
    
    
    82,434
    
    
    
    256,435
    
    
    
    113,675
    
    
    
    4,502,042Loss on impairment of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525,246Professional fees
    
    
    32,573
    
    
    
    146,443
    
    
    
    278,780
    
    
    
    165,253
    
    
    
    2,293,406Advertising and promotion fees
    
    
    22,571
    
    
    
    14,496
    
    
    
    63,479
    
    
    
    44,591
    
    
    
    1,361,185General and administrative expenses
    
    
    1,583,279
    
    
    
    785,728
    
    
    
    2,316,782
    
    
    
    1,520,356
    
    
    
    12,858,366Total operating costs and
expenses
    
    
    1,795,575
    
    
    
    1,029,100
    
    
    
    2,915,476
    
    
    
    1,843,876
    
    
    
    26,709,391Other Expense (Income):Interest expense
    
    
    75,356
    
    
    
    92,180
    
    
    
    125,671
    
    
    
    391,228
    
    
    
    2,828,741Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,188,432Interest income
    
    
    
    
    
    
    (364
    )
    
    
    
    
    
    
    (364
    )
    
    
    (27,420
    )Other income
    
    
    (400
    )
    
    
    
    
    
    
    (3,075
    )
    
    
    
    
    
    
    (3,075
    )Other expense
    
    
    5,198
    
    
    
    
    
    
    
    5,198
    
    
    
    
    
    
    
    12,698Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Total other expense (income)
    
    
    80,154
    
    
    
    91,816
    
    
    
    127,794
    
    
    
    390,864
    
    
    
    2,614,398Net Loss
    
    
    (1,875,241
    )
    
    
    (1,120,916
    )
    
    
    (3,042,782
    )
    
    
    (2,234,740
    )
    
    
    (29,318,547
    )Effective Dividend Related to Beneficial
Conversion of Series B Preferred Stock
    
    
    (729,462
    )
    
    
    
    
    
    
    (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
    
    $
    (2,604,703
    )
    
    $
    (1,120,916
    )
    
    $
    (5,309,782
    )
    
    $
    (10,149,645
    )
    
    $
    (47,121,952
    )Net Loss Per Share:BASIC AND DILUTED
    
    $
    (.35
    )
    
    $
    (.19
    )
    
    $
    (.75
    )
    
    $
    (1.74
    )
    
    $
    (8.82
    )Number of Shares Used in Calculating Net
Loss Per Share:BASIC AND DILUTED
    
    
    7,423,306
    
    
    
    6,014,186
    
    
    
    7,082,381
    
    
    
    5,841,514
    
    
    
    5,342,533
 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 ofdevelopmentSIX-MONTH PERIOD ENDED
    
    
    stage) toJUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,2005
    
    
    2004
    
    
    2005Cash Flows From Operating Activities:Net loss
    
    $
    (3,042,782
    )
    
    $
    (2,234,740
    )
    
    $
    (29,318,547
    )Adjustments to reconcile net loss to net cash used in operating activities:Accretion of debt discount
    
    
    20,833
    
    
    
    209,906
    
    
    
    2,031,852Depreciation
    
    
    109,348
    
    
    
    76,450
    
    
    
    571,799Loss on impairment of fixed assets
    
    
    
    
    
    
    
    
    
    
    39,036Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,188,432Common stock issued for services
    
    
    881,176
    
    
    
    
    
    
    
    6,705,533Stock based compensation
    
    
    10,882
    
    
    
    91,775
    
    
    
    597,676Common stock warrants issued for services
    
    
    
    
    
    
    
    
    
    
    23,295Common stock options issued for services
    
    
    
    
    
    
    223,142
    
    
    
    515,718Preferred stock issued for services
    
    
    
    
    
    
    
    
    
    
    12,000Debt forgiveness
    
    
    
    
    
    
    
    
    
    
    (1,384,978
    )Impairment of long-lived assets
    
    
    
    
    
    
    53,261
    
    
    
    1,525,246Allowance for doubtful Account
    
    
    
    
    
    
    
    
    
    
    173,028Expense offset against related party receivable
    
    
    
    
    
    
    
    
    
    
    126,973Charge off of receivable from sale of stock
    
    
    
    
    
    
    
    
    
    
    146,413Changes in assets and liabilities:Accounts receivable
    
    
    (2,439
    )
    
    
    
    
    
    
    (23,504
    )Inventory
    
    
    (471,330
    )
    
    
    
    
    
    
    (878,951
    )Prepaid and other current assets
    
    
    (157,989
    )
    
    
    (92,324
    )
    
    
    (314,788
    )Accounts payable  trade
    
    
    285,579
    
    
    
    (350,743
    )
    
    
    1,521,174Accrued expenses
    
    
    (32,134
    )
    
    
    32,402
    
    
    
    475,008Related party payable
    
    
    
    
    
    
    
    
    
    
    399,259Net cash used in operating activities
    
    
    (2,398,856
    )
    
    
    (1,990,871
    )
    
    
    (15,868,326
    )Cash Flows From Investing Activities:Additions of fixed assets
    
    
    (67,663
    )
    
    
    (58,230
    )
    
    
    (923,312
    )Related party receivable
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net cash used in investing activities
    
    
    (67,663
    )
    
    
    (58,230
    )
    
    
    (1,223,312
    )Cash Flows From Financing Activities:Payments of notes payable
    
    
    (437,534
    )
    
    
    (309,000
    )
    
    
    (698,534
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    27,900Proceeds from SMH note payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Proceeds from short term note payable
    
    
    500,000
    
    
    
    
    
    
    
    500,000Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    903,800Proceeds from other notes payable
    
    
    178,464
    
    
    
    149,000
    
    
    
    3,287,327Net proceeds from sale of mandatory redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    5,040,033Net proceeds from sale of series B preferred stock
    
    
    2,259,000
    
    
    
    2,282,147
    
    
    
    6,584,073Net cash provided by financing activities
    
    
    2,499,930
    
    
    
    2,122,147
    
    
    
    17,144,599Net Change in Cash and Cash Equivalents
    
    
    33,411
    
    
    
    73,047
    
    
    
    52,961Cash and Cash Equivalents, beginning of period
    
    
    52,658
    
    
    
    18,728
    
    
    
    33,108Cash and Cash Equivalents, end of period
    
    $
    86,069
    
    
    $
    91,774
    
    
    $
    86,069
 The accompanying notes are an integral part of these financial statement.
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Period FromJanuary 1, 2001(inception ofdevelopmentSIX-MONTH PERIOD ENDED
    
    
    stage) toJUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,2005
    
    
    2004
    
    
    2005Non-Cash Transactions:Issuance of warrants for loans
    
    $
    500,000
    
    
    $
    
    
    
    $
    2,511,019Issuance of common stock for related party debt
    
    
    
    
    
    
    
    
    
    
    888,832Issuance of common stock for debt
    
    
    
    
    
    
    
    
    
    
    1,154,939Issuance of common stock for assets
    
    
    
    
    
    
    
    
    
    
    8,000Conversion of accounts payable to notes payable
    
    
    
    
    
    
    
    
    
    
    766,484Conversion 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 Preferred
    
    
    404,202
    
    
    
    235,000
    
    
    
    1,436,707Conversion 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
    
    $
    35,561
    
    
    $
    
    
    
    $
    92,623
 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
  three-month periods ended
    
    
    six-month periods endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common
shareholders as reported
    
    $
    (2,604,703
    )
    
    $
    (1,120,916
    )
    
    $
    (5,309,782
    )
    
    $
    (10,149,645
    )Stock based employee
compensation included in
reported net loss
    
    
    5,441
    
    
    
    77,366
    
    
    
    10,882
    
    
    
    91,775Total stock-based employee
compensation expense determined
under fair value based method
for all options
    
    
    (76,707
    )
    
    
    (82,263
    )
    
    
    (174,373
    )
    
    
    (165,824
    )Pro forma net loss
    
    $
    (2,675,969
    )
    
    $
    (1,125,813
    )
    
    $
    (5,473,273
    )
    
    $
    (10,223,694
    )Basic and diluted loss per shareAs reported
    
    $
    (0.35
    )
    
    $
    (0.19
    )
    
    $
    (.75
    )
    
    $
    (1.74
    )Pro forma
    
    $
    (0.36
    )
    
    $
    (0.19
    )
    
    $
    (.77
    )
    
    $
    (1.75
    )
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Note 3  Notes Payable
  Note 4  Stock Grant
  Note 5  Net Loss Per Share
  7




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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,
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
    
    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 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
  Plan of Operation
 Revenue Goals
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Operational Goals
   Communication Assets
   Financial Position
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Results of Operations
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Item 3. Controls and Procedures.
   12




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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 5. Other Information.
  13




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Item 6. Exhibits and Reports on Form 8-K.
  1.
    
    Exhibit 10.1
    
    Summary of Director Compensation2.
    
    Exhibit 10.2
    
    Employment Agreement of Mark Sullivan dated May 18, 2005
(incorporated by reference to Exhibit 10.1 to Form 8-K filed May 23, 2005 [SEC File
No. 333-106247])3.
    
    Exhibit 10.3
    
    Promissory Note dated June 28, 2005 in the amount of
$500,000 payable to Robert Duncan4.
    
    Exhibit 31.1
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 20025.
    
    Exhibit 31.2
    
    Certification required by Section 302 of the
Sarbanes-Oxley Act of 20026.
    
    Exhibit 32
    
    Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002
 SIGNATURES
  Remote Knowledge, Inc.By:
    /s/ Randy S. BayneRandy S. BayneChief Executive OfficerDate: August 11, 2005
    By:
    /s/ D. Henry HoustonD. Henry HoustonChief Financial and Accounting Officer 14