**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**








x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the quarterly period ended June 30, 2008o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      transition period from __________ to __________





Commission
      File Number: 000-29611





THE
      CHILDREN’S INTERNET, INC.


(Exact
      name of small business issuer as specified in its charter)




Nevada
            
            20-1290331(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)





110
      Ryan Industrial Ct., Suite 9, San Ramon, CA 94583


(Address
      of principal executive offices)





(925)
      743-9420


(Issuer's
      telephone number)








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act during the preceding 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
x  No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting
      company.





Large
                accelerated Filer o
            
            Accelerated
                filer oNon-accelerated
                filer o
            
            Smaller
                reporting company x





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock:


As
      of
      July 31, 2008, there were 31,373,738 shares of common stock issued and
      outstanding.











**THE
      CHILDREN’S INTERNET, INC**





**INDEX**




Page
              NumberPART
                I - FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements (Unaudited)
            1Balance
                Sheets - June 30, 2008 (unaudited) and December 31,2007
                (audited)
            1Unaudited
                Statements of Operations - For the six monthsand
                three months ended June 30, 2008 and 2007, and the
              period
                from inception to June 30, 2008
            2Unaudited
                Statements of Cash Flows - For the six months ended June 30, 2008
                and
                2007, and the period from
              inception
                to June 30, 2008
            3Notes
                to Unaudited Financial Statements
            4Item
                2.
            Management's
                Discussion and Analysis of FinancialConditions
                and Plan of Operation
            16Item
                3.
            Qualitative
                and Quantitative Disclosures about Market Risk
            23Item
                4.
            Controls
                and Procedures
            23PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            24Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            27Item
                3.
            Default
                  Upon Senior Securities
            27Item
                4.
            Submission
                of Matters to Vote of Security Holders
            27Item
                5.
            Other
                Information
            27Item
                6.
            Exhibits
                and Reports on Form 8-K
            27SIGNATURES
            28














**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1.**  **FINANCIAL
      STATEMENTS**




THE
                  CHILDREN'S INTERNET, INC.(A
                  Development Stage Company)BALANCE
                  SHEETSJune
                  30,
              
              December
                  31,2008
              
              2007ASSETS
              
              (Unaudited)
              
              (Audited)Current
                  Assets:Cash
              
              $
              -
              
              $
              104Deposit
                  held in escrow, offsets $37,378 accountpayable
                  to Oswald & Yap (Note 4)
              
              
              37,378
              
              
              37,378Total
                  Current Assets
              
              
              37,378
              
              
              37,482Equipment:Equipment
                  at cost
              
              
              13,034
              
              
              13,034Accumulated
                  depreciation
              
              
              (11,594
              )
              
              (9,421
              )Equipment,
                  net
              
              
              1,440
              
              
              3,613Other
                  Assets:Deposit
                  - State Board of Equalization
              
              
              2,000
              
              
              2,000Utility
                  deposit
              
              
              118
              
              
              118Deferred
                  tax asset, net of valuation allowance of$1,502,544
                  (2008) and $1,398,462 (2007)
              
              
              -
              
              
              -TOTAL
                  ASSETS
              
              $
              40,936
              
              $
              43,213LIABILITIES
                  AND STOCKHOLDERS' DEFICITCurrent
                  Liabilities:Cash
                  overdraft
              
              $
              22,855
              
              $
              -Accounts
                  payable and accrued expenses
              
              
              972,040
              
              
              791,622Accrued
                  salaries
              
              
              749,319
              
              
              729,319Notes
                  payable to TCI Holding Company, LLC
              
              
              320,698
              
              
              264,504Loans
                  payable to related parties
              
              
              115,770
              
              
              101,518Accrued
                  payroll taxes
              
              
              44,472
              
              
              42,942Taxes
                  payable
              
              
              8,440
              
              
              4,817Total
                  Current Liabilities
              
              
              2,233,594
              
              
              1,934,722Long-Term
                  Liabilities:Due
                  to related party
              
              
              1,029,806
              
              
              1,028,831TOTAL
                  LIABILITIES
              
              
              3,263,400
              
              
              2,963,553COMMITMENTS
                  AND CONTINGENCIES (NOTES 3 & 4)
              
              
              -
              
              
              -STOCKHOLDERS'
                  DEFICITPreferred
                  stock, $0.001 par value; 10,000,000 sharesauthorized;
                  zero shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 75,000,000 sharesauthorized;
                  31,373,738 shares issued and outstanding
              
              
              31,374
              
              
              31,374Additional
                  paid-in capital
              
              
              2,368,660
              
              
              2,364,660Deficit
                  accumulated during the development stage
              
              
              (5,622,498
              )
              
              (5,316,374
              )TOTAL
                  STOCKHOLDERS' DEFICIT
              
              
              (3,222,464
              )
              
              (2,920,340
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              40,936
              
              $
              43,213The
                  accompanying notes are an integral part of the financial
                  statements.


1





THE
                  CHILDREN'S INTERNET, INC.(A
                  Development Stage Company)STATEMENTS
                  OF OPERATIONS(Unaudited)


For
                  the Three Months
              
              For
                  the Six MonthsEnded
                  June 30,
              
              Ended
                  June 30,
              
              From
                  Inception2008
              
              2007
              
              2008
              
              2007
              
              to
                  DateNET
                  REVENUES
              
              $
              -
              
              $
              238
              
              $
              30
              
              $
              442
              
              $
              1,671COSTS
                  OF REVENUES
              
              
              -
              
              
              28
              
              
              3
              
              
              63
              
              
              260Gross
                  margin
              
              
              -
              
              
              210
              
              
              27
              
              
              379
              
              
              1,411OPERATING
                  EXPENSESSales
                  and marketing
              
              
              -
              
              
              15,737
              
              
              -
              
              
              35,700
              
              
              70,225General
                  and administrative
              
              
              113,741
              
              
              253,820
              
              
              276,471
              
              
              365,524
              
              
              3,863,518Officers'
                  compensation
              
              
              -
              
              
              118,986
              
              
              -
              
              
              163,986
              
              
              1,583,513Depreciation
                  expense
              
              
              1,087
              
              
              1,133
              
              
              2,173
              
              
              2,196
              
              
              11,594Total
                  operating expenses
              
              
              114,828
              
              
              389,676
              
              
              278,644
              
              
              567,406
              
              
              5,528,850Loss
                  from operations
              
              
              (114,828
              )
              
              (389,466
              )
              
              (278,617
              )
              
              (567,027
              )
              
              (5,527,439
              )Interest
                  expense
              
              
              14,071
              
              
              8,081
              
              
              26,707
              
              
              16,888
              
              
              89,459Loss
                  before income taxes
              
              
              (128,899
              )
              
              (397,547
              )
              
              (305,324
              )
              
              (583,915
              )
              
              (5,616,898
              )Provision
                  for income taxes
              
              
              800
              
              
              800
              
              
              800
              
              
              800
              
              
              5,600NET
                  LOSS
              
              $
              (129,699
              )
              $
              (398,347
              )
              $
              (306,124
              )
              $
              (584,715
              )
              $
              (5,622,498
              )Net
                  loss per common share-
                  basic and diluted
              
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.02
              )
              $
              (0.48
              )Shares
                  used in computingbasic
                  and diluted net lossper
                  share
              
              
              26,873,738
              
              
              26,873,738
              
              
              26,873,738
              
              
              26,873,738
              
              
              11,607,843





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


2
   THE
                  CHILDREN'S INTERNET, INC.(A
                  Development Stage Company)STATEMENTS
                  OF CASH FLOWS(Unaudited)
  For
                  the Six Months
              
              For
                  the period fromEnded
                  June 30,
              
              Inception
                  through2008
              
              2007
              
              June
                  30, 2008CASH
                  FLOWS USED IN OPERATING ACTIVITIESNet
                  Loss
              
              $
              (306,124
              )
              $
              (584,715
              )
              $
              (5,622,498
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                  on equipment
              
              
              2,173
              
              
              2,196
              
              
              11,594Amortization
                  of prepaid marketing expenses
              
              
              -
              
              
              630
              
              
              1,260Stock
                  compensation to directors
              
              
              -
              
              
              30,000
              
              
              345,000Stock
                  compensation to officers and employees
              
              
              4,000
              
              
              35,944
              
              
              125,261Shares
                  issued for services
              
              
              -
              
              
              -
              
              
              709,756Services
                  performed as capital contribution
              
              
              -
              
              
              7,500
              
              
              602,500Expenses
                  paid by former officer on behalf of company
              
              
              -
              
              
              -
              
              
              5,000Deposit
                  - State Board of Equalization
              
              
              -
              
              
              -
              
              
              (2,000
              )Utility
                  deposit
              
              
              -
              
              
              -
              
              
              (118
              )Increase
                  in current assets -Deposit
                  held in escrow
              
              
              -
              
              
              -
              
              
              (37,378
              )Prepaid
                  marketing expenses
              
              
              -
              
              
              -
              
              
              (1,260
              )Increase
                  in current liabilities -Accounts
                  payable and accrued expenses
              
              
              185,571
              
              
              187,834
              
              
              1,024,952Accrued
                  officers' compensation
              
              
              20,000
              
              
              128,375
              
              
              749,319Notes
                  payable to TCI Holding Company, LLC
              
              
              56,194
              
              
              184,243
              
              
              320,698Loans
                  payable to related parties
              
              
              14,252
              
              
              -
              
              
              115,770Net
                  cash used in operating activities
              
              
              (23,934
              )
              
              (7,993
              )
              
              (1,652,144
              )CASH
                  USED IN INVESTING ACTIVITIESAcquisition
                  of equipment
              
              
              -
              
              
              (838
              )
              
              (13,034
              )Net
                  cash used in investing activities
              
              
              -
              
              
              (838
              )
              
              (13,034
              )CASH
                  PROVIDED BY FINANCING ACTIVITIESIssuance
                  of common stock
              
              
              -
              
              
              -
              
              
              612,517Advances
                  from majority shareholder
              
              
              975
              
              
              8,411
              
              
              1,486,718Majority
                  shareholder advances converted to stock
              
              
              -
              
              
              -
              
              
              (456,912
              )Net
                  cash provided by financing activities
              
              
              975
              
              
              8,411
              
              
              1,642,323Net
                  change in cash and cash equivalents
              
              
              (22,959
              )
              
              (420
              )
              
              (22,855
              )Cash
                  and cash equivalents - Beginning of period
              
              
              104
              
              
              1,106
              
              
              -Cash
                  and cash equivalents - End of period
              
              $
              (22,855
              )
              $
              686
              
              $
              (22,855
              )SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONCash
                  paid for interest
              
              $
              131
              
              $
              46
              
              $
              3,433Cash
                  paid for taxes
              
              $
              800
              
              $
              800
              
              $
              5,600The
                  accompanying notes are an integral part of the financial
                  statements.


3











**THE
      CHILDREN'S INTERNET, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO UNAUDITED FINANCIAL STATEMENTS**


**June
      30, 2008**








**NOTE
      1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
      POLICIES**





Nature
      of Operations





The
      Children's Internet, Inc. (the Company) was incorporated under the laws of
      the
      State of Nevada on September 25, 1996 under the name D.W.C. Installations.
      At
      that date, 2,242,000 shares were issued to a small group of shareholders. The
      Company was primarily inactive until July 3, 2002 when Shadrack Films, Inc.
      (Shadrack) purchased 2,333,510 newly-issued shares of the Company’s common stock
      for $150,000, thereby obtaining a majority ownership interest. The total issued
      and outstanding shares of the Company was increased to 4,575,510 shares as
      a
      result of this sale to Shadrack. On December 27, 2002, the Company’s name was
      changed from D.W.C. Installations to The Children’s Internet, Inc.





The
      Company is currently authorized to conduct business in California, and since
      July 15, 2007 the Company has been located in San Ramon, California. The
      Company’s primary operations consist of marketing, selling, and administering a
      secure Internet service and safe online community for children. The system,
      known as The Children’s Internet®, is not owned by the Company, but is owned by
      a related party, Two Dog Net, Inc. (“TDN”). The Company’s marketing, selling and
      administration rights derive from a Wholesale Sales & Marketing Agreement
      with TDN, through the year 2013 which includes the ability to obtain five-year
      extensions.





In
      a
      Stock Purchase Agreement dated October 11, 2002, twenty-five D.W.C.
      Installations shareholders sold 2,237,000 of the original 2,242,000
“freely-tradable” shares of common stock to six individuals, two of whom are
      related to the Company’s former Chief Executive Officer and Chief Financial
      Officer and current Chairman of the Board, Sholeh Hamedani. Together, the two
      related individuals purchased 27% of the 2,237,000 shares sold. At the time
      the
      shares were issued, the Company believed the shares were "freely tradable"
      based
      on the representations made by its attorney at the time, Oswald & Yap, who
      structured the agreement.  Subsequently the Company determined that the
      shares were, in fact, not freely tradable and those shares would have to be
      registered.  The said shares were then registered in a SB-2 Registration
      Statement which was declared effective on May 5, 2004.





Also
      on
      October 11, 2002, the Company entered into a subsequent agreement with the
      six
      new shareholders holding the 2,237,000 “freely-tradable” shares, to issue four
      shares of restricted common stock to these shareholders or their designees,
      for
      every one “freely-tradable” share held. Pursuant to this agreement, 8,948,000
      newly-issued restricted shares of common stock were issued in exchange for
      an
      agreement to
      loan
      to TDN, the proceeds of the sales of a portion of their shares. TDN in turn
      agreed to loan a portion of these proceeds to Shadrack to finance the on-going
      operations of the Company. TDN retained the remainder of the proceeds to help
      fund the on-going development, maintenance and technology upgrade costs of
      The
      Children’s Internet system and to make payments on TDN’s existing debts.


4





The 8,948,000 newly-issued
      shares were recorded at a value of $575,356 based on the $0.0643 per share
      paid
      by Shadrack in a previous transaction where Shadrack acquired the 2,333,510
      newly-issued shares it purchased on July 3, 2002. The $575,356 value was
      recorded by the Company as a debt financing fee. The loan agreement is such
      that
      Shadrack will not charge the Company any interest on the amounts loaned. Shares
      sold under this agreement included 1,218,990 of the “freely-tradable” shares and
      2,650,108 of the newly-issued restricted shares, for a total of 3,869,098
      shares, which were sold for a total of $2,722,341. After deducting the $494,049
      in commissions paid by TDN, the resulting net proceeds were $2,228,292. As
      of
      June 30, 2008 and 2007, the total amount loaned to the Company by Shadrack
      was
      $1,486,718 and $1,479,669, respectively (including $456,912 converted to
      13,054,628 shares of the Company’s common stock in 2005).





During
      the year ended December 31, 2005, an additional 13,334,628 restricted shares
      of
      common stock were issued . Of
      these shares, 13,054,628 were issued to Shadrack, a related party which holds
      approximately 52.2% of the voting power of the Company’s outstanding common
      stock, for conversion of existing debt, and 280,000 shares were issued to
      Crosslink Financial Communications, a non-related party in payment for providing
      investor relation services . Although
      Crosslink was not a related party at the time of issuance, its principal
      shareholder, William L. Arnold served as President of the Company from December
      30, 2005 through August 31, 2006, under an Executive Employment Agreement dated
      December 30, 2005.





On
      June
      9, 2006, 15,600 shares were issued to two principals of Brazer Communications
      under a public relations consulting agreement.





On
      June 29, 2007, 4,500,000 shares (the “Escrowed Shares”) were issued in the name
      of The Children’s Internet Holding Company, LLC, a Delaware limited liability
      company (“TCI Holding” or “TCI Holding Company, LLC”), and deposited in escrow
      on July 3, 2007 in accordance with the Interim Stock Purchase Agreement (“ISPA”)
      signed on June 15, 2007 between the Company and TCI Holding, thereby increasing
      the Company’s total issued and outstanding shares of common stock to 31,373,738
      at June 30, 2008 for the purposes of financial reporting. The 4,500,000 shares
      held in escrow have not been deemed to carry voting rights under Nevada law
      as
      they are held for the benefit of the Company until released, and currently
      are
      subject to cancellation due to the expiration of the Definitive Stock Purchase
      Agreement as mentioned in the following paragraph.





On
      October 19, 2007, TCI Holding Company, LLC entered into a Definitive Stock
      Purchase Agreement (the “DSPA”) with the Company to purchase a controlling
      interest in the Company. The DSPA expired on March 31, 2008 and was subsequently
      terminated by action of the Board of Directors on May 9, 2008, as explained
      in
      Note 4.





Development
      Stage Enterprise





The
      Company is a development stage enterprise as defined by Statement of Financial
      Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development
      Stage Enterprises.” All losses accumulated since the inception of the Company
      have been considered as part of the Company’s development stage activities. The
      Company has devoted the majority of its efforts to activities focused
      on marketing The Children’s Internet® service and on
      financial planning, raising capital, developing sales strategies and new
      marketing materials and implementing its business plan. The Company is
      considered to be a development stage company even though its planned principal
      operations have commenced, because there have been no significant revenues
      earned by the Company to date.


5





Additionally,
      the Company is not a shell company as defined in Rule 12b-2 of the Exchange
      Act.





Revenue
      Recognition





In
      December 2003, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin (SAB) No. 104 “Revenue Recognition, corrected copy” to
      revise and clarify SAB No. 101, “Revenue Recognition in Financial Statements”,
      issued in 1999 and 2000. Pursuant to these bulletins and the relevant generally
      accepted accounting principles, the Company recognizes revenue when services
      are
      rendered to subscribers under contractual obligation to pay monthly subscription
      amounts for such services.





**NOTE
      2 - INTERIM FINANCIAL INFORMATION**





Basis
      of Presentation





The
      accompanying unaudited interim financial statements have been prepared in
      conformity with accounting principles generally accepted in the United States
      of
      America pursuant to Regulation S-B of the Securities and Exchange Commission,
      which contemplates continuation of the Company as a going concern. At present,
      the Company has not generated any significant revenues from its established
      sources of revenue and has had net losses and negative cash flow since its
      inception. These factors raise substantial doubt about the Company's ability
      to
      continue as a going concern. Without the realization of additional capital
      or
      established revenue sources, it would be unlikely for the Company to continue
      as
      a going concern. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts,
      or
      amounts and classification of liabilities that might be necessary should the
      Company be unable to continue in existence.





These
      interim financial statements should be read in conjunction with the Company's audited
      financial statements and related notes as contained in the Company's Form 10-KSB
      for the year ended December 31, 2007. In the opinion of management, the interim
      financial statements reflect all adjustments, including normal recurring
      adjustments, necessary for fair presentation of the interim periods presented.
      The results of operations for the six months ended June 30, 2008 are not
      necessarily indicative of results of operations to be expected for the full
      year.





Going
      Concern





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business. As reflected in the
      accompanying financial statements, the Company had net losses and negative
      cash
      flow from operations for the six-month periods ended June 30, 2008 and 2007,
      and
      accumulated net losses and negative cash flow from operations of $5,622,498
      and
      $1,652,144, respectively, from inception through June 30, 2008.





The
      financial statements do not include any adjustments that might be necessary
      if
      the Company is unable to continue as a going concern. A pending suit against
      the
      Company by the Securities and Exchange Commission (the “SEC”), which is further
      described in Note 4, raises substantial doubt concerning the Company’s ability
      to continue as a going concern. The ability of the Company to continue as a
      going concern is dependent on its ability to generate profitable operations
      in
      the future by implementing its business plan and/or to obtain the necessary
      financing to meet its obligations, and to repay its liabilities arising from
      normal business operations when they come due. The outcome of these matters
      cannot be predicted with any certainty at this time. Management plans to provide
      for the Company’s capital needs during the year ended December 31, 2008 through
      equity financing, including the possible sale of a majority interest in the
      Company, with the net proceeds to be used to fund continuing
      operations.


6





**NOTE
      3 - RELATED PARTY TRANSACTIONS**




Services
      Provided




On
      January 26, 2005, the Company’s Board of Directors resolved that starting
      January 1, 2005, all salary due and payable to the Company's former Chief
      Executive Officer and Chief Financial Officer and current Chairman of the Board,
      Sholeh Hamedani, would be accrued when earned. The decision was to be made
      at
      the end of each year whether to make the payment in cash, shares of the
      Company’s restricted common stock, or a combination of both. Accordingly, for
      the period from January 1, 2005 through her date of resignation, October 19,
      2007, $504,193 has been accrued and charged to Officers’ Compensation. For the
      period ended June 30, 2007, $90,000 was accrued and charged to Officers’
Compensation. For the period from August 2002 through the end of 2004, Sholeh
      Hamedani provided services to the Company at a total cumulative fair market
      value of $435,000, which was contributed to Additional Paid-in Capital.




The
      salary of the Company’s former President, William L. Arnold, was not fully paid,
      but was accrued from May 1, 2006 through August 31, 2006. Beginning on September
      1, 2006, Mr. Arnold took an unpaid leave of absence. The
      Company believes that Mr. Arnold’s leave of absence was voluntary while Mr.
      Arnold claims that his leave of absence was related to a breach of his
      employment agreement with the Company.





In
      a letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold seeks to
      negotiate an amicable settlement for alleged breach of contract, intentional
      and
      negligent misrepresentation arising out of his recruitment, hiring, and
      employment beginning in December 2005. On or about December 6, 2007, Mr. Arnold
      filed a lawsuit in the Superior Court of California, County of Alameda Case
      No.
      07-359949 alleging breach of contract, fraud and violation of California Labor
      Code Section 200 in connection with the dispute surrounding his employment.
      The
      Company filed an answer to the Complaint and intends to vigorously defend the
      claim.




From
      April 1, 2007 through December 31, 2007, Roaya Hamedani-Wooler and Soraiya
      Hamedani, sisters of the former Chief Executive Officer of the Company, Sholeh
      Hamedani, and both of whom have twelve years experience with TDN developing
      and
      marketing the Children’s Internet®, performed consulting services for the
      Company. Mrs. Wooler earned $30,181, of which only $19,181 has been paid to
      date. Soraiya Hamedani earned $27,159, of which only $16,159 has been paid
      to
      date. In addition, Lewis Wooler, husband of Roaya Hamedani-Wooler, performed
      customer service and technical support services during the same period, and
      earned $24,803, of which only $13,803 has been paid to date. Their consulting
      services for the Company ended December 31, 2007.





On
      December 6, 2007, the Company entered into a Services Agreement with TDN, which
      was made effective as of October 19, 2007. Under the Services Agreement, TDN
      provided TCI with office space, computer and office equipment, and certain
      supplies and services until the earlier of January 31, 2007 or the closing
      of
      the Definitive Stock Purchase Agreement, explained in Note 4, for which TCI
      was
      obligated to pay TDN a monthly charge of $9,961 pro rated based on the actual
      number of days for any partial months. The monthly payments were guaranteed
      by
      TCI Holding Company. Although the Services Agreement expired on January 31,
      2008, because the DSPA did not close on January 31, 2008, TDN continued to
      provide the Company with its San Ramon office space, computers and office
      equipment, and certain supplies and services. As the Guarantors of the TDN
      Services Agreement TCI Holding Company signed an agreement with TDN on February
      5, 2008 providing that it would guarantee payment of up to $25,000, of unpaid
      invoices for the monthly service fees. It was in TCI Holding Company’s best
      interest to ensure a smooth transition and transfer of information so TDN
      continued to provide uninterrupted services, facilities and equipment which
      were
      essential to TCI’s operations as well as to closing the DSPA. Neither TCI
      Holding nor the Company has paid TDN the outstanding fees.


7




Advances




Substantially
      all of the Company’s funding has been provided by Shadrack, which holds
      approximately 52.2% of the voting power of the Company’s outstanding common
      stock as of the date of this report. Additional short-term funding consists
      of
      advances totaling $84,702 made since January 1, 2007 by Nasser Hamedani, a
      related party as explained below, short-term advances totaling $19,469 made
      by
      Larry Wheeler, father of Tyler Wheeler, the Company’s CEO and CFO and a member
      of Company’s board of directors, short-term advances totaling $11,600 made by
      John Heinke, the Company’s Controller, and advances totaling $320,698 made by
      TCI Holding as an advance against the purchase price of the Company’s common
      stock, as described in Note 4.  The
      total
      amount advanced by Shadrack through June 30, 2008 and 2007 was $1,486,718 and
      $1,479,669, respectively (including the amount converted to the Company’s common
      stock, as described in the following paragraph).





In
      February 2005, the Company owed Shadrack approximately $457,000 for loans made
      by Shadrack to the Company for funding all of the Company’s operations since
      entering the development stage on July 3, 2002. On February 15, 2005, the
      Company's Board of Directors authorized and approved the conversion of debt
      totaling $456,912 owed by the Company to Shadrack, into 13,054,628 shares of
      the
      Company’s restricted common stock at a conversion price of $.035 per share,
      thereby reducing the amount due to Shadrack.





Shadrack
      Films, Inc. is an entity owned and controlled by the Company's former Chief
      Executive Officer, Chief Financial Officer and current Chairman of the Board,
      Sholeh Hamedani, who is its sole officer, director and shareholder. Shadrack
      also owned 2,333,510 shares of the Company's common stock, of which it sold
      1,277,150 of its restricted shares  in
      reliance on an exemption from registration pursuant to Section 4(1)(1/2) of
      the
      Securities Act of 1933, to approximately 130 investors between July 2004 and
      June 2005. In addition, Shadrack paid for services, on behalf of the Company,
      valued at $35,000 with 70,000 restricted shares of the Company’s common stock.
      Together with the 13,054,628 shares issued upon conversion of the debt, Shadrack
      owns an aggregate of 14,040,988 shares of the Company's common stock or 52.2%
      (excluding the 4,500,000 shares held in escrow and without giving effect to
      any
      presently exercisable options) as of June 30, 2008.





Beneficial
      Ownership





The
      Company, Shadrack and TDN are related parties. The Company's former Chief Executive Officer, Chief
      Financial Officer, and current Chairman of the Board, Sholeh Hamedani, is the
      sole shareholder of Shadrack which as of March 31, 2008 owns 52.2% of the
      Company's common stock outstanding. Ms. Hamedani was President of TDN until
      she
      resigned on August 1, 2002 and is a 10% shareholder of TDN. In addition, TDN’s
      current President, Chairman and Founder, Nasser Hamedani, is the father of
      Sholeh Hamedani. TDN also owns an option to purchase up to 18,000,000 shares
      of
      the Company’s common stock and is therefore beneficial owner of approximately
      40.1% of the Company’s common stock.


8





Licensing
      Agreement





The
      Wholesale Sales and Marketing Agreement between the Company and TDN, dated
      March
      3, 2003, is an exclusive and renewable five-year agreement for the Company
      to be
      the exclusive marketers of TDN’s proprietary secure internet service for
      children at the pre-school to junior high levels called The Children's
      Internet®. Under the terms of the Wholesale
      Sales and Marketing Agreement, the agreement is
      automatically renewed for additional five-year periods on the same terms unless
      either party terminates by written notice to the other party no less than one
      year before the end of the term. Accordingly, the earliest date on which the
      agreement can be terminated is March 3, 2013.




On
      February 15, 2005, the Company's Board of Directors authorized and approved
      an
      amendment to the Wholesale Sales and Marketing Agreement. The amendment reduces
      the license fee for The Children's Internet® technology payable to TDN from
      $3.00 to $1.00 per subscriber per month. In consideration for the reduction
      of
      the fee, the Company granted TDN or its designees, an option to purchase the
      Company's currently restricted common stock as described below in the section
      called “Stock Options Granted”.





Office
      Space





The
      Company’s previous office space in Pleasanton, California was leased by Shadrack
      for three years. The original lease expired on April 30, 2007. From May 1
      through July 15, 2007, the same office space was rented by Shadrack on a
      month-to-month basis. Shadrack and the landlord could not reach an agreement
      on
      terms for a new lease. Therefore, the Company vacated the premises on July
      13,
      2007. Upon
      vacating the Pleasanton office, the Company moved into office space in San
      Ramon, California. Costs of the relocation were approximately $5,000. This
      office space was leased from RAM Properties by Nasser Hamedani, a related party,
      pursuant to a one-year lease through July 14, 2008, and is currently rented
      on a
      month-to-month basis. On October 19, 2007, the Company entered into a Services
      Agreement with TDN whereby monthly rental payments of $1,762 are payable to
      TDN
      by the Company. Prior to the Services Agreement, the Company reimbursed Mr.
      Hamedani for the monthly lease payment of $1,762. Although the Services
      Agreement expired on January 31, 2008, because the DSPA has not closed, TDN
      continues to provide the Company with its San Ramon office space. TCI Holding
      signed an agreement with TDN on February 5, 2008 providing that it will
      guarantee the payment of unpaid invoices for the monthly service fees associated
      with the Services Agreement, up to a maximum of $25,000.





Stock
      Options Granted




As
      noted above, on February 15, 2005, because TDN agreed to reduce their licensing
      fee, the Company issued an option to TDN to purchase up to 18,000,000 shares
      of
      the Company’s restricted common stock at an exercise price of $0.07 per share,
      and a fair value of $0 (the “TDN Option”). The TDN Option is exercisable, in
      whole or in part at any time and from time to time, for a period of five years
      from the date of grant. The TDN Option also provides TDN with “piggyback”
registration rights for all shares underlying the TDN Option on any registration
      statement filed by the Company for a period of one year following any exercise
      of the TDN Option. This issuance was valued at $0 because as of the date of
      issuance, the Company was under no obligation for payment to TDN since no sales
      of the product had occurred and no liability, therefore, had been generated.
      The
      TDN Option was granted primarily to induce TDN to reduce its future right to
      a
      royalty from sales of the product.


9





**NOTE
      4 - COMMITMENTS AND CONTINGENCIES**





On
      November 24, 2004, Oswald & Yap, a Professional Corporation (“O&Y”),
      formerly counsel to the Company, filed a complaint in the Superior Court of
      California, County of Orange, Case No. 04CC11623, against the Company, seeking
      recovery of allegedly unpaid legal fees in the amount of $50,984.86 in
      connection with the legal representation of the Company. Subsequently the amount
      claimed of unpaid legal fees was reduced to $37,378.43 because it was discovered
      that O&Y did not properly credit all of the payments that were made by the
      Company to O&Y. The amount of $37,378.43 was deposited in an escrow account
      by the Company on July 5, 2005. The complaint includes causes of action for
      breach of contract. The Company disputes the amounts claimed alleging that
      O&Y’s services were otherwise unsatisfactory. On May 9, 2005, O&Y
      submitted an Offer to Compromise for a $0 payment by the Company to O&Y in
      exchange for mutual releases which the Company rejected. ****




On
      February 14, 2005, a cross-claim was filed in the Superior Court of California,
      County of Orange, Case No. 04CC11623 by the Company against O&Y alleging
      breach of contract, professional negligence, negligent representation, and
      breach of good faith and fiduciary duty. The basis of the allegations is that
      O&Y was retained to assist the Company’s predecessor company in the purchase
      and acquisition of D.W.C. Installations (“D.W.C.”) with the expectation that
      D.W.C. had available free-trading shares such that the Company could immediately
      raise capital on the relevant markets and that in advising the Company through
      the purchase, O&Y failed to properly advise the Company as to the status of
      D.W.C. and its shares, which in fact were not free-trading. As a result of
      this
      conduct, the Company alleges damages in an unspecified amount but including
      purchase costs, extended operation costs, refiling costs, audit costs, legal
      fees, loan fees, lost market share, and costs for registration. O&Y has
      vigorously disputed the claims set forth in the cross-complaint and has
      indicated its intention, should it prevail in its defense, to institute a
      malicious prosecution action against the Company, Nasser Hamedani, Sholeh
      Hamedani and Company counsel. Litigation of this matter is currently stayed
      pending outcome of the SEC Complaint discussed below. The case was scheduled
      for
      a status conference on April 7, 2008 before the Superior Court in Irvine,
      California, which has been continued to December 15, 2008.





There
      is a contingent liability in connection with a Stock Purchase Agreement executed
      on October 11, 2002 between identified shareholders and identified purchasers.
      Under the terms of the Stock Purchase Agreement, a payment of $150,000 is due
      to
      be paid into escrow in part consideration for purchase of the stock of D.W.C.
      The payment date is designated as 90 days from the date that the Company’s
      (formerly, D.W.C.) shares of common stock become quoted on the over-the-counter
      bulletin board system. The shares were approved by NASDAQ OTC:BB to be quoted
      on
      the over-the-counter bulletin board system on December 23, 2004. If this payment
      is not made, there could be exposure in connection with the identified
      shareholders’ efforts to collect the amounts allegedly due.




On
      June 13, 2006, the Company became subject to an arbitration demand from
      Stonefield Josephson, Inc., its former accountant, seeking reimbursement costs
      for legal fees spent in connection with the SEC inquiry of the Company.
      Stonefield Josephson, Inc.’s claim seeks recovery of $29,412.74. The Company
      disputes any amounts owed because of a settlement agreement entered into between
      the respective parties in December 2004 effectively terminating their
      relationship. This matter was submitted to binding arbitration through AAA
      in
      January 2007. The Arbitrator’s decision was issued on February 2, 2007, awarding
      Stonefield Josephson, Inc. the sum of $19,000 plus costs and fees in the amount
      of $1,425 due and payable March 15, 2007. The decision also awarded Stonefield
      Josephson, Inc. interest at the rate of 10% per annum on $19,000 from March
      15,
      2007. On August 30, 2007, an additional $2,500 in post-arbitration attorney’s
      fees and costs was awarded by the Los Angeles Superior Court. No amounts have
      been paid to Stonefield Josephson since the date of the Arbitrator’s
      decision.


10





On
      August 25, 2006, the Company filed a complaint against its former accountants,
      Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
      Court
      of California, County of Alameda, Case No. VG06286054 alleging breach of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The Company seeks damages resulting from defendants’ actions,
      including recovering costs expended for a subsequent audit and the resultant
      loss in stock price following the Company’s inability to file necessary reports
      with the NASD. The matter was subsequently transferred to Los Angeles Superior
      Court. Mediation on this matter took place on February 29, 2008 in Los Angeles,
      California but was unsuccessful. A court hearing is pending.




On
      September 27, 2006, the Securities and Exchange Commission (“SEC”) filed a
      complaint (the “SEC Complaint”) in the United States District Court, Northern
      District of California, Case No. C066003CW, against, among others, the Company,
      and its former Chief Executive Officer, Sholeh Hamedani, alleging violations
      of
      Section 10(b) of the Exchange Act and Rule 10b-5 by one or more defendants;
      violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11,
      13a-13 by one or more defendants; violations of Section 13(b)(2)(A) of the
      Exchange Act by the Company; violations of Section 13(b)(2)(B) of the Exchange
      Act by the Company; and violations of Section 13(b)(5) of the Exchange Act
      and
      Rules 13b2-1, 13b2-2, 13a-14, 16(a) by one or more defendants. The complaint
      generally alleges that the Company and the individual defendants made false
      or
      misleading public statements regarding the Company’s business and operations,
      made false statements in various filings with the SEC, and in particular, in
      the
      June 2005 Annual Report and Restatement and 2005 Current and Quarterly Reports,
      and that the defendants, or some of them, induced investment in the Company
      through misrepresentation and omissions. The complaint seeks disgorgement,
      unspecified monetary damages, injunctive relief and other relief against the
      defendants. The Company has answered the complaint.





A
      proposed settlement agreement was approved by the SEC Commission and the SEC
      San
      Francisco staff had received stand-by authority to accept the settlement offer
      of the Company if the deal with TCI Holding closed and $2.7 million was made
      available to transfer to the court’s registry. In order to provide more time to
      TCI Holding to raise the funds necessary to close the DSPA and settle with
      the
      SEC the Company agreed to a bifurcation of the proceedings. Under the agreement,
      the injunctive relief sought by the Commission will be granted by judgment
      against the Company, with a remedies hearing which was held in Federal Court
      on
      August 14, 2008 (previously scheduled for April 29, 2008 and then June 12,
      2008), to resolve the amount of disgorgement, penalties and other monetary
      issues. The court invited the parties to submit proposals for continuing
      management and or disposition of corporate assets to be submitted by August
      22,
      2008. The court has not issued a final order as of the date of this
      disclosure.





On
      December 30, 2005, William L. Arnold, the principal shareholder of Crosslink
      Financial Communications, Inc., the Company’s former investor relations
      consulting firm, was appointed by the Chairman to act as President of the
      Company under an Executive Employment Agreement. Compensation included a monthly
      salary of $10,000, of which $2,500 per month was deferred with 9% accrued
      interest until January 2007. The Executive Employment Agreement also included
      a
      combination of nonqualified and qualified stock options (the “Arnold Option”).
      The Arnold Option was for the purchase of up to 1,000,000 shares at an option
      price of $0.55 per share, and expired on December 31, 2010. The closing market
      price of the Company’s common stock was $0.48 per share on the date of the
      agreement. One half of the Arnold Option vested immediately and the remaining
      500,000 option shares were to vest at the rate of 1/36 th each month until fully vested. Commencing on September 1, 2006, Mr. Arnold
      took
      a voluntary unpaid leave of absence. During Mr. Arnold’s leave of absence the
      vesting of his options was suspended. Of the 500,000 option shares which vested
      immediately, 360,000 are Incentive Stock Options (ISO’s). The remaining 640,000
      option shares are non-qualified. Additionally, the Executive Employment
      Agreement includes a performance bonus of up to 50% of the annual salary to
      be
      paid on or before the sixtieth day following the close of the Company’s
      fiscal year, provided that Mr. Arnold meets the performance standards as
      established by the Board of Directors. Pursuant to this provision, $40,000
      was
      accrued as an expense for the period of January 1 through August 31, 2006.
      If
      the stock-based compensation provisions of SFAS No. 123R had been
      adopted prior to January 1, 2006, the fair value of the 500,000 shares which
      vested on December 30, 2005 under the Arnold Option would have been recorded
      at
      $235,000.


11




In
      May 2007, Mr. Arnold advised the Company that he disagreed with the Company’s
      position that his unpaid leave of absence was voluntary. Mr. Arnold informed
      the
      Company that he believed his resignation resulted from the Company’s breach of
      his Executive Employment Agreement. The Company and Mr. Arnold have had
      discussions in an effort to resolve the dispute between them but, to date,
      have
      not reached agreement. The Company believes that Mr. Arnold violated the terms
      of the Executive Employment Agreement when he voluntarily left his position
      as
      President in September of 2006. The Company believes it is only obligated to
      pay
      Mr. Arnold for back pay and bonus, plus interest, for the period prior to
      September 2006. The total compensation that the Company believes it owes Mr.
      Arnold as of March 31, 2008 is $89,274. This amount is reflected in the
      Company’s financial statements.




In
      a letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold indicated
      that he sought to negotiate an amicable settlement for alleged breach of
      contract, intentional and negligent misrepresentation arising out of his
      recruitment, hiring, and employment beginning in December 2005. On or about
      December 6, 2007, Mr. Arnold filed a lawsuit in the Superior Court of
      California, County of Alameda Case No. 07-359949 alleging breach of contract,
      fraud and violation of California Labor Code Section 200 in connection with
      the
      dispute surrounding his employment. The Company filed an answer to the Complaint
      and intends to vigorously defend the claim.





Adverse
      outcomes in some or all of the claims pending against the Company may result
      in
      significant monetary damages or injunctive relief against the Company that
      could
      adversely affect the Company’s ability to conduct its business. Although
      management currently believes that resolving all of these matters, individually,
      or in the aggregate, will not have a material adverse impact on the Company’s
      financial position or results of operations, the litigation and other claims
      are
      subject to inherent uncertainties and management’s view of these matters may
      change in the future. There exists the possibility of a material adverse impact
      on the Company’s financial position and the results of operations for the period
      in which the effect of an unfavorable final outcome becomes probable and
      reasonably estimable.





The
      Company is not aware of any other pending or threatened litigation that could
      have a material adverse effect on its business.





12


The
      Company entered into two equipment leases with Dell Financial Services L.P.
      of
      Round Rock, Texas. The cash value of the equipment leased, including sales
      tax,
      is $11,775. The Company entered into these leases in November 2006, however,
      lease payments commenced in January 2007. The total value of the 48 monthly
      lease payments is $17,424. At the end of the four-year period in December 2010,
      each lease has a purchase option at $1. These leases are considered to be
      operating leases as the period over which payments are to be made exceeds the
      period over which the assets would be depreciated, if purchased.




On
      January 9, 2007, the Company signed a 12-month co-location agreement with
      Evocative, Inc. to house the Company’s search engine, servers and related
      equipment at Evocative’s data center in Emeryville, California. This agreement
      replaced a similar 13-month agreement which began in October 2003 and was
      continued on a month-to-month basis. The new agreement added a managed firewall
      service. The basic annual cost under this agreement was $35,988. The co-location
      agreement with Evocative was cancelled as of January 31, 2008 by Richard Lewis,
      who was the acting CEO at the time.





On
      March 1, 2007, the Company entered into an oral agreement to pay Tim T. Turner,
      the amount of $13,125 per month as a consultant until such time as Mr. Turner
      and the Company entered into an employment agreement. On April 2, 2007, the
      Company entered into an Executive Employment Agreement with Tim T. Turner,
      whereby Mr. Turner became the Director of Finance and Operations for the
      Company. This position was not deemed an executive officer position. Upon the
      Company obtaining Directors and Officers insurance, Mr. Turner would have been
      appointed an officer of the Company and made a member of the Company’s Board of
      Directors. Mr. Turner resigned his position with the Company effective on
      December 15, 2007. The agreement provided that Mr. Turner would receive a yearly
      salary of $157,500, part of which was to be deferred for a year, and if the
      Company was not able to pay such deferred compensation, it was to be evidenced
      by a promissory note and have an attached warrant.





On
      March 17, 2008, Mr. Turner informed the Company that amounts owed to Mr. Turner
      included a bonus of $78,750 and severance of $360,937.50, in addition to amounts
      accrued by the Company for Mr. Turner’s unpaid salary of $110,562 and consulting
      fees of $13,125.  The Company disputes the bonus and severance amounts
      claimed by Mr. Turner and intends to legally contest such disputed
      amounts in the event Mr. Turner further attempts collection.





On
      April 30, 2007, the Company and the Board of Directors adopted “The Children’s
      Internet, Inc. 2007 Equity Incentive Plan” (the “Plan”). The purpose of the Plan
      is to provide incentives to attract retain and motivate eligible persons whose
      present and potential contributions are important to the success of the Company
      by offering them an opportunity to participate in the Company’s future
      performance through awards of Options, Restricted Stock and Stock Bonuses.
      Under
      the terms of the Plan, the Company has made available six million (6,000,000)
      shares of the Company’s stock to be issued to officers, directors, employees,
      consultants and advisors of the Company with certain restrictions as set forth
      in the Plan. The Plan will be administered by a Committee of the Board of
      Directors. The Plan will terminate ten years from the effective date of the
      Plan
      unless terminated earlier under terms of the Plan.





On
      June 29, 2007, 4,500,000 shares (the “Escrowed Shares”) were issued in the name
      of The Children’s Internet Holding Company, LLC, a Delaware limited liability
      company (“TCI Holding” or “TCI Holding Company, LLC”), and deposited in escrow
      on July 3, 2007 in accordance with the Interim Stock Purchase Agreement (“ISPA”)
      signed on June 15, 2007 between the Company and TCI Holding, thereby increasing
      the Company’s total issued and outstanding shares of common stock to 31,373,738
      at June 30, 2008 for the purposes of financial reporting. The 4,500,000 shares
      held in escrow have not been deemed to carry voting rights under Nevada law
      as
      they are held for the benefit of the Company until released, and currently
      are
      subject to cancellation due to the expiration of the Definitive Stock Purchase
      Agreement as mentioned in the following paragraph.


13





On
      October 19, 2007, the Company and TCI Holding entered into the Definitive Stock
      Purchase Agreement. The DSPA supersedes the ISPA and constitutes the DSPA that
      was contemplated by the ISPA. Under the terms of the DSPA, on October 19, 2007
      Sholeh Hamedani resigned as Chief Executive Officer and Chief Financial Officer
      of the Company, but remained Chairman of the Board of Directors. The Board
      of
      Directors appointed Richard J. Lewis, III to be the Company’s Acting CEO and
      CFO.





On
      March
      18, 2008, The Children’s Internet, Inc. (“TCI”) entered into Amendment No. 4
      (the “Amendment”) to the DSPA. Under the Amendment, the date upon which the
      parties are permitted to terminate the DSPA if the closing of the DSPA has
      not
      occurred was extended from March 15, 2008 to March 31, 2008.




Despite
      the fact that the DSPA had been amended four times extending the closing date
      from December 31, 2007 to March 31, 2008, TCI Holding Company failed to perform
      its obligations under the agreement and close the DSPA on or before March 31,
      2008. Subsequent to the DSPA’s expiration on March 31, 2008, the parties to the
      agreement continued to negotiate new terms for the DSPA to provide TCI Holding
      with more time in order to close the deal based on TCI Holding’s written updates
      to Board
      of Directors on their progress with funding sources .





However,
      TCI Holding was unable to secure the necessary funding in order to close the
      deal under the terms of the DSPA and the parties were unable to reach a new
      agreement and, therefore, in the opinion of the Company’s Board of Directors, it
      was in the best interest of the Company and its shareholders to terminate the
      DSPA.





On
      May 9,
      2008, the Board of Directors of the Company voted unanimously to terminate
      the
      Definitive Stock Purchase Agreement (the “DSPA”) that was entered into on
      October 19, 2007 between the Company, Shadrack Films, Inc. (currently the
      Company’s majority shareholder), The Children’s Internet Holding Company, LLC,
      Richard J. Lewis III, and Sholeh Hamedani.




Also,
      on
      May 9, 2008, the Board of Directors unanimously voted to remove Richard J.
      Lewis
      III as the Company’s Chief Executive Officer and Chief Financial Officer, and
      subsequently replaced Mr. Lewis with Mr. Tyler Wheeler as acting Chief Executive
      Officer and Chief Financial Officer.





**NOTE
      5 - COMMON STOCK**





On
      February 15, 2005, the Company’s Board of Directors authorized a 2 for 1 forward
      split of the Company's issued and outstanding common stock to shareholders
      of
      record on March 7, 2005, in the form of a 100% stock dividend. The effective
      date of the forward split on the NASDAQ OTC: BB was March 11, 2005.





On
      June
      29, 2007, 4,500,000 common shares were issued and deposited in escrow on July
      3,
      2007 in accordance with the Interim Stock Purchase Agreement between the Company
      and TCI Holding Company, LLC, which was
      terminated by action of the Board of Directors on May 9, 2008, as
      explained in Note 4. However,
      the 4,500,000 shares held in escrow have not been deemed to carry voting rights
      under Nevada law as they are held for the benefit of the Company until released,
      and currently are subject to cancellation due to the expiration of the
      DSPA.


14





No
      other
      new shares were issued by the Company during the period from January 1, 2007
      through the date of this report.





**NOTE
      6 - NON-MONETARY TRANSACTIONS**





Deferred
      Charge





As
      explained in Note 3, on February 15, 2005, the Company’s Board of Directors
      granted an option to TDN, a related party, to purchase up to 18,000,000 shares
      of the Company’s restricted common stock. This option was valued at
      $0.





Conversion
      of Debt to Common Stock





As
      explained in Note 3, on
      February 15, 2005, the Company's Board of Directors authorized and approved
      the
      conversion of debt totaling $456,912 owed to Shadrack, which
      holds approximately 52.2% of the voting power of the Company’s outstanding
      common stock, into 13,054,628 shares of the Company’s restricted common stock at
      a conversion price of $.035 per share.





Stock-based
      Compensation





On
      February 15, 2005, the Company’s Board of Directors granted Tyler Wheeler, the
      Company’s Chief Software Architect Consultant and a director, an option to
      purchase up to 1,000,000 shares of the Company’s restricted common stock at an
      exercise price of $0.07, and a fair value of $315,000. The option is
      exercisable, in whole or in part at any time and from time to time, for a period
      of five years from the date of grant. This option to purchase Company shares
      was
      based on a fair market value of $0.315 per share. The option was valued using
      the Black-Scholes option pricing model, which was developed for estimating
      the
      fair value of traded options, and taking into account that the exercisable
      option shares are restricted. The value of $315,000 was recorded as an expense
      for services when the option was granted.





From
      December 30, 2005 through August 31, 2006, options to purchase 611,112 shares
      at
      $0.55 per share, granted to William
      L. Arnold , became
      vested under his executive employment agreement based on his service as
      President of the Company. The
      options to purchase 111,112 shares which vested during the nine months ended
      September 30, 2006 were valued at $52,223 using the Black-Scholes option pricing
      model based on the grant-date fair value in accordance with
      SFAS No. 123R.





On
      June
      9, 2006, 15,600 restricted shares were awarded to two principals of Brazer
      Communications under a six-month contract to perform public relations consulting
      services for the Company. The fair market value of these shares was
      $7,800.





On
      April
      30,  2007,
      subject to the terms of the 2007 Equity Incentive Plan, the Company granted
      qualified stock options to two employees, Tim Turner, pursuant to the terms
      of
      Mr. Turner’s Executive Employee Agreement, and John Heinke, the Company’s
      Controller. Mr. Turner was granted options to purchase 2,687,374 shares
      of
      the Company’s common stock at the purchase price of $0.081 per share. Of the
      total options, 300,000 shares vested immediately and the balance of 2,387,374
      shares were to vest at the rate of one thirty-sixth per month of employment. Mr.
      Turner resigned effective on December 15, 2007 and a total of 796,300 shares
      subject to his option had vested. Mr.
      Heinke was granted options to purchase 300,000 shares of the Company’s common
      stock at the purchase price of $0.081 per share. Mr. Heinke’s options vest at
      the rate of one thirty-sixth per month of employment. The purchase price of
      $0.081 per share for Mr. Turner and Mr. Heinke’s options was the fair market
      value of the shares at the date of the grant.


15





On
      April,
      30, 2007, subject to the terms of the 2007 Equity Incentive Plan, the Company
      granted unqualified stock options to three of the Company’s four Directors,
      Roger Campos, Jamshid Ghosseiri and Tyler Wheeler. Each Director was granted
      options to purchase 125,000 shares of the Company’s common stock at the purchase
      price of $0.081 per share which was the fair market value of the shares at
      the
      date of the grant. The options for the three Directors vested immediately upon
      grant.





The
      value of the options granted on April 30, 2007 and discussed in the preceding
      two paragraphs, was based on a fair market value of $0.08 per share at the
      grant
      date, which was computed using the Black-Scholes option pricing model. The
      total
      value of option shares vested during the three months ended March 31, 2008
      was
      $2,000, which was recorded as an expense of the period.





**NOTE
      7 - SUBSEQUENT EVENTS**





On
      May
      30, 2008, an agreement entitled “Definitive Agreement in Principle to Merge” was
      executed between the Company and TCI Holding Company, LLC, under which 100%
      of
      TCI Holding’s equity interests would be merged into the Company in exchange for
      30 million shares of the Company’s common stock. Two required cash payments
      totaling $15,000 due within 15 days of the execution of the agreement were
      not
      paid by TCI Holding, and other conditions were not met, which resulted in the
      retraction of the proposed merger agreement, which was reported in a press
      release on July 17, 2008.





On
      August
      14, 2008, a remedies hearing for the SEC litigation explained in Note 4, was
      held at the U.S. District Court in Oakland, California. Several matters were
      taken under submission by the presiding Judge and a decision is expected within
      approximately two weeks.





**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
      OPERATION**





The
      following discussion and analysis should be read in conjunction with our
      financial statements, including the notes thereto, appearing elsewhere in this
      Report.





**Forward-Looking
      Statements**





The
      following information contains certain forward-looking statements of management
      of the Company. Forward-looking statements are statements that estimate the
      happening of future events and are not based on historical fact. Forward-looking
      statements may be identified by the use of forward-looking terminology, such
      as
“may," "could," "expect," "estimate," "anticipate," “plan,” "predict,"
      "probable," "possible," "should," "continue," or similar terms, variations
      of
      those terms or the negative of those terms. The forward-looking statements
      specified in the following information have been compiled by our management
      on
      the basis of assumptions made by management and considered by management to
      be
      reasonable. Our future operating results, however, are impossible to predict
      and
      no representation, guaranty, or warranty is to be inferred from those
      forward-looking statements.


16





**Critical
      Accounting Policies and Estimates**





The
      Company's financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States of America, which
      contemplate continuation of the Company as a going concern .
      The
      preparation of these financial statements requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      the disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates.





**RESULTS
      OF OPERATIONS**





**Selected
      Financial Data**




The
      following selected statement of operations and balance sheet data for the period
      from September 25, 1996, the date of our inception, through June 30, 2008 and
      for the six months ended June 30, 2008 as compared to the six months ended
      June
      30, 2007 were derived from our financial statements and notes thereto included
      in this report which are unaudited. Historical results are not necessarily
      indicative of results that may be expected for any future period. The following
      data should be read in conjunction with "Plan of Operation" below, and our
      unaudited financial statements, including the related notes to the financial
      statements.




For
                the six months ended June 30,
              2008
            
            For
                the six months ended June 30,
              2007
            
            For
                the period from September 25, 1996 (inception) through
              June
                30,
              2008**Statement
                of Operations Data:**Net
                revenues
            
            $
            30
            
            $
            442
            
            $
            1,671Operating
                expenses
            
            $
            278,644
            
            $
            567,406
            
            $
            5,528,850Operating
                loss
            
            
            ($278,617
            )
            
            ($567,027
            )
            
            ($5,527,429
            )Net
                loss
            
            
            ($306,124
            )
            
            ($584,715
            )
            
            ($5,622,498
            )




As
                of June 30,
              2008**Balance
                Sheet Data:**Total
                assets
            
            $
            40,936Total
                liabilities
            
            $
            3,263,400Total
                stockholders' deficit
            
            
            ($3,222,464
            )





Our
      total
      operating expenses decreased by $288,762 (7.8%) for the six months ended June
      30, 2008, as compared to the six months ended June 30, 2007. The major changes
      were decreases of $163,986 in officer compensation, $35,700 in selling expenses,
      $30,359 in auditing fees, and $30,000 in stock options granted directors which
      occurred only in 2007. The decrease in officer compensation is due to the
      resignation on October 19, 2007 of Sholeh Hamedani, former CEO and CFO, and
      the
      resignation on December 15, 2007 of Tim Turner, former Director of Finance
&
Operations. The decrease in selling expenses corresponds with the Company’s
      discontinuance of marketing activities until obtaining additional investment
      capital. The decrease in auditing fees for the six months ended June 30, 2008
      is
      attributable to having conducted an audit of 2006 and a re-audit of 2005 during
      the six months ended June 30, 2006.


17





**Plan
      of Operation** ****





This
      plan of operation contains forward-looking statements that involve risks,
      uncertainties, and assumptions. The actual results may differ materially from
      those anticipated in these forward-looking statements as a result of certain
      factors, including, but not limited to, those described elsewhere in this
      report.




On
      September 10, 2002, we entered into a License Agreement with Two Dog Net (‘TDN”)
      for an exclusive worldwide license to market and sell The Children’s Internet®
service. We subsequently replaced the royalty and license agreement with a
      new
      Wholesale Sales & Marketing Agreement dated March 3, 2003. The new agreement
      provides for us to be the exclusive marketers of TDN’s proprietary secure
      Internet service for children at the pre-school to junior high levels called
      The
      Children’s Internet®. We further amended this agreement in February 2005 to
      decrease the per user fee to TDN from $3.00 to $1.00. In consideration for
      this
      decrease of the royalty fee, TDN was granted an option to acquire 18,000,000
      shares of the Company’s restricted common stock at an exercise price of $.07 per
      share for five years from the date of grant. The shares underlying the option
      have “piggy back” registration rights for a period of one year following any
      exercise of the option.




TDN
      did
      not give written notice to terminate the contract one year prior to the
      expiration of the initial five-year term. Therefore, the licensing agreement
      was
      automatically renewed for an additional five years expiring in
      2013.




The
      Company released The Children’s Internet®, version 9.0, to the market on March
      2, 2006. The Company is the exclusive marketer and distributor of The Children's
      Internet® membership-based service created just for kids. In the August 2004
      issue of PC Magazine, The Children's Internet® was ranked as Editors' Choice in
      the category of "Kids' Browsers and Services," and was voted number one over
      AOL, EarthLink and MSN Premium 9. Additionally in August 2006, The Children's
      Internet® was declared winner of Outstanding Products of 2006 by iParenting
      Media Awards in the software category. Shortly thereafter in September 2006,
      The
      Children's Internet® received the coveted National Parenting Center's Seal of
      Approval.





We
      believe The Children's Internet® is the most comprehensive, smart solution to
      the problems inherent to a child’s unrestricted and unsupervised Internet
      access. We offer a protected online service and "educational super portal"
      specifically designed for children, pre-school to junior high, providing them
      with SAFE, real-time access to the World Wide Web; access to hundreds of
      thousands of the best pre-selected, pre-approved educational and entertaining
      web pages accessed through a secure propriety browser and search
      engine.





During
      2007, the technology on which the product is based and the functionality of
      the
      service was improved. The Company, through TDN, also substantially upgraded
      the
      underlying system infrastructure by increasing redundant servers and improving
      control procedures which in turn increased the reliability of the service.
      Additionally, during the first quarter of 2007, where appropriate, the Company
      contracted with third party companies to outsource administrative support
      services and effectively put in place the infrastructure to support the
      marketing initiatives. These outsource providers handle telemarketing and the
      order taking process and media placement.





18




**The
      Business Model**




The
      product was being sold for $9.95 per month to the subscriber. The user must
      already have internet access, either through dial-up, DSL or cable broadband.
      We
      utilize both retail and wholesale channels of distribution.




The
      Company will focus on establishing long-term, value-driven relationships
      with:





·
            Parents
                and Kids


·
            The
                School Market: School Administrators and
                Teachers


·
            Major
                ISP’s such as Comcast, Yahoo, AOL,
                etc.


·
            Non-profit
                organizations such as religious groups, Boy Scouts and Girl Scouts,
                etc.


·
            ISP
                customers with an interest in protecting their families




The
      product is launched and generated minimal revenues through our grass roots
      marketing efforts as well as some online marketing initiatives. At the end
      of
      the first quarter of 2007, we aired our updated Infomercial on various
      television stations from New York to California for an initial three week media
      test which was the first part of an overall three month media campaign. The
      Company intended to continue to run the media test to identify the markets
      that
      met or exceeded our response criteria in order to build the permanent television
      schedule to ”roll-out” the Infomercial on a national basis. However, due to
      unforeseen expenses we have not had the anticipated budget in place to continue
      to run the media test after the first quarter of 2007.




Beginning
      with the third quarter of 2007, the Company focused the majority of the
      Company’s resources on negotiating and finalizing the Definitive Stock Purchase
      Agreement and negotiating a proposed settlement with the SEC of the outstanding
      claims filed by the SEC against the Company.




The
      Company believes that implementation of a broad based sales and marketing plan
      is essential. With adequate funding, the Company would execute our sales and
      marketing programs using a number of traditional and some less traditional
      marketing techniques to generate product awareness and build brand awareness.
      Among these are;





·
            **Direct Response
                Marketing**.The
                TV Infomercial will be the cornerstone of our consumer-marketing
                program.
                This direct response-marketing vehicle provides a number of advantages
                including; a direct sale opportunity, brand awareness development,
                cost
                effectiveness, and rapid market response and
                feedback.  ·
            **Spot Media**.
                In markets where consumer reaction to our Direct Response Marketing
                program is high, we will run spot television and radio commercials
                in
                support of our Direct Response campaign to further enhance brand
                awareness
                and reinforce the consumer purchase decision. We will also be
                opportunistic marketers, purchasing airtime around relevant programming,
                such as MSNBC’s “To Catch a Predator”
                program.  ·
            **Public
                Relations**.Public
                relations activities will combine events, special promotions, and
                traditional media relations with the objective of maintaining top-of-mind
                awareness of the product with consumers and media. We will work with
                our
                strategic partners, where possible and appropriate, to maximize resources
                and obtain optimum media
                coverage.


19





·
            **Internet
                Advertising**.
                The Company will employ Internet advertising on targeted sites frequented
                by parents of school-aged children. Advertising will also be placed
                on
                sites that specifically address Internet security for
                children.





·
            **School
                Sales Initiative**.
                Schools are a natural vehicle for reaching our target audience, parents
                of
                school-aged children. The Company will initiate a major sales effort
                aimed
                at forming partnerships with schools and teachers to bring awareness
                of
                our product to children and their parents. The Company has tested
                this
                concept with local school districts and the response has been excellent.





·
            **Fundraising
                Initiative**.
                The Company will establish a fundraising program for use by schools
                as
                well as other children’s organizations, as a fund raising vehicle. This
                program will enable such organizations to raise funds by selling
                subscriptions to The Children’s Internet service. A portion of the sales
                price will be refunded to the selling organization. The advantage
                of TCI’s
                fund raising program over other fund raising vehicles is that our
                program
                functions like an annuity, providing continued funding to the
                participating organization for as long as their members continue
                to
                subscribe to The Children's Internet
                service.





·
            **Strategic
                Partnerships.**Strategic
                partnerships will be an important component of our overall marketing
                strategy. Strategic partners can provide “legitimacy” for the brand. These
                partners can also expose the Company’s product to a large base of
                potential new customers. Joint public relations and marketing efforts
                can
                be a very cost effective mechanism. ISP’s, web portals, telecommunications
                companies, child-oriented companies and public interest groups will
                be
                target strategic partners.





We
      believe the combined effect of this coordinated marketing program will be to
      build awareness of our product amongst our target consumer, to establish The
      Children’s Internet as the premiere product in the minds of consumers and to
      drive this motivated consumer base to make the purchase decision to subscribe
      to
      The Children’s Internet service.




**Channels
      of Distribution:**





The
      Children's Internet, Inc. will employ both direct and indirect sales channels.





Also,
      subject to secure financing, we will hire a direct sales force. The primary
      targets will be the largest Internet Service Providers as well as other national
      organizations that market to the most appropriate demographic groups for our
      service. We believe one or more of the largest ISPs in the United States will
      recognize the first mover advantage opportunity and will use The Children’s
      Internet to not only offer this much needed product to their existing customers,
      but also to take a significant market share from their competition. We also
      believe that almost any company that markets to our demographics will want
      to
      seize the public relations goodwill that will accrue to any company offering
      our
      service.





The
      indirect channel, composed of non-salaried independent agents and wholesale
      distributors, will target a wide range of opportunities, from local charities
      to
      national organizations where they may have an influential contact. These sales
      agents will have the opportunity to employ secondary resellers to work for
      them,
      but we will not market using a multi-level marketing plan.





20





**Future
      Products and Services**




In
      the
      future, we anticipate generating revenues via advertising sold to the purveyors
      of children goods and services. As well, we intend to engage in the
      merchandising of The Children’s Internet® themed products, from clothing to toys
      to books, but for the foreseeable future we will focus strictly on the
      successful distribution of our core service.




**Market
      Share, Cash Flow and Profitability**




Although
      market data is not exact, and varies depending on the source, our plan is based
      on the belief that in the United States alone there are an approximately 35
      million homes with internet access with children in kindergarten through grade
      12 as of June 2007. Our model, with a mix of business generated from the
      respective channels of distribution, indicates we can be cash flow positive
      and
      profitable with less than 0.5% of the market.




**LIQUIDITY
      AND RESOURCES**




As
      of
      June 30, 2008, we had net loss from inception of approximately $5,622,000.
      Approximately $1,772,000 of the Company’s cumulative net losses are non-cash
      compensation charges. The cumulative net losses consist of approximately
      $603,000 which represents the estimated fair market value for the cost of wages,
      if paid, for services rendered by the Company’s former Chief Executive Officer,
      Controller and James Lambert, an outside financial consultant (we have recorded
      these amounts for the cost of wages and, since they did not charge the Company,
      as additional paid-in capital), $2,307,000 which represents professional fees
      such as legal and accounting expenses, $575,000 which represents a debt
      financing fee, $418,000 which represents officers, employees and directors
      compensation for which options to purchase common stock were issued, $593,000
      which represents accrued officers compensation, and the balance of $1,126,000
      consists primarily of payroll, occupancy and telecommunications costs including
      internet costs, net of approximately $2,000 in revenues. To date, Shadrack,
      the
      majority shareholder, has funded all of our expended costs, with the exception
      of short-term advances totaling approximately $436,000 made by other related
      parties since January 2007.




Since
      inception, the Company has been dependent on funding from Shadrack and other
      related parties for our current operations and for providing office space and
      utilities that for the six months ended June 30, 2008, averaged $23,000 per
      month in operating costs, exclusive of professional fees and officer
      compensation accrued but unpaid. Through June 30, 2008, the amount funded by
      Shadrack totaled approximately $1,487,000. On June 30, 2008, the balance due
      to
      Shadrack was approximately $1,030,000. The difference of approximately $457,000
      was converted to common stock on February 15, 2005, when the Company’s Board of
      Directors authorized the conversion of all debt owed to Shadrack into 13,054,628
      shares of restricted common stock at a conversion price of $0.035 per share.
      Shadrack has advised the Company that it will no longer continue to fund our
      operations. The Company received advances from a former pending purchaser of
      the
      Company, TCI Holdings, to fund operations during the six months ended June
      30,
      2008. TCI Holdings is no longer under any obligation to continue to advance
      funds to the Company, and therefore, the Company will have to obtain debt or
      equity financing from third parties in order to sustain operations.




Where
      practicable, we plan to contract with third party companies to outsource
      administrative support services that effectively support the growth of the
      business. These outsource providers handle technical support, telemarketing
      and
      the order taking process and media placement. We believe this strategy will
      minimize the number of employees required to manage our intended growth in
      the
      future.




21









On
      January 9, 2007, the Company signed a 12-month co-location agreement with
      Evocative, Inc. to house the Company’s search engine, servers and related
      equipment at Evocative’s data center in Emeryville, California. This agreement
      replaced a similar 13-month agreement which began in October 2003 and was
      continued on a month-to-month basis. The new agreement added a managed firewall
      service. The basic annual cost under this agreement was $35,988.




As
      a part of streamlining business operations, under the leadership of the previous
      CEO, Richard Lewis, in January 2008 the Company closed down its co-location
      facility and Internet hosting services for the Children’s Internet® provided by
      Evocative Data Center. Since the product was taken offline, sales efforts have
      been suspended until additional funds are invested to establish another data
      center and co-location facility to host the servers that run The Children’s
      Internet service. Additionally, the Company has terminated the Children’s
      Internet® support and content staff during this time. Prior to taking the
      Children’s Internet® service offline, the product was not being aggressively
      marketed due to the Company’s lack of resources to promote the
      product.





On
      March 1, 2007, the Company entered into an oral agreement to pay Tim T. Turner,
      the amount of $13,125 per month as a consultant until such time as Mr. Turner
      and the Company entered into an employment agreement. On April 2, 2007, the
      Company entered into an Executive Employment Agreement with Tim T. Turner,
      whereby Mr. Turner became the Director of Finance and Operations for the
      Company. This position was not deemed an executive officer position. Upon the
      Company obtaining Directors and Officers insurance, Mr. Turner would have been
      appointed an officer of the Company and made a member of the Company’s Board of
      Directors. Mr. Turner resigned his position with the Company effective on
      December 15, 2007. The agreement provided that Mr. Turner would receive a yearly
      salary of $157,500, part of which was to be deferred for a year, and if the
      Company was not able to pay such deferred compensation, it was to be evidenced
      by a promissory note and have an attached warrant.





On
      March 17, 2008, Mr. Turner informed the Company that amounts owed to Mr. Turner
      included a bonus of $78,750 and severance of $360,937.50, in addition to amounts
      accrued by the Company for Mr. Turner’s unpaid salary of $110,562 and consulting
      fees of $13,125.  The Company disputes the bonus and severance amounts
      claimed by Mr. Turner and intends to legally contest such disputed
      amounts in the event Mr. Turner further attempts collection.




On
      April
      30, 2007, the Company and the Board of Directors adopted “The Children’s
      Internet, Inc. 2007 Equity Incentive Plan” (the “Plan”). The purpose of the Plan
      is to provide incentives to attract retain and motivate eligible persons whose
      present and potential contributions are important to the success of the Company
      by offering them an opportunity to participate in the Company's future
      performance through awards of Options, Restricted Stock and Stock Bonuses.
      Under
      the terms of the Plan, the Company has made available six million (6,000,000)
      Shares of the Company’s stock to be issued to Officers, Directors, Employees,
      Consultants and Advisors to the Company with certain restrictions as set forth
      in the Plan. The Plan will be administered by a Committee of the Board of
      Directors. The Plan will terminate ten years from the effective date of the
      Plan
      unless terminated earlier under terms of the Plan.




The
      Company’s office space in Pleasanton, California had been leased by our majority
      shareholder, Shadrack Films, Inc., which expired on April 30, 2007. From May
      1
      through July 15, 2007, we rented our office space on a month-to-month basis.
      The
      Company and the landlord could not reach an agreement on terms for a new lease
      and we vacated the premises on July 13, 2007, and moved into office space in
      San
      Ramon, California. This office space is leased by Nasser Hamedani, a related
      party, who we reimburse for the monthly lease payment of $1,762.




22









**Going
      Concern Uncertainty**





Through
      the date of this report, we have relied primarily on loans from Shadrack to
      fund
      all of our expenses. Shadrack has advised the Company that it is no longer
      able
      to provide funds to the Company. The Company entered into a Definitive Stock
      Purchase Agreement with TCI Holdings that, if executed would provide the Company
      with an infusion of approximately $5.3 million to pay Company debts and fund
      future operations. As discussed in Note 4 of the Company’s Financial Statements,
      there can be no assurance that this transaction will be consummated. If the
      transaction is not consummated, the Company will be required to obtain
      additional funds through private placements of debt or equity securities or
      by
      other borrowing. There is no assurance that such additional financing will
      be
      available when required in order to proceed with our business plan. Further,
      our
      ability to respond to competition or changes in the market place or to exploit
      opportunities will be significantly limited by lack of available capital
      financing. If we are unsuccessful in securing the additional capital needed
      to
      continue operations within the time required, we will not be in a position
      to
      continue operations. In this event, we would attempt to sell the Company or
      file
      for bankruptcy.





**Off-Balance
      Sheet Arrangements**





None.





**ITEM
      3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Not
      applicable.





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




As
      of the end of the year 2007, we carried out an evaluation, under the supervision
      and with participation of management, including our Chief Executive Officer
      and
      Chief Financial Officer, of the effectiveness of our disclosure controls and
      procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e)
      promulgated under the Exchange Act. Based upon that evaluation, we concluded
      that our disclosure controls and procedures were ineffective to provide
      reasonable assurance that material information required to be disclosed by
      us in
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms.




In
      making this evaluation, our Chief Executive Officer and Chief Financial
      Officer considered the material weaknesses discussed in Management’s Report
      on Internal Control Over Financial Reporting. Based on this evaluation, we
      concluded that our disclosure controls and procedures were not effective at
      a
      reasonable assurance level as of December 31, 2007 because of the identification
      of material weaknesses in our internal control over financial reporting. There
      have been no significant changes made in our internal controls or in other
      factors that could significantly affect our internal controls during the period
      covered by this report or subsequent to the end of the period covered by this
      report. Our size and limited financial resources prevent us from employing
      sufficient personnel currently to enable us to have an adequate segregation
      of
      duties within our internal control system.


23










**PART
      II - OTHER INFORMATION**





**ITEM
      1.**  **LEGAL PROCEEDINGS**





**Oswald
      & Yap v. The Children’s Internet, Inc.**





On
      November 24, 2004, Oswald & Yap, A Professional Corporation (“O&Y”),
      formerly counsel to the Company, filed a complaint in the Superior Court of
      California, County of Orange, Case No. 04CC11623, against the Company, seeking
      recovery of allegedly unpaid legal fees in the amount of $50,984.86 in
      connection with the legal representation of the Company. Subsequently the amount
      claimed of unpaid legal fees was reduced to $37,378.43 because it was discovered
      that O&Y did not properly credit all of the payments that were made by the
      Company to O&Y. The amount of $37,378.43 was deposited in an escrow account
      by the Company on July 5, 2005. The complaint includes causes of action for
      breach of contract. The Company disputes the amounts claimed alleging that
      O&Y’s services were otherwise unsatisfactory. On May 9, 2005, O&Y
      submitted an Offer to Compromise for a $0 payment by the Company to O&Y in
      exchange for mutual releases which the Company rejected. ****





The
      Company filed a cross-complaint against O&Y alleging breach of contract,
      professional negligence, negligent representation, and breach of good faith
      and
      fiduciary duty. The Company is seeking damages in an unspecified amount for
      costs, legal fees and losses incurred.





O&Y
      has vigorously disputed the claims set forth in the cross-complaint and has
      indicated its intention, should it prevail in its defense, to institute a
      malicious prosecution action against the Company, Nasser Hamedani, Sholeh
      Hamedani and Company counsel.





A
      cross-claim was filed in the Superior Court of California, County of Orange,
      Case No. 04CC11623 by the Company against O&Y, and the principal allegation
      is that O&Y was retained to assist its predecessor company in the purchase
      and acquisition of D.W.C. Installations with the expectation that D.W.C. had
      available free-trading shares such that the Company could immediately raise
      capital on the relevant markets and that in advising the Company through the
      purchase, O&Y failed to properly advise the Company as to the status of
      D.W.C. Installations and its shares which in fact were not free-trading. As
      a
      result of this conduct, the Company alleges damages in an unspecified amount
      but
      including purchase costs, extended operation costs, refiling costs, audit costs,
      legal fees, loan fees, lost market share, and costs for registration.





**Stock
      Purchase Agreement**





There
      is
      a contingent liability in connection with a Stock Purchase Agreement executed
      on
      October 11, 2002 between identified Shareholders and identified Purchasers.
      Under the terms of Stock Purchase Agreement, a payment of $150,000 is due to
      be
      paid into escrow in part consideration for purchase of the stock of D.W.C.
      Installations, Inc. The payment date is designated as 90 days from the date
      that
      the Company’s [D.W.C. Installations, Inc., a Nevada Corporation] shares of
      common stock become quoted on the over-the-counter bulletin board system. The
      shares were approved by NASDAQ OTC:BB to be quoted on the over-the-counter
      bulletin board system and a symbol was assigned on December 23, 2004. If this
      payment is not made, there could be exposure in connection with the identified
      shareholders’ efforts to collect the amounts allegedly due.


24





**Stonefield
      Josephson, Inc. Arbitration**





The
      Company was subject to a claim by Stonefield Josephson, Inc., the former
      accountants for the Company, seeking reimbursement costs for legal fees spent
      in
      connection with the Securities and Exchange Commission inquiry of the Company.
      Stonefield Josephson, Inc.’s claim seeks recovery of $29,412.74. The Company
      disputes any amounts owed because of a settlement agreement entered into between
      the respective parties in December 2004 effectively terminating their
      relationship. This matter was submitted to binding arbitration through AAA
      in
      January 2007. The arbitrator’s decision was issued on February 2, 2007, awarding
      Stonefield Josephson, Inc. the sum of $19,000 plus costs and fees in the amount
      of $1,425 due and payable March 15, 2007. The decision also awarded Stonefield
      Josephson, Inc. interest at the rate of 10% per annum from March 15, 2007.
      On
      August 30, 2007, an additional $2,500 in post-arbitration attorney’s fees and
      costs was awarded by the Los Angeles Superior Court. No amounts have been paid
      to Stonefield Josephson since the date of the Arbitrator’s
      decision.





**The
      Children’s Internet, Inc. v. Stonefield Josephson, Inc.**





On
      August
      25, 2006, the Company filed a complaint against its former accountants,
      Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
      Court
      of California, County of Alameda, Case No. VG06286054 alleging breach of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The matter was subsequently transferred to Los Angeles Superior
      Court. All parties have agreed to mediation in this matter currently scheduled
      for December 3, 2008. Mediation
      on this matter took place on February 29, 2008 in Los Angeles, California but
      was unsuccessful. A court hearing is pending.





**SEC
      Complaint**





On
      September 27, 2006, the Securities and Exchange Commission (“SEC”) filed a
      complaint in the United States District Court Northern District of California
      Case No. C066003CW, against among others the Company, and its CEO, Sholeh
      Hamedani, alleging against one or more defendants violations of Section 10(b)
      of
      the Exchange Act and Rule 10b-5, violations of Section 13(a) of the Exchange
      Act
      and Rules 12b-20, 13a-1, 13a-11, 13a-13, violations of Section 13(b)(2)(A)
      of
      the Exchange Act by the Company, Violations of Section 13(b)(2)(B) of the
      Exchange Act by the Company, Violations of Section 13(b)(5) of the Exchange
      Act
      and Rule 13b2-1, 13b2-2, 13a-14, 16(a).





A
      proposed settlement agreement was approved by the SEC in Washington,
      D.C. and the SEC San Francisco staff had received stand-by authority to
      accept the settlement offer of the Company if the deal with TCI Holding closed
      and $2.7 million was made available to transfer to the court’s registry. In
      order to provide more time to TCI Holding to raise the funds necessary to close
      the DSPA and settle with the SEC the Company agreed to a bifurcation of the
      proceedings. Under the agreement, the injunctive relief sought by the Commission
      will be granted by judgment against the Company, with a remedies hearing which
      was held in Federal Court on August 14, 2008 (previously scheduled for April
      29,
      2008 and then June 12, 2008), to resolve the amount of disgorgement, penalties
      and other monetary issues. The court invited the parties to submit proposals
      for
      continuing management and or disposition of corporate assets to be submitted
      by
      August 22, 2008. The court has not issued a final order as of the date of this
      disclosure. The final judgment ordered by the court could
      seriously compromise the Company's ability to continue as a going
      concern.


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**William
      L. Arnold**





On
      February 25, 2005, we entered into a Consulting Agreement with Crosslink
      Financial Communications, Inc., of which William L. Arnold is the principal
      shareholder. Crosslink represented the Company in stockholder communications
      and
      public relations with existing shareholders, brokers, dealers and other
      investment professionals as to the Company's current and proposed activities,
      and in consulting with management. For undertaking this engagement the Company
      agreed to issue a “Commencement Bonus” payable in the form of 200,000 restricted
      shares of the Company's common stock. In addition, the Company agreed to a
      monthly stock compensation of 8,000 shares of common stock every month on the
      contract anniversary date, and a cash fee of $5,000 per month for the term
      of
      the Agreement. Out of this fee, Crosslink paid for complementary services (e.g.,
      other mailing services, email services, database extensions) up to an average
      of
      $2,500 per month.





The
      agreement, which was originally for a term commencing February 25, 2005 and
      ending twelve months thereafter, was terminated at the end of December 2005
      because there was a mutual desire for Mr. Arnold to be involved on a daily
      basis. Hence, on December 30, 2005, he was hired as the Company’s President.
      Beginning on September 1, 2006, Mr. Arnold took an unpaid leave of
      absence.


Subsequent
      to the filing of our Form 10-KSB on May 18, 2007, Mr. Arnold advised us that
      he
      disagreed with our position that his unpaid leave of absence was voluntary.
      Mr.
      Arnold informed us that he believed his leave of absence resulted from the
      Company’s breach of his Executive Employment Agreement. We have had discussions
      with Mr. Arnold in an effort to resolve the differences between the parties
      but,
      to date, have not reached agreement. On August 8, 2007, Mr. Arnold advised
      us
      that he intended to take legal action against the Company to enforce the terms
      of his Employment Agreement. Mr. Arnold claims $520,000 in damages from the
      Company. We believe that Mr. Arnold violated the terms of his Employment
      Agreement when he voluntarily left his position as President in September of
      2006. We believe that we are only obligated to pay Mr. Arnold for back pay
      and
      bonus plus interest, for the period prior to September 2006. The total
      compensation that we believe is owed to Mr. Arnold as of June 30, 2008 is
      $89,274, which amount is reflected in our financial statements.





Adverse
      outcomes in some or all of the claims pending against us may result in
      significant monetary damages or injunctive relief against us that could
      adversely affect our ability to conduct our business. Although management
      currently believes that resolving all of these matters, individually or in
      the
      aggregate, will not have a material adverse impact on our financial position
      or
      results of operations, the litigation and other claims are subject to inherent
      uncertainties and management’s view of these matters may change in the future.
      There exists the possibility of a material adverse impact on our financial
      position and the results of operations for the period in which the effect of
      an
      unfavorable final outcome becomes probable and reasonably estimable.





We
      are
      not aware of any other pending or threatened litigation that could have a
      material adverse effect on our business.





26


**ITEM
      2.**  **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





The
      Company had no “Unregistered Sales of its securities during the period covered
      by this report.





**ITEM
      3. DEFAULT UPON SENIOR SECURITIES**





The
      Company has no Senior Securities.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None





**ITEM
      5. OTHER INFORMATION**





On
      March
      29, 2007, the Company entered into an agreement with the firm of Hunter &
Renfro, LLP (formerly known as Hunter, Flemmer, Renfro & Whitaker, LLP) of
      Sacramento, California to replace Marc Lumer & Co. as the Company’s
      independent accountant. On May 14, 2006, the agreement was replaced with an
      agreement for Hunter & Renfro, LLP (formerly known as Hunter, Flemmer,
      Renfro & Whitaker, LLP) to audit the financial statements for the year ended
      December 31, 2006 and to re-audit the year ended December 31, 2005.





**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**





The
      following documents are filed as part of this Report:





(a)Exhibits:





No.
            Title31.1
            Certification
                of Chief Executive Officer Pursuant to the Securities Exchange Act
                of
                1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer Pursuant to the Securities Exchange Act
                of
                1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 200232
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




(b)Reports
      on Form
      8-K:





On
      February 12, 2008, the Company filed a Current Report on Form 8-K extending
      the
      closing date for the Definitive Stock Purchase Agreement (DSPA) with TCI Holding
      Company, LLC from January 31 to February 29, 2008.





On
      March
      6, 2008, the Company filed a Current Report on Form 8-K extending the closing
      date for the DSPA from February 29 to March 15, 2008.





27


On
      March
      21, 2008, the Company filed a Current Report on Form 8-K extending the closing
      date for the DSPA from March 15 to March 31, 2008.





On
      May
      15, 2008, the Company filed a Current Report on Form 8-K to report the
      termination of the DSPA, the removal of Richard J. Lewis III as Chief Executive
      Officer and Chief Financial Officer, and the appointment of Tyler Wheeler as
      Acting Chief Executive Officer and Chief Financial Officer. It is not yet clear
      what impact the termination of the DSPA will have on the Company.











**SIGNATURES**








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








DATED:
                August 19, 2008
            
            The
                Children’s Internet, Inc./s/
                Tyler WheelerBy:
                Tyler WheelerIts:
                Acting Chief Executive Officer, and Acting Chief Financial Officer
                (Principal Executive Officer, Principal Financial Officer and Principal
                Accounting Officer)


28