**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





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





For
      the
      quarterly period ended September 30, 2006





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





For
      the
      transition period from __________ to __________





Commission
      File Number: 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
            (IRS
                Employerincorporation
                or organization)
            Identification
                No.)





5000
      Hopyard Rd., Suite 320, Pleasanton, California 94588


(Address
      of principal executive offices)





(925)
      737-0144


(Issuer's
      telephone number)








(Former
      name, former address and former fiscal year, if changed since last
      report)





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





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





State
      the
      number of shares outstanding of each of the issuer’s classes of common
      equity:




As
      of
      October 31, 2006, there were 26,873,738 post-split shares of common stock issued
      and outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x










**THE
      CHILDREN’S INTERNET, INC**





**INDEX**





Page
              NumberPART
                I - FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements (Unaudited)
            
            1Unaudited
                Balance Sheet - September 30, 2006
            
            1Unaudited
                Statements of Operations - For the three and nine months ended September
                30, 2006 and 2005, and the period from inception to September 30,
                2006
            
            2Unaudited
                Statements of Cash Flows - For the nine months ended September 30,
                2006
                and 2005, and the period from inception to September 30,
                2006
            
            3Notes
                to Unaudited Financial Statements
            
            4Item
                2.
            Management's
                Discussion and Analysis of Financial Conditions and Plan of
                Operation
            
            13Item
                3.
            Controls
                and Procedures
            
            20PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            
            21Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            23Item
                5.
            Other
                Information
            
            23Item
                6.
            Exhibits
                and Reports on Form 8-K
            
            24SIGNATURES
            
            
            25











**PART
      I - FINANCIAL INFORMATION**





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




THE
        CHILDREN'S INTERNET, INC.
 (A
        Development Stage Company)
 BALANCE
        SHEET
 As
        of
        September 30, 2006
 (Unaudited)
  ASSETSCurrent
                  Assets:Cash
              
              $
              281Deposit
                  held in escrow, offsets $37,378 accountpayable
                  to Oswald & Yap (Note 4)
              
              
              37,378Total
                  Current Assets
              
              
              37,659Equipment:Equipment
                  at cost
              
              
              12,196Accumulated
                  depreciation
              
              
              (4,084
              )Equipment,
                  net
              
              
              8,112Other
                  Assets:Deposit
                  - State Board of Equalization
              
              
              2,000TOTAL
                  ASSETS
              
              $
              47,771LIABILITIES
                  AND STOCKHOLDERS' DEFICITCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              418,173Accrued
                  officers' compensation
              
              
              404,274Payroll
                  taxes on accrued officers' compensation
              
              
              16,119Payroll
                  taxes payable
              
              
              2,557Due
                  to related party
              
              
              912,238Total
                  Current Liabilities
              
              
              1,753,361TOTAL
                  LIABILITIES
              
              
              1,753,361COMMITMENTS
                  AND CONTINGENCIES (NOTES 1, 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;
                  26,873,738 shares issued and outstanding
              
              
              26,874Additional
                  paid-in capital
              
              
              7,932,622Deferred
                  charges - Related company
              
              
              (5,669,898
              )Prepaid
                  expenses through stock issuance
              
              
              (2,941
              )Deficit
                  accumulated during the development stage
              
              
              (3,992,247
              )TOTAL
                  STOCKHOLDERS' DEFICIT
              
              
              (1,705,590
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              47,771


The
        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
                Ended
                  September 30,
              
              For
                    the Nine Months
                  Ended
                    September 30,
              
              For
                      the Period
                    Sept.
                      25, 1996
                    (inception)
                      to2006
              
              2005
              
              2006
              
              2005
              
              Sept.
                  30, 2006NET
                  REVENUES
              
              $
              363
              
              $
              -
              
              $
              636
              
              $
              -
              
              $
              636COSTS
                  OF REVENUES
              
              
              131
              
              
              -
              
              
              219
              
              
              -
              
              
              219Gross
                  margin
              
              
              232
              
              
              -
              
              
              417
              
              
              -
              
              
              417OPERATING
                  EXPENSESSales
                  and marketing
              
              
              7,695
              
              
              234
              
              
              23,550
              
              
              2,651
              
              
              26,201General
                  and administrative
              
              
              151,864
              
              
              161,848
              
              
              586,871
              
              
              533,311
              
              
              2,529,537Officers'
                  compensation
              
              
              88,056
              
              
              45,000
              
              
              304,319
              
              
              450,000
              
              
              1,418,117Depreciation
                  expense
              
              
              1,017
              
              
              263
              
              
              3,208
              
              
              263
              
              
              4,084Total
                  operating expenses
              
              
              248,632
              
              
              207,345
              
              
              917,948
              
              
              986,225
              
              
              3,977,939Loss
                  from operations
              
              
              (248,400
              )
              
              (207,345
              )
              
              (917,531
              )
              
              (986,225
              )
              
              (3,977,522
              )Interest
                  expense
              
              
              6,259
              
              
              -
              
              
              10,725
              
              
              -
              
              
              10,725Loss
                  before income taxes
              
              
              (254,659
              )
              
              (207,345
              )
              
              (928,256
              )
              
              (986,225
              )
              
              (3,988,247
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              800
              
              
              800
              
              
              4,000NET
                  LOSS
              
              $
              (254,659
              )
              $
              (207,345
              )
              $
              (929,056
              )
              $
              (987,025
              )
              $
              (3,992,247
              )Net
                  loss per common share, after giving retroactive effect to 2 for
                  1 stock
                  split on March 11, 2005-
                  basic and diluted
              
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.03
              )
              $
              (0.04
              )
              $
              (0.47
              )Shares
                  used in computingbasic
                  and diluted net lossper
                  share
              
              
              26,873,738
              
              
              26,819,750
              
              
              26,864,652
              
              
              24,606,115
              
              
              8,477,585


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 Nine Months
                Ended
                  September 30,
              
              For
                      the Period
                    Sept.
                      25, 1996
                    (inception)
                      to2006
              
              2005
              
              Sept.
                  30, 2006CASH
                  FLOWS USED IN OPERATING ACTIVITIESNet
                  Loss
              
              $
              (929,056
              )
              $
              (987,025
              )
              $
              (3,992,247
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                  on equipment
              
              
              3,208
              
              
              263
              
              
              4,084Amortization
                  of deferred charges
              
              
              102
              
              
              -
              
              
              102Stock
                  compensation to director
              
              
              -
              
              
              315,000
              
              
              315,000Stock
                  compensation to President
              
              
              52,223
              
              
              -
              
              
              52,223Shares
                  issued for services
              
              
              7,800
              
              
              119,760
              
              
              709,756Services
                  performed as capital contribution
              
              
              -
              
              
              -
              
              
              595,000Expenses
                  paid by former officer on behalf of company
              
              
              -
              
              
              -
              
              
              5,000Deposit
                  - State Board of Equalization
              
              
              (2,000
              )
              
              -
              
              
              (2,000
              )Increase
                  in current assets -Deposit
                  held in escrow
              
              
              -
              
              
              (37,378
              )
              
              (37,378
              )Increase
                  in current contra equity -Prepaid
                  expenses
              
              
              (2,941
              )
              
              -
              
              
              (2,941
              )Increase
                  in current liabilities -Accounts
                  payable and accrued expenses
              
              
              252,592
              
              
              41,118
              
              
              436,849Accrued
                  officers' compensation
              
              
              224,274
              
              
              135,000
              
              
              404,274Net
                  cash used in operating activities
              
              
              (393,798
              )
              
              (413,262
              )
              
              (1,512,278
              )CASH
                  USED IN INVESTING ACTIVITIESAcquisition
                  of equipment
              
              
              (774
              )
              
              (7,030
              )
              
              (12,196
              )Net
                  cash used in investing activities
              
              
              (774
              )
              
              (7,030
              )
              
              (12,196
              )CASH
                  PROVIDED BY FINANCING ACTIVITIESIssuance
                  of common stock
              
              
              -
              
              
              456,912
              
              
              612,517Advances
                  from related party
              
              
              291,004
              
              
              434,248
              
              
              1,369,150Related
                  party advances converted to common stock
              
              
              -
              
              
              (456,912
              )
              
              (456,912
              )Net
                  cash provided by financing activities
              
              
              291,004
              
              
              434,248
              
              
              1,524,755Net
                  change in cash and cash equivalents
              
              
              (103,568
              )
              
              13,956
              
              
              281Cash
                  and cash equivalents - Beginning of period
              
              
              103,849
              
              
              -
              
              
              -Cash
                  and cash equivalents - End of period
              
              $
              281
              
              $
              13,956
              
              $
              281SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONCash
                  paid for interest
              
              $
              3,122
              
              $
              -
              
              $
              3,122Cash
                  paid for taxes
              
              $
              800
              
              $
              800
              
              $
              4,000





The
        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


September
      30, 2006





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





Business





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 post-split shares were issued. The Company was primarily
      inactive until July 2002.





On
      July
      3, 2002, Shadrack Films, Inc. purchased 2,333,510 newly issued post-split shares
      of our common stock for $150,000, thereby obtaining a majority ownership
      interest and becoming the parent company. Total issued and outstanding shares
      were increased to 4,575,510 post-split shares as a result of this sale.
      Subsequently, on December 27, 2002, the Company’s name was changed from D.W.C.
      Installations to The Children’s Internet, Inc.





On
      October 11, 2002, 8,948,000 newly issued restricted post-split shares of common
      stock were issued as a debt financing fee, pursuant
      to an agreement with five shareholders holding a total of 2,237,000 freely
      tradable post-split shares. These shareholders agreed to pay to Two Dog Net,
      Inc. (TDN), a related party, the proceeds from the sales of an unspecified
      number of their shares to third parties, and in return these shareholders or
      their designees received four restricted shares for each of their original
      freely-tradable shares. TDN in turn agreed to loan a portion of the proceeds
      to
      Shadrack Films, Inc., who in turn loaned the majority of the funds to The
      Children’s Internet to finance the ongoing operations of the Company. TDN
      retained the remainder of the proceeds to help fund development costs of The
      Children’s Internet online service, which is the product the Company has
      licensed from TDN to bring to the marketplace. In view of the $575,356 agreed
      upon value of the newly-issued shares given up by the Company to obtain this
      financing, no interest is charged on the amounts loaned. The total net proceeds
      of the shares sold under this agreement were $2,228,292.





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, to take the form of a 100% stock dividend. The
      effective date of the forward split on the OTC:BB was March 11,
      2005.





During
      the year ended December 31, 2005, an additional 13,334,628 restricted post-split
      shares of common stock were issued. Of these shares 13, 054,628 were issued
      for
      conversion of debt and 280,000 shares were issued in payment of investor
      relation services as explained in Notes 3, 4 and 6 .





On
      June
      9, 2006, 15,600 shares were issued under a public relations consulting
      agreement, as explained in Note 6, bringing
      the total of
      the
      Company's issued and outstanding post-split shares to 26,873,738 at September
      30, 2006.




4





On
      January 1, 2006, the company adopted the stock-based compensation provisions
      of
      SFAS No. 123R, which establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      and
      services. SFAS No. 123R eliminates the ability to account for
      share-based compensation transactions using Accounting Principles Board Opinion
      No. 25 and generally requires that such transactions be accounted for using
      a fair-value-based method.





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 is devoting 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 some of its planned
      principal operations have commenced, because there have been no significant
      revenues earned by the Company to date.





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 by the
      Company in accordance with accounting principles generally accepted in the
      United States of America pursuant to Regulation S-B of the Securities and
      Exchange Commission. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted. Accordingly, 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,
      2005. 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
      nine months ended September 30, 2006 are not necessarily indicative of results
      of operations to be expected for the full year.




5




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 a negative
        cash flow from operations for the nine months ended September 30, 2006. These
        factors raise substantial doubt about its ability to continue as a going
        concern. The ability of the Company to continue as a going concern is dependent
        on the Company’s ability to raise additional funds and implement its business
        plan. The financial statements do not include any adjustments that might
        be
        necessary if the Company is unable to continue as a going
        concern.




Reclassifications





During
      the quarter ended September 30, 2006, management determined that a change in
      presentation of certain accounts from an asset classification to a contra equity
      classification would result in balance sheets that represent the Company’s
      financial position more fairly. Specifically, deferred charges and prepaid
      expenses for which the Company’s stock was issued as payment for services yet to
      be performed, have been reclassified from assets to deductions from equity
      beginning with the September 30, 2006 Balance Sheet.





For
      comparative purposes, certain amounts previously combined in the prior year’s
      Statements of Operations, have been reclassified to provide a more informative
      presentation when compared to the same periods for 2006.





The
      following summarizes the reclassifications of the previously reported amounts
      for 2005:


Three
                  Months EndedSeptember
                  30, 2005
              
              Nine
                  Months EndedSeptember
                  30, 2005General
                  and administrative expensesas
                  originally reported
              
              $
              207,345
              
              $
              986,225Adjustments
              
              
              (45,497
              )
              
              (452,914
              )Restated
              
              $
              161,848
              
              $
              533,311Sales
                  and marketing expensesas
                  originally reported
              
              $
              -
              
              $
              -Adjustment
              
              
              234
              
              
              2,651Restated
              
              $
              234
              
              $
              2,651Officers’
                  compensationas
                  originally reported
              
              $
              -
              
              $
              -Adjustment
              
              
              45,000
              
              
              450,000Restated
              
              $
              45,000
              
              $
              450,000Depreciation
                  expenseas
                  originally reported
              
              $
              -
              
              $
              -Adjustment
              
              
              263
              
              
              263Restated
              
              $
              263
              
              $
              263






6




**NOTE
      3 - RELATED PARTY TRANSACTIONS** ****




Services
      Provided




On
      February 15, 2005, the Company’s Board of Directors resolved that starting
      January 1, 2005, all salary due and payable to the Company's Chief Executive
      Officer, Chief Financial Officer, and Director, Sholeh Hamedani, would be
      accrued when earned. The decision will 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. As of the date of this report no decision has been made
      as to what method of payment Ms. Hamedani will take and her salary continues
      to
      be accrued. For each of the nine-month periods ended September 30, 2006 and
      2005, $135,000 was accrued. Also, the salary of the Company’s President, William
      L. Arnold, has not been paid, but is being accrued beginning May 1,
      2006.




Advances




As
      of the
      date of this report, all of the Company’s funding has been through Shadrack
      Films, Inc., the parent company and a related party. The total amount advanced
      through September 30, 2006 was $1,369,150. In February 2005, the Company owed
      Shadrack Films, Inc., approximately $457,000 representing loans made by Shadrack
      to the Company since activating the development stage on July 3, 2002 when
      it
      agreed to fund all of the Company’s operations. 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 post-split
      shares of the Registrant's restricted common stock at a conversion price of
      $.035 per post-split share.





Shadrack
      Films, Inc. is an entity owned and controlled by the Company's Chief Executive
      Officer, Chief  Financial
      Officer and Chairman of the Board, Sholeh Hamedani, who is the sole officer,
      director and shareholder of Shadrack. Shadrack also owned 2,333,510 post-split
      shares it acquired back on July 3, 2002 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 valued at $35,000 with 70,000
      restricted shares of the Company’s common stock. Together with the 13,054,628
      post-split shares issued upon conversion of the debt, Shadrack owns an aggregate
      of 14,040,988 post-split shares of the Company's common stock or 52.2% without
      giving effect to any presently exercisable options.





Beneficial
      Ownership





The
      Company, Shadrack and Two
      Dog
      Net, Inc. (TDN), are
      related parties, in that, the Company's Chief Executive Officer, Chief Financial
      Officer, and Director, Sholeh Hamedani, is the sole shareholder of Shadrack
      which as of September 30, 2006 owns 52.2% of the Company's common stock. Ms.
      Hamedani was President of TDN until she resigned on August 1, 2002 and is a
      10%
      shareholder of TDN. In addition, the current President, Chairman and Founder
      of
      TDN, Nasser Hamedani, is the father of the Company’s Chief Executive Officer,
      Chief Financial Officer, and Director, Sholeh Hamedani.





Licensing
      Agreement





The
      Wholesale Sales and Marketing Agreement between the Company and Two Dog Net,
      Inc., dated March 3, 2003, is an exclusive and renewable five-year agreement
      for
      the Company to be the exclusive marketers of TDN’s proprietary and patent
      pending secure online service for children pre-school to junior high called
      The
      Children's Internet®. Under the terms of the 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.





7




On
      February 15, 2005, the Company's Board of Directors authorized and approved
      an
      amendment to the Wholesale Sales and Marketing Agreement between the Company
      and
      Two Dog Net, Inc., dated March 3, 2003. The amended license agreement reduces
      the license fee for The Children's Internet® technology payable to TDN from
      $3.00 to $1.00 per month, per subscriber. 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.




Stock
      Options Granted




As
      noted
      above, on February 15, 2005, because TDN agreed to reduce their licensing fee
      from $3.00 to $1.00 the Company issued an option to purchase up to 18,000,000
      post-split shares of the Company's
      restricted common stock at
      an
      exercise price of $0.07 per
      share, and a fair value of $5,670,000.  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. The Option also provides
      TDN
      with "piggyback" registration rights for all shares underlying the Option on
      any
      registration statement filed by the Company for a period of one year following
      any exercise of the Option.




Also
      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 post-split 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.




Both
      options to purchase Company shares were valued at $0.315 per share. Both of
      the
      above options were valued using the Black-Scholes option pricing model, which
      was developed for estimating the fair value of traded options, and taking into
      account that all of the exercisable shares are restricted.




**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
      unpaid legal fees in the amount of $50,985 in connection with the legal
      representation of the Company. Subsequently the amount claimed of unpaid legal
      fees was reduced to $37,378 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 was deposited in an escrow account by the Company on
      July
      5, 2005. The O&Y 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 5, 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. ****




8





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.





The
      cross-claim was filed in the Superior Court of California, County of Orange,
      Case No. 04CC11623 by TCI 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 TCI could immediately file a Form 211
      to
      become quoted on the OTC:BB and raise capital on the relevant markets and that
      in advising TCI through the purchase, O&Y failed to properly advise TCI 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, TCI 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. The case was set to proceed to trial on November 13, 2006, but
      was
      stayed indefinitely pending resolution of the ongoing Securities and Exchange
      Commission complaint recently filed against the Company and certain of its
      officers.





On
      August
      25, 2006, the Company filed a complaint in Superior Court of California, County
      of Alameda Case No. VG 06 286054, against its former auditor Stonefield
      Josephson and Dean Skupen, an individual, 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
      breach of a letter agreement between the Company and Stoneflield to provide
      the
      Company working papers for audit and review and a consent letter. This action
      is
      still pending and its outcome is uncertain at this time.




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.
      Installations, Inc. The payment date is designated as 90 days from the date
      that
      the Company’s shares of common stock become quoted on the over-the-counter
      bulletin board system. The shares became quoted on the over-the-counter bulletin
      board system on February 23, 2005. If this payment is not made, there could
      be
      exposure in connection with the identified Shareholders’ efforts to collect the
      amounts allegedly due. No provision has been recorded by the Company, since
      any
      potential liability would be an obligation of the individual Purchasers of
      these
      shares and not the Company.





As
      previously disclosed by the Company on August 15, 2005, November 15, 2005,
      and
      January 3, 2006, that on July 19, 2005, the Company and its auditors and its
      former auditors received notice from the Office of Enforcement of the Securities
      and Exchange Commission stating that they had commenced an “informal inquiry” to
      determine if there have been “any violations of the federal securities laws” by
      the Company. On December 27, 2005, the Company received notice from the
      Securities and Exchange Commission that the Commission had elevated its
      inquiries to a formal investigation for possible violation of the securities
      laws resulting from the Company’s restatement of its financial statements for
      fiscal years 2002 and 2003 and certain interim periods in fiscal year
      2004.  On May 1, 2006, the Company was further informed by the San
      Francisco District Office of the Commission that it is going to ''recommend
      to
      the Commission that it authorize the staff to file a civil injunctive action
      in
      the United States District Court and/or cease-and-desist proceeding in an
      administrative action against The Children’s Internet” and its C.E.O., Sholeh
      Hamedani. The Commission will allege in its pleadings that the Company, its
      C.E.O. and other individuals, violated various sections and rules of the
      Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission
      ''may seek injunctive relief or a cease and desist order, disgorgement, and
      civil monetary penalties'' against the Company as well as its C.E.O. being
      barred from serving as either a director or officer of the Company or of any
      public company in the future.




9





The
      Company is continuing to seek resolution of the staff’s investigation by virtue
      of settlement.  A potential settlement likely may include the Company
      and/or its Chief Executive Officer consenting, without admitting or denying
      the
      allegations, to a judgment alleging negligent, reckless, and intentional
      violations of the federal securities laws, and other sanctions including
      substantial penalties. These penalties could range from the Chief Executive
      Officer being barred from serving as either a director or officer of the Company
      to also including financial penalties and disgorgement of all profits derived
      by
      the Company and/or its Chief Executive Officer and/or profits derived by
      Shadrack.





From
      inception, Shadrack, the parent company, has advanced to the Company
      approximately $1.4 million for operations. While the exact amount of the
      disgorgement of profits and/or penalties cannot be determined at this time,
      the
      ability to pay them by the Company or the Chief Executive Officer is a serious
      question. Any proposed settlement will be subject to the Commission’s
      approval.  The Company cannot predict the outcome of any settlement
      negotiations, the staff’s investigation, or the ultimate Commission action
      should these settlement negotiations fail. The Company does not yet have a
      settlement offer. Management and counsel to the Company are currently waiting
      to
      see if they will receive one from the Commission's staff. Additionally, there
      is
      no assurance that the Company will receive a settlement offer. Moreover, there
      is no assurance that their settlement offer (if any) will be acceptable to
      the
      Company and the prospect of litigation could ensue which could seriously
      compromise the Company's ability to achieve its goals.





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 certain of its
      officers 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 TCI, Violations of Section 13(b)(2)(B) of the Exchange
      Act
      by TCI, Violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1,
      13b2-2, 13a-14, 16(a). 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 Commission and in particular the June 2005 Annual Report and Restatement
      and
      2005 Current and Quarterly Reports, and that 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 not yet filed its formal
      response.





As
      discussed above, the Company has claims and lawsuits against it that may result
      in adverse outcomes. Adverse outcomes in some or all of the claims pending
      against the Company may result in significant monetary damages or injunctive
      relief against it that could adversely affect its ability to conduct 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.




10




On
      February 25, 2005, the Company entered into a one-year agreement with Crosslink
      Financial Communications, Inc., a California corporation, for consulting
      services related to stockholder communications and public relations with
      existing shareholders, brokers, dealers and other investment professionals.
      The
      principal shareholder of Crosslink is William L. Arnold. As compensation for
      these services, Crosslink received 200,000 restricted post-split shares of
      the
      Company's common stock valued at $0.33 per share, monthly stock compensation
      of
      8,000 restricted post-split shares of common stock, and $5,000 per month from
      which Crosslink paid for complementary services (e.g., other mailing services,
      email services, data base extensions) of not less than $1,500 per month up
      to an
      average of $2,500 per month. During the year ended December 31, 2005, Crosslink
      received a total of 280,000 restricted post-split shares of the Company’s common
      stock under this agreement. The agreement with Crosslink Financial
      Communications, Inc. was terminated at the end of December 2005.





On
      December 30, 2005, William L. Arnold, the principal shareholder of Crosslink
      was
      appointed by the Chairman to act as President of the Company under an Executive
      Employment Agreement with the same date. Compensation includes a monthly salary
      of $10,000, of which $2,500 per month is deferred with 9% accrued interest
      until
      January 2007. The
      agreement also includes a
      combination of nonqualified and qualified stock options (the Stock Option).
      The
      Stock Option is for the purchase of up to 1,000,000 post-split shares at an
      option price of $0.55 per share, and expires on December 31, 2010. One half
      of
      the Stock Option vested immediately and the remaining 500,000 option shares
      will
      vest at the rate of 1/36 th each
      month until fully vested. Of the 500,000 option shares which vest immediately,
      360,000 are Incentive Stock Options (ISO’s). The remaining 640,000 option shares
      are non-qualified. Additionally the 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 the Employee meets the
      performance standards as established by Board of Directors. The President
      and the CEO of the Company mutually agreed to extend the deadline to define
      the
      "Performance Standards" from June 30, 2006 to September 30, 2006, and $40,000
      has been accrued as an expense for the nine months ended September 30, 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 Stock Option, would have been recorded
      at
      $235,000.





On
      April
      7, 2005, the Company entered into an agreement with Convergys Customer
      Management Group Inc. of Cincinnati, Ohio to provide subscriber management
      services, including inbound telephone coverage 24/7, capturing caller
      information, providing toll-free numbers and daily reporting of orders and
      leads. The term of the agreement begins on April 7, 2005 and continues until
      the
      expiration of 30 days after either party gives the other party written notice
      of
      its intent to terminate. Under this agreement, inbound live phone services
      are
      billed at $0.75 per minute for the first million minutes annually, $0.732 for
      the second million minutes and $0.714 per minute thereafter. The minimum
      purchase commitment is $2,500 per month, which is waived for the first year
      of
      service. The Convergys relationship is established, but their telemarketing
      services will not commence until the Infomercial marketing begins.





On
      August
      23, 2005, the Company signed a client services agreement with Mercury Media
      of
      Santa Monica, CA to exclusively manage the distribution of the Company’s
      television infomercials. Mercury Media is an advertising agency that specializes
      in purchasing airtime for different types of direct response advertising. The
      term of the contract is annual until terminated by either party by written
      notice of not less than 30 days. For media time bookings under this contract,
      the Company will pay a 10% commission on the gross amount charged by broadcast,
      satellite or cable television outlets. The Mercury Media relationship is
      established, but at the time of this report no media time has been booked and
      their services have not commenced.




11




On
      April
      21, 2006, the Company announced that it had entered into a six-month consulting
      agreement with Karin Tobiason for public relations services. This agreement
      was
      terminated shortly thereafter. No services were performed under the agreement,
      and the initial payment of $5,000 was fully refunded.





On
      June
      9, 2006, the Company entered into a public relations consulting agreement with
      Brazer Communications of Mill Valley, CA to launch a media relations campaign
      to
      increase public awareness of the Company and its product. Under this agreement,
      overall fees are set at $4,700 per month for the contract period of six months
      ending on December 8, 2006. In addition to the monthly fees, on the date of
      the
      agreement 15,600 restricted post-split shares were awarded to two principals
      of
      Brazer Communications. The fair market value of these shares was $7,800, which
      was recorded as a prepaid expense presented
      on the Balance Sheet as a contra equity account, and
      is
      being amortized over the period of the agreement.




**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.





During
      the nine months ended September 30, 2006, 15,600 common shares were issued
      to
      Brazer Communications under a public relations consulting agreement, as
      explained in Note 4. No other new shares were issued by the Company during
      this
      period.




**NOTE
      6 - NON-MONETARY TRANSACTIONS**





Deferred
      Charge





As
      explained in Note 3, the Company’s Board of Directors granted an option to Two
      Dog Net, Inc. to purchase currently restricted common shares. This option was
      valued at $5,670,000. This amount has been recorded as a deferred charge
      presented on the Balance Sheet as a contra equity account and is being amortized
      into expense as subscription revenues are recognized, beginning with the
      three-month period ended June 30, 2006. This account will be evaluated
      periodically by management to determine if any adjustment for impairment of
      value is required. During the nine months ended September 30, 2006, $102 in
      amortization of the deferred charge was recorded as cost of
      revenues.





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 Films, Inc., the Parent
      Company, into 13,054,628 post-split shares of the Company’s restricted common
      stock at a conversion price of $.035 per post-split share.




12





Non-employee
      Compensation





As
      explained in Note 3, the Company’s Board of Directors granted an option to Tyler
      Wheeler, to purchase restricted common shares. This option was valued at
      $315,000. This amount has been recorded as an expense for services and is
      included with general and administrative expenses in the Company’s Statement of
      Operations for the nine months ended September 30, 2005.





Stock-based
      Compensation





During
      the nine months ended September 30, 2006, options to purchase 111,112 shares
      at
      $0.55 per share, granted to William
      L. Arnold , became
      vested under his executive employment agreement based on his first nine months
      of service as President of the Company. The
      vested options 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.





As
      explained in Note 4, on June 9, 2006, 15,600 restricted post-split 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.




**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.





**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.




13





**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 September 30, 2006
      and for the nine months ended September 30, 2006 as compared to the nine months
      ended September 30, 2005 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 nine months ended September 30, 2006
            
            For
                the nine months ended September 30, 2005
            
            For
                the period from September 25, 1996 (inception) through September
                30,
                2006**Statement
                of Operations Data**Net
                revenues
            
            $
            636
            
            $
            -
            
            $
            636Operating
                expenses
            
            $
            917,948
            
            $
            986,225
            
            $
            3,977,939Operating
                loss
            
            
            ($917,531
            )
            
            ($986,225
            )
            
            ($3,977,522
            )Net
                loss
            
            
            ($929,056
            )
            
            ($987,025
            )
            
            ($3,992,247
            )








As
                of September 30, 2006**Balance
                Sheet Data:**Total
                assets
            
            $
            47,771Total
                liabilities
            
            $
            1,753,361Total
                stockholders' deficit
            
            
            ($1,705,590
            )





Our
      operating expenses decreased by $68,694 for the nine months ended September
      30,
      2006, as compared to the nine months ended September 30, 2005. The decrease
      was
      primarily due to decreases of $145,681 in officers and directors compensation
      and $161,444 in investor relations expenses, offset by an increase in legal
      expenses of $259,722. The decrease in officers and directors compensation
      resulted primarily from more stock options granted during the nine months ended
      September 30, 2005. The decrease in investor relations expense is because the
      principal of our former investor relations consulting firm, which received
      256,000 restricted post-split shares valued at $119,760 during the nine months
      ended September 30, 2005, has been performing these functions. The increase
      in
      legal expenses is due primarily to the Oswald & Yap litigation and
      responding to the SEC inquiry.





14





**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 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 with the same effective date of September 10,
      2002. The new agreement provides for us to be the exclusive marketers of Two
      Dog
      Net’s proprietary and patent pending secure Internet service for pre-school to
      junior high school aged children called The Children’s Internet®. We further
      amended this agreement in February 2005 to decrease the per user fee to Two
      Dog
      Net from $3.00 to $1.00. In consideration for this decrease of the royalty
      fee,
      Two Dog Net was granted an option to acquire 18,000,000 post-split 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.




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. 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
      2005 and 2006, the technology on which the product is based was updated and
      numerous features, including secure e-mail, Family FavoritesTM and added more
      home rooms, as well as improving the overall functionality of the
      service.




We
      also
      created a “User Advisory Group” that served as critical advisors with respect to
      both content and technical aspects of the product. This group was disbanded
      in
      December 2005 after providing very valuable constructive commentary and with
      the
      understanding that the only components to be finalized were secure e-mail and
      an
      enhanced search engine. Those components have now been added.




Additionally,
      during 2005 and 2006, we identified and, where appropriate, contracted with
      third party companies to outsource non-strategic core competencies to provide
      administrative support services and effectively put in place the infrastructure
      to support the growth of the business. Convergys Corporation of Cincinnati,
      Ohio
      has been contracted to manage telemarketing and the order taking process, and
      Mercury Media of Santa Monica, California has been contracted to manage media
      placement. Neither of these companies has received any payment, nor have they
      begun to perform services for the Company, as of the date of this
      report.




15




**The
      Business Model**




The
      product has a suggested retail price of $9.95 per month with a 30-day free
      trial
      offer for the first month of service to the consumer. 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




Although
      the service was completed and ready to launch in the second quarter of 2006,
      due
      to the lack of investment funds the Company could not effectuate their marketing
      and sales plans. Once the company has secured significant investment we intend
      to initiate a broad based Sales and Marketing Plan. We will focus our sales
      and
      marketing programs on five distinct areas where we can produce revenue:




**1.**
            **Consumer
                Sales**-
                In March 2006, we began selling monthly subscriptions of the service
                directly to consumers via a nationwide Sales Agent program on a test
                basis. We introduced a Sales Agent program on January 11, 2006 and
                began
                enrolling independent Sales Agents to sell subscriptions to The Children’s
                Internet® service on a commission only basis. A monthly commission of
                $2.00 per subscriber is paid to the sales agent and continues as
                long as
                the subscriber is enrolled with our service. These independent Sales
                Agents have introduced the product to some of the nations largest
                ISPs,
                retailers, merchandisers, and fast food companies. As of the date
                of this
                report, there continues to be ongoing, substantive discussions with
                third
                party distribution channels.





Consumers
      may also order the monthly service directly from the Company via our website
      at:
      www.thechildrensinternet.com.





**2.**
            **Wholesalers**-
                We are planning to sell The Children's Internet® to independent
                distributors, resellers and ISPs who will sell it as a value-added
                service
                to their current customer base. Targets would include companies such
                as
                Comcast, AT&T, EarthLink and the hundreds of “local” ISPs throughout
                the United States. In these situations, the business model changes
                dramatically as we would not be engaged in billing, collecting, customer
                service or level-one technical support.





**3.**
            **Charitable
                organizations-**We
                are planning to “partner” with non-profit organizations to have them
                market the product. Targets would include large religious organizations,
                various scout programs, Internet safety activists, law enforcement
                agencies, etc. Moreover, we offer any age-appropriate school, public
                or
                private, 20 free licenses for a year. From there, we expect Parent
                Teacher
                Associations to use the product as a fundraiser, deepening our penetration
                into the homes of children.






16






**4.**
            **Direct
                Response Television Advertising-**Subject to securing financing, the cornerstone of our direct response
                consumer marketing plan is a national television advertising campaign
                which includes a 30-minute Infomercial that was produced over a two-year
                period of time by Two Dog Net. This Infomercial is currently being
                re-edited and updated. Once the update is completed we then intend
                to
                utilize the Infomercial to launch the advertising and consumer marketing
                program to build brand recognition and generate revenues from monthly
                subscriptions. We plan to first conduct a limited media test to identify
                what television stations in various geographical markets generate
                the most
                response, which will be the basis for the ongoing infomercial media
                schedule. From the media test we will be able determine and build
                the
                media schedule to roll-out the advertising campaign nationally. In
                addition to the long-form 30-minute Infomercials we intend to produce
                short-form direct response 60-second spots to run simultaneously
                as the
                Infomercial to support the brand, increase the coverage area and
                generate
                sales.






**5.**
            **International
                marketing**-
                the Company has been approached by identified resellers in Europe
                and
                China and will accommodate them as we are successful in the United
                States.
                Canada and Australia are obvious targets for development. A Spanish
                language version will ultimately open doors throughout Latin America
                and
                Spain.





**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 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 significant market share from their competition. We also believe that
      almost any company that markets to our demographic will want to seize the public
      relations good will 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.





**Future
      Products and Services**




In
      the
      future we anticipate generating revenues via advertising sold to the purveyors
      of children goods and services. We also 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 48
      million homes with internet access with children under the age of 16. 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.




17




**LIQUIDITY
      AND RESOURCES**




As
      of
      September 30, 2006, we had net loss from inception of approximately $3,992,000.
      Of this amount, approximately $595,000 represents the estimated fair market
      value for the cost of wages, if paid, for the services rendered by our Chief
      Executive Officer and an outside consultant (we have recorded these amounts
      for
      the cost of wages, since they did not charge the Company, as additional paid
      in
      capital), $1,514,000 represents professional fees such as legal and accounting
      expenses, $575,000 represents a debt financing fee, $315,000 represents officers
      compensation for which an option to purchase common stock was issued, $404,000
      represents accrued officers compensation, and the balance of $589,000 consists
      primarily of payroll, occupancy and telecommunications costs including internet
      costs. To date, our parent company, Shadrack, has funded all of our expended
      costs.




Currently,
      we are dependent on funding from Shadrack for our current operations and for
      providing office space and utilities that for the nine months ended September
      30, 2006, averaged $21,300 per month in operating costs, exclusive of
      professional fees, salaries accrued but unpaid or paid by options or shares,
      and
      time donated by our staff. Through September 30, 2006, the amount funded by
      Shadrack totaled approximately $1,369,000. On September 30, 2006, the balance
      due to Shadrack was approximately $912,000. 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 post-split shares of restricted common stock at a conversion price
      of
      $0.07 per pre-split share. Shadrack is under no obligation to continue funding
      our operations and could stop at any time without notice. Furthermore, Shadrack
      currently has limited financial resources. Therefore, additional funding for
      the
      Company through Shadrack is dependent on Shadrack’s ability to raise funds in
      the future, for which there is no assurance.




Where
      practicable we plan to contract with third party companies to outsource all
      non-strategic core competencies to provide administrative support services
      such
      as level one technical support as well as to market The Children’s Internet®
Service. We believe this strategy will minimize the number of employees required
      to manage our intended growth through 2006. In connection with this strategy
      back on August 14, 2003 we entered into two agreements, an Independent Sales
      Agreement and a Licensing Agreement, with Infolink Communications, Ltd,
      ("Infolink"), a sales organization in the Internet Infrastructure industry.
      Infolink was hired to bring the Company wholesale distributors, mainly Internet
      Service Providers who will sell and market The Children's Internet service
      to
      their end users. To date Infolink has brought to us minimal wholesale
      distributors who have generated no revenues. However, since the product release
      of The Children’s Internet ® Version 9.0, Infolink has resumed its efforts to
      proactively engage wholesale distributors. Nonetheless, there is no assurance
      that we will be able to enter into additional arrangements for marketing and
      administrative support services.




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
      post-split shares of the Company's common stock. In addition, the Company agreed
      to a monthly stock compensation of 8,000 post-split 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, data base 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. On December 30, 2005, Mr. Arnold was
      hired as The Company’s full-time President.




18




On
      April
      7, 2005, the Company entered into an agreement with Convergys Customer
      Management Group Inc. of Cincinnati, Ohio to provide subscriber management
      services, including inbound telephone coverage 24/7, capturing caller
      information, providing toll-free numbers and daily reporting of orders and
      leads. The term of the agreement begins on April 7, 2005 and continues until
      the
      expiration of 30 days after either party gives the other party written notice
      of
      its intent to terminate. Under this agreement, inbound live phone services
      are
      billed at $0.75 per minute for the first million minutes annually, $0.732 for
      the second million minutes and $0.714 per minute thereafter. The minimum
      purchase commitment is $2,500 per month, which is waived for the first year
      of
      service. The Convergys relationship is established, but their services will
      not
      commence until the Infomercial marketing begins.





On
      August
      23, 2005, the Company signed a client services agreement with Mercury Media
      of
      Santa Monica, CA to exclusively manage the distribution of the Company’s
      television infomercials. Mercury Media is an advertising agency that specializes
      in purchasing airtime for different types of direct response advertising. The
      term of the contract is annual until terminated by either party by written
      notice of not less than 30 days. For media time bookings under this contract,
      the Company will pay a 10% commission on the gross amount charged by broadcast,
      satellite or cable television outlets. At the time of this report no media
      time
      has been booked. The Mercury Media relationship is established, but their
      services will not commence until the Infomercial marketing begins.





On
      April
      21, 2006, the Company announced that it had entered into a six-month consulting
      agreement with Karin Tobiason for public relations services. This agreement
      was
      terminated shortly thereafter. No services were performed under the agreement,
      and the initial payment of $5,000 was fully refunded.





On
      June
      9, 2006, the Company entered into a public relations consulting agreement with
      Brazer Communications of Mill Valley, CA to launch a media relations campaign
      to
      increase public awareness of the Company and its product. Under this agreement,
      overall fees are set at $4,700 per month for the contract period of six months
      ending on December 8, 2006. In addition to the monthly fees, on the date of
      the
      agreement 15,600 restricted post-split shares were awarded to two principals
      of
      Brazer Communications. The fair market value of these shares was $7,800, which
      was recorded as a prepaid expense presented on the Balance Sheet as a contra
      equity account, and is being amortized over the period of the
      agreement.




**Going
      Concern Uncertainty**





Through
      the date of this report, we have relied exclusively on loans from Shadrack
      to
      fund all of our expenses. However, there is no assurance that Shadrack will
      be
      able or willing to continue such funding indefinitely. We will be required
      to
      obtain additional funds through private placements of debt or equity securities
      or by other borrowing. We do not have any arrangements with potential investors
      or lenders to provide such funds and 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.





19





**Off-Balance
      Sheet Arrangements**





None.





**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**





**** DISCLOSURE
      CONTROLS AND PROCEDURES





(a)
            Restatement.





In
      the
      course of the due diligence for the Annual Report on Form 10-KSB of the Company
      for the fiscal year ended December 31, 2004, our management identified an
      agreement that the Company had entered into with five of our shareholders on
      October 11, 2002. This agreement provided that in consideration for the
      agreement of these shareholders to loan an affiliate of the Company proceeds
      from the sale of their shares of common stock of the Company to third parties,
      the Company would issue four shares of its restricted common stock for every
      one
      share owned. The aggregate number of shares of restricted common stock that
      the
      Company was obligated to issue pursuant to the agreement was 4,474,000 pre-split
      (8,948,000 post-split) shares. The agreement was not disclosed in any of the
      Company’s previous SEC filings or otherwise included as an exhibit as a result
      of an error of omission. In addition, the 4,474,000 pre-split (8,948,000
      post-split) shares to be issued were not included in any of the Company’s
      financial statements for the fiscal years ended December 31, 2003 or 2002,
      or in
      any interim reporting period through September 30, 2004.





Management
      brought this matter to the attention of its Board of Directors and the Board
      of
      Directors brought it to the attention of the Company’s independent auditor.
      After discussions with management, the Board of Directors determined that
      previously reported financial information for the Company be restated to reflect
      the agreement. In light of the expected restatement, the Company filed a Form
      8-K on April 21, 2005 under Item 4.02 (a) advising that due to an error, its
      previously issued financial statements for the fiscal years ended December
      31,
      2003 and 2002 and such interim periods covered thereby and for the interim
      periods in fiscal 2004 should no longer be relied upon.





(b)
            Evaluation
                of Disclosure Controls and Procedures and
                Remediation





In
      connection with the restatement, under the direction of our Chief Executive
      Officer and Controller, we have reevaluated our disclosure controls and
      procedures. We have identified a material weakness in our internal controls
      and
      procedures relating to the handling and disclosure of material agreements.
      In
      order to prevent the same kind of mistake noted above, the Company has
      implemented a new review system whereby all agreements which have a material
      effect on the Company will be reviewed by the Company’s President and outside
      counsel. Agreements will be forwarded by the President to the Company’s auditor
      which will keep copies in its files for reporting purposes. Additional copies
      will be forwarded to the Company’s accounting department where it will be logged
      and processed for follow-up. In addition to the above we will constantly monitor
      our procedures and when necessary hire outside consultants to make sure that
      the
      Company’s corporate compliance program is up to date with all SEC Rules and
      recommendations.




20





We
      believe that as of the date of this filing, the process enumerated above will
      remediate the current weaknesses that have been identified in our internal
      controls and procedures and further that with applicable training all relevant
      personnel will understand and apply the rules relating to disclosure of material
      agreements.





**PART
      II - OTHER INFORMATION**





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





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 O&Y 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.





The
      cross-claim was filed in the Superior Court of California, County of Orange,
      Case No. 04CC11623 by TCI 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 TCI could immediately raise capital
      on
      the relevant markets and that in advising TCI through the purchase, O&Y
      failed to properly advise TCI 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, TCI
      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. The case was set to proceed to trial on
      November 13, 2006, but was stayed indefinitely pending resolution of the ongoing
      Securities and Exchange Commission complaint recently filed against several
      parties including The Company, and certain of its officers.




On
      August
      25, 2006, the Company filed a complaint in Superior Court of California, County
      of Alameda Case No. VG 06 286054, against its former auditor Stonefield
      Josephson and Dean Skupen, an individual, 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
      breach of a letter agreement between the Company and Stoneflield to provide
      the
      Company working papers for audit and review and a consent letter. This action
      is
      still pending and its outcome is uncertain at this time.




21




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 shares of common stock become quoted on the over-the-counter
      bulletin board system. The shares became quoted on the over-the-counter bulletin
      board system on February 23, 2005. If this payment is not made, there could
      be
      exposure in connection with the identified shareholders’ efforts to collect the
      amounts allegedly due. No provision has been recorded by the Company, since
      any
      potential liability would be an obligation of the individual purchasers of
      these
      shares and not the Company.





**SEC
      Investigation**





As
      previously disclosed by the Company on August 15, 2005, November 15, 2005,
      and
      January 3, 2006, that on July 19, 2005, the Company and its auditors and its
      former auditors received notice from the Office of Enforcement of the Securities
      and Exchange Commission stating that they had commenced an “informal inquiry” to
      determine if there have been “any violations of the federal securities laws” by
      the Company. On December 27, 2005, the Company received notice from the
      Securities and Exchange Commission that the Commission had elevated its
      inquiries to a formal investigation for possible violation of the securities
      laws resulting from the Company’s restatement of its financial statements for
      fiscal years 2002 and 2003 and certain interim periods in fiscal year 2004.
      On
      May 1, 2006, the Company was further informed by the San Francisco District
      Office of the Commission that it is going to ''recommend to the Commission
      that
      it authorize the staff to file a civil injunctive action in the United States
      District Court and/or cease-and-desist proceeding in an administrative action
      against The Children’s Internet” and its C.E.O., Sholeh Hamedani. The Commission
      will allege in it’s pleadings that the Company, its C.E.O. and other individuals
      violated various sections and rules of the Securities Act of 1933 and the
      Securities Exchange Act of 1934. The Commission ''may seek injunctive relief
      or
      a cease and desist order, disgorgement, and civil monetary penalties'' against
      the Company as well as its C.E.O. being barred from serving as either director
      or officer of the Company or of any public company in the future.





The
      Company is continuing to seek resolution of the staff’s investigation by virtue
      of settlement.  A potential settlement likely may include the Company
      and/or its Chief Executive Officer consenting, without admitting or denying
      the
      allegations, to a judgment alleging negligent, reckless, and intentional
      violations of the federal securities laws, and other sanctions including
      substantial penalties. These penalties could range from the Chief Executive
      Officer being barred from serving as either directors or officer of the Company
      to also including financial penalties and disgorgement of all profits derived
      by
      the Company and/or its Chief Executive Officer and/or profits derived by
      Shadrack.





From
      inception, Shadrack, the parent company, has advanced to the Company
      approximately $1.4 million for operations. While the exact amount of the
      disgorgement of profits and/or penalties can not be determined at this time,
      the
      ability to pay them by the Company or the Chief Executive Officer is a serious
      question. Any proposed settlement will be subject to the Commission’s
      approval.  The Company cannot predict the outcome of any settlement
      negotiations, the staff’s investigation, or the ultimate Commission action
      should these settlement negotiations fail. The Company does not yet have a
      settlement offer. Management and counsel to the Company are currently waiting
      to
      see if they will receive one from the Commission's staff. Additionally, there
      is
      no assurance that the Company will receive a settlement offer. Moreover, there
      is no assurance that their settlement offer (if any) will be acceptable to
      the
      Company and the prospect of litigation could ensue which could seriously
      compromise the Company's ability to achieve its goals.




22





On
      September 27, 2006, the Securities and Exchange Commission (“SEC”) completed its
      investigation and filed a complaint in the United States District Court Northern
      District of California Case No. C066003CW, against among others the Company,
      and
      certain of its officers 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 TCI, Violations of Section 13(b)(2)(B) of
      the
      Exchange Act by TCI, Violations of Section 13(b)(5) of the Exchange Act and
      Rule
      13b2-1, 13b2-2, 13a-14, 16(a). 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 Commission and in particular the June 2005 Annual
      Report and Restatement and 2005 Current and Quarterly Reports, and that
      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 not yet filed its formal response.





We
      have
      claims and lawsuits against us that may result in adverse outcomes.  We are
      subject to a variety of claims and lawsuits. 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.





**ITEM
      2.**  **UNREGISTRED
      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
      5.**  **OTHER
      INFORMATION**





On
      October 3, 2006, the Company received notice from its independent certified
      public accountants, Marc Lumer & Company (Lumer), that they had resigned as
      the Company’s auditors effective immediately. The Company is not aware of any
      disagreements with Lumer on any matter of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedures over the
      previous two years. Effective October 26, 2006, the Company retained the firm
      of
      De Joya Griffith & Company, LLC to act as its independent certified public
      accountants. The initial responsibility of De Joya Griffith & Company will
      be to review the Company’s unaudited financial statements for the quarter ended
      September 30, 2006 reported in this Form 10-QSB.




23




For
      the
      last two fiscal years, Lumer’s reports on the financial statements of the
      Company did not contain an adverse opinion or a disclaimer of opinion, nor
      were
      the reports qualified or modified as to uncertainty, audit scope, or accounting
      principles. During the fiscal years ended December 31, 2004 and December 31,
      2005, and the subsequent interim period through October 3, 2006, there were
      no
      disagreements with Lumer on any matter of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedure which, if not
      resolved to the satisfaction of Lumer would have caused Lumer to make reference
      to the matter in their reports. There were no "reportable events", as that
      term
      is described in Item 304(a)(1)(v) of Regulation S-K.





**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
      January 3, 2006, the Company filed a Current Report on Form 8-K reporting the
      receipt of a notice from the Securities and Exchange Commission regarding the
      change of the nature of its investigation of the Company from informal to
      formal.





On
      January 6, 2006, the Company filed a Current Report on Form 8-K reporting the
      Employment Agreement signed with William L. Arnold on December 30, 2005, to
      serve as President of The Children’s Internet, Inc.





On
      April
      21, 2006, the Company filed a Current Report on Form 8-K reporting a six-month
      consulting agreement with Karin Tobiason for public relations services. This
      agreement was terminated shortly thereafter. No services were performed under
      the agreement, and the initial payment of $5,000 was fully
      refunded.





On
      May 5,
      2006, the Company filed a Current Report on Form 8-K reporting the receipt
      of a
      notice from the San Francisco District Office of the Securities and Exchange
      Commission regarding its recommendation to the Commission that it authorize
      the
      staff to file a civil injunction in the U.S. District Court.




24





On
      October 4, 2006, the Company filed a Current Report on Form 8-K reporting the
      resignation of its auditors, Marc Lumer & Co., effective October 3, 2006.
      Additionally, the
      Company reported that on September 27, 2006, the Company was informed by the
      San
      Francisco District Office of the Commission that it had filed a civil action
      in
      the United States District Court against The Children’s Internet and key members
      of management and related parties.





On
      October 16, 2006, The Company filed a Current Report on Form 8-KA reporting
      that
      the resignation of Marc Lumer was not the result of a disagreement between
      the
      Company and its auditors.





On
      October 30, 2006, The Company filed a Current Report on Form 8-KA reporting
      that
      the firm of De Joya Griffith & Company, LLC had been retained to act as the
      Company’s independent certified public accountants.





**SIGNATURES**





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






DATED:
              November
              14, 2006
            
            The
              Children’s
              Internet, Inc./S/ SHOLEH HAMEDANIBy:
              Sholeh HamedaniIts:
                Chief Executive Officer, and Chief Financial Officer (Principal Executive
                Officer, Principal Financial Officer and Principal Accounting Officer)





25