**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, 2007





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.)





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


(Address
      of principal executive offices)





(925)
      743-9420


(Issuer’s
      telephone number)





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


(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
xNo
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
oNo
x





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


As
      of
      September 30, 2007, there were 31,373,738 shares of common stock issued and
      outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes oNo x









**THE
      CHILDREN’S INTERNET, INC**





**INDEX**





Page
              NumberPART
                I - FINANCIAL INFORMATIONItem
                1.
            
            Financial
                Statements (Unaudited)
            
            1Unaudited
                Balance Sheet - September 30, 2007
            
            1Unaudited
                Statements of Operations - For the nine months and three months ended
                September 30, 2007 and 2006, and the period from inception to September
                30, 2007
            
            2Unaudited
                Statements of Cash Flows - For the nine months ended September 30,
                2007
                and 2006, and the period from inception to September 30,
                2007
            
            3Notes
                to Unaudited Financial Statements
            
            4Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Conditions and Plan of
                Operation
            
            18Item
                3.
            
            Controls
                and Procedures
            
            28PART
                II - OTHER INFORMATIONItem
                1.
            
            Legal
                Proceedings
            
            29Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            32Item 5.
            
            Other
                Information
            
            32Item 6.
            
            Exhibits
                and Reports on Form 8-K
            
            33SIGNATURES
            
            35











**PART
      I - FINANCIAL INFORMATION**


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


THE
                  CHILDREN'S INTERNET, INC.(A
                  Development Stage Company)BALANCE
                  SHEETAs
                  of September 30, 2007(Unaudited)
 ASSETSCurrent
                    Assets:Deposit
                    held in escrow, offsets $37,378 account payable to Oswald & Yap (Note
                    4)
                
                $
                37,378Prepaid
                    marketing expenses
                
                
                630Total
                    Current Assets
                
                
                38,008Equipment:Equipment
                    at cost
                
                
                13,034Accumulated
                    depreciation
                
                
                (8,382
                )Equipment,
                    net
                
                
                4,652Other
                    Assets:Deposit
                    - State Board of Equalization
                
                
                2,000Utility
                    deposit
                
                
                118Deferred
                    tax asset, net of valuation allowance of $1,300,319
                
                
                -TOTAL
                    ASSETS
                
                $
                44,778LIABILITIES
                    AND STOCKHOLDERS' DEFICITCurrent
                    Liabilities:Cash
                    overdraft
                
                $
                474Accounts
                    payable and accrued expenses
                
                
                766,940Accrued
                    officers' compensation
                
                
                662,024Notes
                    payable to TCI Holding Company, LLC
                
                
                161,000Loans
                    payable to related parties
                
                
                120,009Payroll
                    taxes on accrued officers' compensation
                
                
                26,860Taxes
                    payable
                
                
                4,123Total
                    Current Liabilities
                
                
                1,741,430Long-Term
                    Liabilities:Due
                    to related party
                
                
                1,014,578TOTAL
                    LIABILITIES
                
                
                2,756,008COMMITMENTS
                    AND CONTINGENCIES (NOTES 3 & 4)
                
                
                -STOCKHOLDERS'
                    DEFICITPreferred
                    stock, $0.001 par value; 10,000,000 shares authorized; zero shares
                    issued
                    and outstanding
                
                
                -Common
                    stock, $0.001 par value; 75,000,000 shares authorized; 31,373,738
                    shares
                    issued and outstanding
                
                
                31,374Additional
                    paid-in capital
                
                
                2,349,482Deficit
                    accumulated during the development stage
                
                
                (5,092,086
                )TOTAL
                    STOCKHOLDERS' DEFICIT
                
                
                (2,711,230
                )TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIT
                
                $
                44,778
  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,
                
                From
                  Inception2007
                
                2006
                
                2007
                
                2006
                
                to
                    DateNET
                    REVENUES
                
                $
                189
                
                $
                363
                
                $
                631
                
                $
                636
                
                $
                1,506COSTS
                    OF REVENUES
                
                
                22
                
                
                131
                
                
                85
                
                
                219
                
                
                240Gross
                    margin
                
                
                167
                
                
                232
                
                
                546
                
                
                417
                
                
                1,266OPERATING
                    EXPENSESSales
                    and marketing
                
                
                -
                
                
                7,695
                
                
                35,700
                
                
                23,550
                
                
                69,595General
                    and administrative
                
                
                248,031
                
                
                151,864
                
                
                613,555
                
                
                586,871
                
                
                3,262,847Officers'
                    compensation
                
                
                100,291
                
                
                88,056
                
                
                264,277
                
                
                304,319
                
                
                1,703,596Depreciation
                    expense
                
                
                1,086
                
                
                1,017
                
                
                3,282
                
                
                3,208
                
                
                8,382Total
                    operating expenses
                
                
                349,408
                
                
                248,632
                
                
                916,814
                
                
                917,948
                
                
                5,044,420Loss
                    from operations
                
                
                (349,241
                )
                
                (248,400
                )
                
                (916,268
                )
                
                (917,531
                )
                
                (5,043,154
                )Interest
                    expense
                
                
                7,744
                
                
                6,259
                
                
                24,632
                
                
                10,725
                
                
                44,132Loss
                    before income taxes
                
                
                (356,985
                )
                
                (254,659
                )
                
                (940,900
                )
                
                (928,256
                )
                
                (5,087,286
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                800
                
                
                800
                
                
                4,800NET
                    LOSS
                
                $
                (356,985
                )
                $
                (254,659
                )
                $
                (941,700
                )
                $
                (929,056
                )
                $
                (5,092,086
                )Net
                    loss per common share-
                    basic and diluted
                
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.04
                )
                $
                (0.03
                )Shares
                      used in computing basic and diluted net loss per
                      share
                
                
                26,873,738
                
                
                26,861,909
                
                
                26,873,738
                
                
                26,860,034
  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 period fromFor
                  the Nine Months
              
              Inception
                  throughEnded
                  September 30,
              
              September
                  30,2007
              
              2006
              
              2007CASH
                  FLOWS USED IN OPERATING ACTIVITIESNet
                  Loss
              
              $
              (941,700
              )
              $
              (928,954
              )
              $
              (5,092,086
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                  on equipment
              
              
              3,282
              
              
              3,208
              
              
              8,382Amortization
                  of prepaid marketing expenses
              
              
              630
              
              
              -
              
              
              630Stock
                  compensation to directors
              
              
              30,000
              
              
              -
              
              
              345,000Stock
                  compensation to officers and employees
              
              
              53,860
              
              
              52,223
              
              
              106,083Shares
                  issued for services
              
              
              -
              
              
              7,800
              
              
              709,756Services
                  performed as capital contribution
              
              
              7,500
              
              
              -
              
              
              602,500Expenses
                  paid by former officer on behalf of company
              
              
              -
              
              
              -
              
              
              5,000Deposit
                  - State Board of Equalization
              
              
              -
              
              
              (2,000
              )
              
              (2,000
              )Utility
                  deposit
              
              
              (118
              )
              
              -
              
              
              (118
              )Increase
                  in current assets -Deposit
                  held in escrow
              
              
              -
              
              
              -
              
              
              (37,378
              )Prepaid
                  marketing expenses
              
              
              -
              
              
              (2,941
              )
              
              (1,260
              )Increase
                  in current liabilities -Accounts
                  payable and accrued expenses
              
              
              351,813
              
              
              252,592
              
              
              797,923Accrued
                  officers' compensation
              
              
              212,750
              
              
              224,274
              
              
              662,024Notes
                  payable to TCI Holding Company, LLC
              
              
              161,000
              
              
              -
              
              
              161,000Loans
                  payable to related parties
              
              
              120,009
              
              
              -
              
              
              120,009Net
                  cash used in operating activities
              
              
              (974
              )
              
              (393,798
              )
              
              (1,614,535
              )CASH
                  USED IN INVESTING ACTIVITIESAcquisition
                  of equipment
              
              
              (838
              )
              
              (774
              )
              
              (13,034
              )Net
                  cash used in investing activities
              
              
              (838
              )
              
              (774
              )
              
              (13,034
              )CASH
                  PROVIDED BY FINANCING ACTIVITIESIssuance
                  of common stock
              
              
              -
              
              
              -
              
              
              612,517Advances
                  from majority shareholder
              
              
              232
              
              
              291,004
              
              
              1,471,490Majority
                  shareholder advances converted to stock
              
              
              -
              
              
              -
              
              
              (456,912
              )Net
                  cash provided by financing activities
              
              
              232
              
              
              291,004
              
              
              1,627,095Net
                  change in cash and cash equivalents
              
              
              (1,580
              )
              
              (103,568
              )
              
              (474
              )Cash
                  and cash equivalents - Beginning of period
              
              
              1,106
              
              
              103,849
              
              
              -Cash
                  and cash equivalents - End of period
              
              $
              (474
              )
              $
              281
              
              $
              (474
              )SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONCash
                  paid for interest
              
              $
              180
              
              $
              -
              
              $
              3,302Cash
                  paid for taxes
              
              $
              800
              
              $
              800
              
              $
              4,800
  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, 2007**





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





Nature
      of Operations





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





The
      Company is currently authorized to conduct business in California, and as of
      July 15, 2007 the Company is headquartered in San Ramon, California. The
      Company’s primary operations consist of marketing, selling, and administering a
      secure Internet service and safe online community for children. The system,
      known as The Children’s Internet®, is not owned by the Company, but is owned by
      a related party, Two Dog Net, Inc. (“TDN”). The Company’s marketing, selling and
      administration rights derive from a Wholesale Sales and Marketing Agreement
      with
      TDN, through the year 2013 which includes the ability to obtain five year
      extensions. It is a condition to the closing of the Definitive Stock Purchase
      Agreement (defined below) that the Wholesale Sales and Marketing Agreement
      be
      cancelled and that TDN transfer to the Company the intellectual property related
      to The Children’s Internet®. The possible cancellation of the Wholesale Sales
      and Marketing Agreement is discussed in greater detail in Note 2.





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





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




4





The 8,948,000 newly-issued
      shares were recorded at a value of $575,356 based on the $0.0643 per share
      paid
      by Shadrack in a previous transaction where Shadrack acquired the 2,333,510
      newly-issued shares it purchased on July 3, 2002. The $575,356 value was
      recorded by the Company as a debt financing fee. The loan agreement is such
      that
      Shadrack will not charge the Company any interest on the amounts loaned. Shares
      sold under this agreement included 1,218,990 of the “freely-tradable” shares and
      2,650,108 of the newly-issued restricted shares, for a total of 3,869,098
      shares, which were sold for a total of $2,722,341. After deducting the $494,049
      in commissions paid by TDN, the resulting net proceeds were $2,228,292. As
      of
      September 30, 2007 and 2006, the net amount loaned to the Company by Shadrack
      was $1,471,490 and $1,369,150, respectively.





During
      the year ended December 31, 2005, an additional 13,334,628 restricted shares
      of
      common stock were issued . Of
      these
      shares, 13,054,628 were issued to Shadrack, a related party which
      owns approximately 44.7% of the Company's outstanding common stock, for
      conversion of existing debt and 280,000 shares were issued to Crosslink
      Financial Communications, a non-related party 1  in
      payment for providing investor relation services .





On
      June
      9, 2006, 15,600 shares were issued to two principals of Brazer Communications
      under a public relations consulting agreement, as explained in Note
      4.





On
      June
      29, 2007, 4,500,000 shares were issued in the name of The Children’s Internet
      Holding Company, LLC, a Delaware limited liability company (“TCI Holding” or
“TCI Holding Company, LLC”), and deposited in escrow on July 3, 2007 in
      accordance with the Definitive Interim Stock Purchase Agreement between the
      Company and TCI Holding (the “Interim Stock Purchase Agreement” or the “ISPA”),
      as explained in Note 4, thereby increasing the Company’s total issued and
      outstanding shares of common stock to 31,373,738 at September 30,
      2007.





On
      October 19, 2007, TCI Holding Company, LLC entered into a Definitive Stock
      Purchase Agreement (the “Definitive Stock Purchase Agreement” or the “DSPA”)
      with the Company to purchase a controlling interest in the Company, as reported
      in a Form 8-K filed on October 25, 2007, and explained in Note 4.





Development
      Stage Enterprise





The
      Company is a development stage enterprise as defined by Statement of Financial
      Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development
      Stage Enterprises.” All losses accumulated since the inception of the Company
      have been considered as part of the Company’s development stage activities. The
      Company 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 its planned principal
      operations have commenced, because there have been no significant revenues
      earned by the Company to date.




1 Although
        Crosslink Financial Communications was not a related party at the time of
        the
        issuance, the principal shareholder of Crosslink, William L. Arnold, became
        President of the Company under an Executive Employment Agreement on December
        30,
        2005.




5


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


Revenue
      Recognition





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





**NOTE
      2 - INTERIM FINANCIAL INFORMATION**





Basis
      of Presentation





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





These
      interim financial statements should be read in conjunction with the Company’s audited
      financial statements and related notes as contained in the Company’s Form 10-KSB
      for the year ended December 31, 2006. 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, 2007 are
      not
      necessarily indicative of results of operations to be expected for the full
      year.





Going
      Concern





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business. As reflected in the
      accompanying financial statements, the Company had net losses and negative
      cash
      flow from operations for the nine-month periods ended September 30, 2007 and
      2006, and accumulated net losses and negative cash flow from operations of
      $5,092,086 and $1,614,535, from inception through September 30,
      2007.





The
      financial statements do not include any adjustments that might be necessary
      if
      the Company is unable to continue as a going concern. On October 19, 2007,
      TCI
      Holding Company, LLC entered into a Definitive Stock Purchase Agreement with
      the
      Company to purchase a controlling interest in the Company, as reported in Form
      8-K filed on October 25, 2007, and explained in Note 4. In the event the
      transaction contemplated under the Definitive Stock Purchase Agreement is not
      consummated, a pending suit against the Company by the Securities and Exchange
      Commission (the “SEC”), which is further described in Note 4, raises substantial
      doubt concerning the Company’s ability to continue as a going concern. The
      ability of the Company to continue as a going concern is dependent on its
      ability to generate profitable operations in the future by implementing its
      business plan and/or to obtain the necessary financing to meet its obligations,
      and to repay its liabilities arising from normal business operations when they
      come due. The outcome of these matters cannot be predicted with any certainty
      at
      this time. Management plans to provide for the Company’s capital needs during
      the year ended December 31, 2007 by incurring additional debt financing and
      is
      seeking equity financing from unrelated parties, primarily from the contemplated
      purchase of the Company pursuant to the Definitive Stock Purchase Agreement,
      with the proceeds to be used to fund continuing operations.




6





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




Services
      Provided




On
      January 26, 2005, the Company’s Board of Directors resolved that starting
      January 1, 2005, all salary due and payable to the Company’s former Chief
      Executive Officer, 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. Accordingly, for each of the nine-month periods
      ended September 30, 2007 and 2006, $135,000 has been accrued and charged to
      Officers’ Compensation. For the period from August 2002 through the end of 2004,
      Sholeh Hamedani provided services to the Company at a total cumulative fair
      market value of $435,000, which was contributed to Additional Paid-in Capital.
      Accordingly, she will not seek payment for the services provided during that
      period. As a condition of the Definitive Stock Purchase Agreement, the Company
      shall be fully and completely released from all obligations that are owed to
      Sholeh Hamedani, including any unpaid compensation that may be owed to
      her.




The
      salary of the Company’s former President, William L. Arnold, was not fully paid,
      but was accrued from May 1, 2006 through August 31, 2006. Beginning on September
      1, 2006, Mr. Arnold took an unpaid leave of absence. As described in Note 4,
      the
      Company believes that Mr. Arnold’s leave of absence was voluntary while Mr.
      Arnold claims that his leave of absence was related to a breach of his
      employment agreement with the Company.




From
      April 1 through September 30, 2007, Roaya Wooler and Soraiya Smida, sisters
      of
      the then Chief Executive Officer of the Company, Sholeh Hamedani, and both
      of
      whom have twelve years experience with TDN developing and marketing the
      Children’s Internet®, performed consulting services for the Company and together
      earned a total of $35,846 for their services.




Advances




With
      the
      exception of short-term advances totaling $74,249 made during the first nine
      months of 2007 by Nasser Hamedani, a related party as explained below,
      short-term advances totaling $38,260 made by Larry
      Wheeler, father of Tyler Wheeler, the Company’s Chief Software Architect
      Consultant and a director of the Company, short-term advances totaling $7,500 made by John Heinke, the Company’s
      Controller, and an advance of $161,000 made by TCI Holding Company LLC as an
      advance against the purchase price of the Company’s common stock as described in
      Note 4, substantially all of the Company’s funding has been provided by
      Shadrack, which
      holds approximately 44.7% of****the
      Company’s outstanding
      common stock, as of the date of this report. The total amount advanced by
      Shadrack through September 30, 2007 and 2006 was $1,471,490 and $1,369,150,
      respectively. In February 2005, the Company owed Shadrack approximately $457,000
      for loans made by Shadrack to the Company for funding all of the Company’s
      operations since entering the development stage on July 3, 2002. On February
      15,
      2005, the Company’s Board of Directors authorized and approved the conversion of
      debt totaling $456,912 owed by the Company to Shadrack, into 13,054,628 shares
      of the Company’s restricted common stock at a conversion price of $.035 per
      share. As a condition of the Definitive Stock Purchase Agreement, the Company
      shall be fully and completely released from all obligations that are owed to
      Sholeh Hamedani, Nasser Hamedani, Shadrack, TDN or any of their
      affiliates.




7





Shadrack
      is an entity owned and controlled by the Company’s former Chief Executive
      Officer, Chief Financial Officer and current Chairman of the Board, Sholeh
      Hamedani, who is its sole officer, director and shareholder. Shadrack previously
      owned 2,333,510 shares of the Company’s common stock, of which it sold 1,277,150
      of its restricted shares  in
      reliance on an exemption from registration pursuant to Section 4(1)(1/2) of
      the
      Securities Act of 1933, to approximately 130 investors between July 2004 and
      June 2005. In addition, Shadrack paid for services valued at $35,000 on behalf
      of the Company with 70,000 restricted shares of the Company’s common stock.
      Together with the 13,054,628 shares issued upon conversion of debt, Shadrack
      owned an aggregate of 14,040,988 shares of the Company’s common stock or approximately44.7% of the Company’s outstanding common stock (without giving effect to
      any presently exercisable options) as of September 30, 2007. Under the terms
      of
      the Definitive Stock Purchase Agreement, TCI Holding shall purchase 8,040,988
      shares of the Company’s common stock for $500,000 currently owned by Shadrack
      upon the closing of the agreement.





Beneficial
      Ownership





The
      Company, Shadrack and TDN are
      related parties. The Company’s former Chief Executive Officer and Chief
      Financial Officer and current Chariman of the Board, Sholeh Hamedani, is the
      sole shareholder of Shadrack, which as of September 30, 2007 owns approximately44.7% 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, as of September 30, 2007, TDN’s President, Chairman and Founder,
      Nasser Hamedani, is the father of Sholeh Hamedani. As of October 5, 2007, Ms.
      Hamedani resumed her role as President of TDN. TDN also owns an option to
      purchase up to 18,000,000 shares of the Company’s common stock and is therefore
      beneficial owner of approximately 36.5% of the Company’s common stock. Under
      the
      terms of the Definitive Stock Purchase Agreement, as explained in Note 4, this
      option will be cancelled without any further action or payment by TDN or the
      Company upon the closing of the Definitive Stock Purchase
      Agreement.





Licensing
      Agreement





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





8





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





The
      Definitive Stock Purchase Agreement with TCI Holding Company, LLC, as explained
      in Note 4, requires that, prior to the closing of the Definitive Stock Purchase
      Agreement, the Company and TDN cancel the Wholesale Sales and Marketing
      Agreement and that TDN transfer to the Company the rights and interests in
      the
      intellectual property, including software, trademarks, trade names, and trade
      secrets, required to operate The Children’s Internet service. In turn, the
      Company will enter into a royalty agreement with TDN which will provide that
      the
      Company will pay TDN a one time royalty fee of one dollar for each new
      subscriber to the Children’s Internet service, for a period of two years from
      the date of the closing of the Definitive Stock Purchase Agreement.





Office
      Space





The
      Company’s previous office space in Pleasanton, California had been leased by
      Shadrack for the past three years. Shadrack allowed the Company use of the
      space
      under a verbal lease agreement at the same rental rate charged to Shadrack.
      The
      original lease expired on April 30, 2007. From May 1 through July 15, 2007,
      the
      same office space was rented by Shadrack on a month-to-month basis. Shadrack
      and
      the lessor of the Pleasanton office could not reach an agreement on terms for
      a
      new lease. Therefore, the Company vacated the premises on July 13, 2007. Upon
      vacating the Pleasanton office, the Company moved its headquarters into office
      space in San Ramon, California. This office space is leased from RAM Properties
      by Nasser Hamedani, a related party, pursuant to a one year lease through July
      14, 2008, with an option to renew for one additional year. The Company currently
      reimburses Mr. Hamedani for the monthly lease payment of $1,762. Costs of the
      relocation were approximately $5,000.




Stock
      Options Granted




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





Under
      the
      terms of the Definitive Stock Purchase Agreement, as explained in Note 4, the
      TDN Option will be cancelled without any further action or any payment by TDN
      or
      the Company upon the closing of the Definitive Stock Purchase Agreement.
      However, after the closing of the Definitive Stock Purchase Agreement, the
      Company shall set aside 12,857,142 shares of its common stock solely for the
      purpose of offering such shares to certain stockholders of TDN at a price of
      $.07 per share. The shares will be made available only to TDN stockholders
      who
      receive cash payments from the SEC from an escrow fund of $900,000 set aside
      for
      those stockholders under a final judgment to be entered into in connection
      with
      the SEC Complaint (as defined in Note 4). This offering will be held open for
      a
      period of ninety days following the date of the $900,000 cash distribution
      by
      the SEC.




9




**NOTE
      4 - COMMITMENTS AND CONTINGENCIES**





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





On
      February 14, 2005, 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.





On
      February 14, 2005, a cross-claim was filed in the Superior Court of California,
      County of Orange, Case No. 04CC11623 by the Company against O&Y, and the
      principal allegation is that O&Y was retained to assist the Company’s
      predecessor company in the purchase and acquisition of D.W.C. Installations
      (“D.W.C.”) with the expectation that D.W.C. had available free-trading shares
      such that the Company could immediately raise capital on the relevant markets
      and that in advising the Company through the purchase, O&Y failed to
      properly advise the Company as to the status of D.W.C. and its shares, which
      in
      fact were not free-trading. As a result of this conduct, the Company alleges
      damages in an unspecified amount but including purchase costs, extended
      operation costs, refiling costs, audit costs, legal fees, loan fees, lost market
      share, and costs for registration. Litigation of this matter is currently stayed
      pending outcome of the SEC Complaint discussed below. The case is scheduled
      for
      a status conference on December 17, 2007 before the Superior Court in Irvine,
      California.





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




10





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





On
      August
      25, 2006, the Company filed a complaint against its former accountants,
      Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
      Court
      of California, County of Alameda, Case No. VG06286054 alleging breach of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The Company seeks damages resulting from defendants’ actions,
      including recovering costs expended for a subsequent audit and the resultant
      loss in stock price following the Company’s inability to file necessary reports
      with the NASD. The matter was subsequently transferred to Los Angeles Superior
      Court. All parties have agreed to mediation in this matter currently scheduled
      for December 3, 2008. A status conference is scheduled for January 29, 2008.





Under
      the
      terms of the Definitive Stock Purchase Agreement, the Company and Shadrack
      have
      agreed to vigorously prosecute the Oswald and Yap litigation and the Stonefield
      Josephson litigation. The terms of the Definitive Stock Purchase Agreement
      provide that the Company and Shadrack agree that any recovery will be paid
      in
      its entirety to Shadrack and that Shadrack agrees to pay in advance all fees,
      costs and expenses going forward for prosecution of the litigations. Additional
      details of the Definitive Stock Purchase Agreement can be found in the Company’s
      Form 8K filed on October 25, 2007 at the SEC’s web site,
      www.sec.gov.





On
      September 27, 2006, the Securities and Exchange Commission (“SEC”) filed a
      complaint (the “SEC Complaint”) in the United States District Court, Northern
      District of California, Case No. C066003CW, against, among others, the Company,
      and its former Chief Executive Officer, Sholeh Hamedani, alleging violations
      of
      Section 10(b) of the Exchange Act and Rule 10b-5 by one or more defendants;
      violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11,
      13a-13 by one or more defendants; violations of Section 13(b)(2)(A) of the
      Exchange Act by the Company; violations of Section 13(b)(2)(B) of the Exchange
      Act by the Company; and violations of Section 13(b)(5) of the Exchange Act
      and
      Rules 13b2-1, 13b2-2, 13a-14, 16(a) by one or more defendants. The complaint
      generally alleges that the Company and the individual defendants made false
      or
      misleading public statements regarding the Company’s business and operations,
      made false statements in various filings with the SEC, and in particular, in
      the
      June 2005 Annual Report and Restatement and 2005 Current and Quarterly Reports,
      and that the defendants, or some of them, induced investment in the Company
      through misrepresentation and omissions. The complaint seeks disgorgement,
      unspecified monetary damages, injunctive relief and other relief against the
      defendants. The Company has answered the complaint. Trial in the matter has
      been
      set for March 31, 2008.




11





The
      Company is currently seeking resolution of the SEC Complaint by virtue of
      settlement.  The Company has reached a proposed settlement agreement with
      the SEC San Francisco staff. The proposed agreement is subject to the approval
      of the SEC Commission in Washington D.C. and contingent upon the closing of
      the
      purchase transaction between the Company and TCI Holding. The proposed
      settlement agreement includes a requirement that the Company and its principals
      consent, without admitting or denying the allegations, to a judgment alleging
      negligent, reckless, and intentional violations of the federal securities
      laws, and other sanctions. Under the proposed settlement, the Company will
      be
      ordered to pay to the SEC disgorgement of $2,722,344, plus pre-judgment interest
      thereon in the amount of $342,097, and jointly and severally with Sholeh
      Hamedani and Nasser Hamedani, the amount of $752,700, plus pre-judgment interest
      thereon in the amount of $94,586. However, the SEC will deem such obligations
      satisfied upon payment of $2,700,000 from the proceeds escrowed from the sale
      of
      the Company’s common stock under the Definitive Stock Purchase Agreement, and
      will waive the remaining $1,211,727 that the Company, Sholeh Hamedani and Nasser
      Hamedani would be liable for to the SEC. Under the settlement, Sholeh Hamedani
      will also resign from the Board of Directors. Ms. Hamedani already resigned
      as
      the Company’s CEO and CFO and Richard J. Lewis, III, was appointed as the
      Company’s acting CEO and CFO in conjunction with the Definitive Stock Purchase
      Agreement, effective October 19, 2007. The proposed settlement agreement is
      subject to the SEC Commission’s approval. There is no assurance that the SEC
      Commission will approve the proposed settlement. If the proposed settlement
      agreement is not approved by the Commission or the purchase transaction is
      not
      consummated, the prospect of litigation could ensue, which could seriously
      compromise the Company’s ability to continue as a going concern.





From
      inception, Shadrack, which
      holds approximately 44.7%of
      the Company's
      outstanding common stock, has advanced to the Company
      approximately $1.5 million for operations. While the exact amount of the
      disgorgement of profits and/or penalties under the SEC Complaint cannot be
      determined at this time, the ability to pay them by the Company or the Company’s
      former Chief Executive Officer is a serious question. Any proposed settlement
      will be subject to the SEC Commission’s approval.  The Company cannot
      predict the outcome of any settlement negotiations, the staff’s investigation,
      or the ultimate SEC Commission action should these settlement negotiations
      fail.
      There is no assurance that the proposed settlement agreement will be acceptable
      to the SEC Commission and the prospect of litigation could ensue which
      could seriously compromise the Company’s ability to achieve its goals.





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




12





In
      May
      2007, Mr. Arnold advised the Company that he disagreed with the Company’s
      position that his unpaid leave of absence was voluntary. Mr. Arnold informed
      the
      Company that he believed his resignation resulted from the Company’s breach of
      his Executive Employment Agreement. The Company and Mr. Arnold have had
      discussions in an effort to resolve the dispute between them but, to date,
      have
      not reached agreement. The Company believes that Mr. Arnold violated the terms
      of the Executive Employment Agreement when he voluntarily left his position
      as
      President in September of 2006. The Company believes it is only obligated to
      pay
      Mr. Arnold for back pay and bonus, plus interest, for the period prior to
      September 2006. The total compensation that the Company believes it owes Mr.
      Arnold as of September 30, 2007 is $89,274. This amount is reflected in the
      Company’s financial statements.





In
      a
      letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold seeks to
      negotiate an amicable settlement for alleged breach of contract, intentional
      and
      negligent misrepresentation arising out of his recruitment, hiring, and
      employment beginning in December 2005. Mr. Arnold has indicated an interest
      in
      resolving the matter with a full release of claims for payment of $400,000.
      If
      the parties are unable to negotiate a settlement of the matter, then Mr. Arnold
      has indicated his intent to file litigation or seek arbitration sometime before
      the stated closing date of the Definitive Stock Purchase Agreement. The Company
      is carefully considering the allegations made in Mr. Arnold’s correspondence,
      and is evaluating all of its options in the matter.





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





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





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 were set at $4,700 per month for the contract period of six months
      ended on December 8, 2006. In addition to the monthly fees, on the date of
      the
      agreement, 15,600 restricted shares were awarded to two principals of Brazer
      Communications. The fair market value of these shares was $7,800, and was
      amortized over the period of the agreement.




13





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





On
      February 12, 2007, 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. This agreement replaced an existing agreement entered into on April
      5,
      2005. The term of the current agreement continues until the expiration of 30
      days after either party gives the other party written notice of its intent
      to
      terminate. Under the agreement, inbound live phone services are billed at $0.738
      per minute for the first million minutes annually, $0.72 for the second million
      minutes and $0.702 per minute thereafter. The minimum purchase commitment is
      $2,500 per month, which is waived for the first three months of service and
      during up to four months per year when no television infomercials are being
      aired. The Company’s need for the services of Convergys Customer Management
      Group are no longer warranted and therefore the Company cancelled its contract
      with this provider as of October 1, 2007.





On
      March
      1, 2007, the Company entered into an oral agreement to pay Tim T. Turner, the
      amount of $13,125 per month as a consultant until such time as Mr. Turner and
      the Company entered into an employment agreement. On April 2, 2007, the Company
      entered into an Executive Employment Agreement, whereby Mr. Turner became the
      Director of Finance and Operations for the Company. Under the terms of the
      employment agreement, upon the Company obtaining Directors and Officers
      Insurance, Mr. Turner will be appointed an officer of the Company and made
      a
      member of the Company’s Board of Directors. The agreement states that Mr. Turner
      shall receive
      a yearly salary of $157,500. He shall earn a monthly salary of $13,125 of which
      $5,000 will be paid in cash and $8,125 shall be deferred and accrued for a
      maximum period of twelve months from the date of his employment agreement.
      In
      the event that the Company raises, during this twelve-month period, additional
      capital, through loans, equity investment or both, in the aggregate sum of
      one
      million dollars, Mr. Turner’s monthly cash compensation shall be increased to
      $6,562.50. The balance of Mr. Turner’s monthly compensation of $6,562.50 shall
      be deferred and accrued.  At
      the
      end of the twelve month period, the total amount of Mr. Turner’s deferred
      compensation shall be payable by the Company, and the cash compensation will
      be
      increased to $13,125 per month.




In
      the
      event that the Company, acting in good faith, determines that it does not have
      the resources to pay Mr. Turner’s deferred compensation, Mr. Turner and the
      Company have agreed that the total amount of deferred compensation will be
      converted into a note payable to Mr. Turner by the Company (the “Turner Note”).
      The Turner Note shall have a term of one year and shall accrue interest at
      the
      annual rate of 7.75%, or 2.5 % above the Federal Funds Rate then in effect,
      whichever amount is higher, payable at the end of each calendar month. At the
      end of the Turner Note term, the principal amount and any unpaid earned interest
      shall be due and payable. The Turner Note will have a Warrant attached to it
      that will enable the holder to purchase shares of the Company’s common stock
      (the “Turner Warrant”). The number of shares of the Company’s common stock that
      will be purchasable under the terms of the Turner Warrant (the “Turner Warrant
      Shares”) will be equal to the principal amount of the Turner Note multiplied by
      four and divided by the then current market price of the Company’s common stock.
      The Turner Warrant Shares will be unregistered and subject to Rule 144. The
      Turner Warrant Shares shall have piggyback registration rights. The term of
      the
      Turner Warrant will be five years from the date of issue. Mr. Turner’s monthly
      salary will otherwise be payable pursuant to the Company’s normal payroll
      practices. The Turner Note will continue to be due and payable with interest
      from the date issued.




14





In
      addition to his base salary, Mr. Turner shall participate in a bonus program
      in
      which Mr. Turner will earn an annual bonus equal to 50% of Mr. Turner’s base
      salary subject to Mr. Turner meeting the performance objectives established
      by
      the Company.





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





On
      June
      15, 2007, the Company entered into the Interim Stock Purchase Agreement with
      TCI
      Holding and Shadrack, which
      holds approximately 44.7% of****the
      Company’s outstanding
      common stockpursuant to which TCI Holding, subject to certain
      conditions, agreed to purchase from the Company a total of 120 million
      authorized but unissued shares of the Company’s common stock, and from Shadrack
      an additional 10 million shares of the Company’s common stock. The purchase
      price for the shares was to be an aggregate of $8 million, of which $1.5 million
      was to be used by the Company to pay down certain indebtedness, and $500,000
      was
      to be paid to Shadrack for the purchase of 10,000,000 shares of the Company’s
      Common Stock held by Shadrack, and the balance would have been paid to the
      Company.




An
      escrow
      agreement was signed and became effective on July 3, 2007, under which TCI
      Holding agreed to place $500,000 of the purchase price into an escrow account,
      with the first $300,000 deposited on July 6, 2007, and the balance to be
      deposited after completion of due diligence and upon TCI Holding notifying
      the
      Company that TCI Holding elects to proceed with the final Definitive Stock
      Purchase Agreement (“FSPA”). The Company agreed to place 7,500,000 of its
      currently authorized but unissued shares of common stock into the escrow
      account, with the first 4,500,000 deposited on July 3, 2007 and the balance
      to
      be deposited after completion of due diligence and upon TCI Holding notifying
      the Company that TCI Holding elects to proceed with the FSPA. The escrowed
      cash
      and shares will be the sole remedy of the parties if an event of default under
      the ISPA, or the FSPA, occurs. The certificate for the 4,500,000 shares
      deposited on July 3, 2007 was issued by the Company’s transfer agent on June 29,
      2007. Therefore, the Company’s total issued and outstanding shares increased by
      4,500,000 as of that date. On August 9, 2007, the Company and TCI Holding
      amended the ISPA. Under the amendment, $300,000 which was placed in escrow
      by
      TCI Holding pursuant to the ISPA was released from escrow, $150,000 to TCI
      to be
      used to pay down certain specified current payables and $150,000 released back
      to TCI Holding. The Amendment also made certain changes to the events of default
      and SEC settlement provisions of the ISPA as
      reported in a Form 8-K filed with the Securities and Exchange Commission on
      August 15, 2007.




15





On
      October 19, 2007, the Company and TCI Holding entered into the Definitive Stock
      Purchase Agreement. The DSPA supercedes the ISPA and constitutes the FSPA that
      was contemplated by the ISPA. Under the terms of the DSPA, TCI Holding will
      purchase 120 million newly issued shares of the Company’s common stock for $7.5
      million from the Company and 8,040,988 shares of the Company’s common stock from
      Shadrack for $500,000. Of the $8 million total purchase price, the $500,000
      payable to Shadrack plus up to an additional $2.2 million is expected to be
      paid
      directly to the SEC as part of a proposed settlement of SEC Complaint. The
      proposed settlement with the SEC is subject to approval by the SEC Commission.





Additionally,
      as a condition of the DSPA, the Company shall be fully and completely released
      from all obligations that are owed to Sholeh Hamedani, Nasser Hamedani,
      Shadrack, TDN or any of their affiliates.





The
      Company has also agreed, as a condition of the DSPA, to cause TDN to transfer
      to
      the Company, as part of the closing of the DSPA, “The Children’s Internet®” and
“Safe Zone Technology®” software and related trademarks, registrations and
      software applications, as such software, trademarks, registrations, and software
      applications relate solely to the business of The Children’s Internet. After the
      closing of the DSPA, the Company has agreed to pay to TDN or its designee a
      one-time royalty fee of $1 for each subscriber of The Children’s Internet secure
      on-line service during the two-year period commencing on the closing of the
      DSPA, which is to be paid 30 days after receipt by the Company of its first
      monthly user fee from each subscriber. The terms of the assignment of the
      technology from TDN to the Company and the payment of the royalty fee to TDN
      by
      the Company is set forth in the Assignment and Royalty Agreement, dated as
      of
      October 19, 2007 (the “Assignment and Royalty Agreement”), by and between TCI
      and TDN. The Assignment and Royalty Agreement was attached as Exhibit A to
      the
      DSPA and discussed in the Company’s Form 8K filed on October 25, 2007 at the
      SEC’s web site, www.sec.gov.





Under
      the
      terms of the DSPA, Sholeh Hamedani resigned as Chief Executive Officer and
      Chief
      Financial Officer of the Company and the Board of Directors appointed Richard
      J
      Lewis, III to be the Company’s Acting CEO and CFO. The Company’s Board of
      Directors will continue to represent the Company in the transactions
      contemplated by the DSPA.





Under
      the
      terms of the DSPA, completion of the purchase transaction is subject to a number
      of conditions, including, amendment of the Company’s articles of incorporation
      to increase its authorized shares of common stock to 250 million (which will
      require consent of a majority of the shareholders) and settlement of all
      litigation by the SEC against the Company to the satisfaction of TCI Holding.
      Additional details of the DSPA can be found in the Company’s Form 8K filed on
      October 25, 2007 at the SEC’s web site, www.sec.gov.





**NOTE
      5 - COMMON STOCK**





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





On
      June
      9, 2006, 15,600 common shares were issued to Brazer Communications under a
      public relations consulting agreement, as explained in Note 4.




16





On
      June
      29, 2007, 4,500,000 common shares were issued and deposited in escrow on July
      3,
      2007 in accordance with the Interim Stock Purchase Agreement between the Company
      and TCI Holding Company, LLC, as explained in Note 4.





No
      other
      new shares were issued by the Company during the period from January 1, 2006
      through the date of this report.





**NOTE
      6 - NON-MONETARY TRANSACTIONS**





Deferred
      Charge





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





Conversion
      of Debt to Common Stock





As
      explained in Note 3, on
      February 15, 2005, the Company’s Board of Directors authorized and approved the
      conversion of debt totaling $456,912 owed to Shadrack, which
      holds approximately 44.7% ofthe Company’s outstanding
      common stock,into 13,054,628 shares of the Company’s restricted common
      stock at a conversion price of $.035 per share .





Stock-based
      Compensation





On
      February 15, 2005, the Company’s Board of Directors granted Tyler Wheeler, the
      Company’s Chief Software Architect Consultant and a director of the Company, an
      option to purchase up to 1,000,000 shares of the Company’s restricted common
      stock at an exercise price of $0.035, and a fair value of $315,000. The option
      is exercisable, in whole or in part, at any time and from time to time, for
      a
      period of five years from the date of grant. This option to purchase Company
      shares was based on a fair market value of $0.315 per share. The option was
      valued using the Black-Scholes option pricing model, which was developed for
      estimating the fair value of traded options, and taking into account that the
      exercisable option shares are restricted. The value of $315,000 was recorded
      as
      an expense for services when the option was granted.





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





As
      explained in Note 4, on June 9, 2006, 15,600 restricted shares were awarded
      to
      two principals of Brazer Communications under a six-month contract to perform
      public relations consulting services for the Company. The fair market value
      of
      these shares was $7,800.





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




17





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





The
      value
      of the options granted on April 30, 2007 and discussed in the preceding two
      paragraphs, was based on a fair market value of $0.08 per share at the grant
      date, which was computed using the Black-Scholes option pricing model. The
      total
      value of option shares vested during the nine months ended September 30, 2007
      was $83,860, which was recorded as an expense of the period.





Contributed
      Capital





For
      the
      period from January 1 through March 31, 2007, Shadrack, a related party which
      holds approximately 44.7% of the Company's outstanding common stock,
      provided to the Company the half-time services of John Heinke, CPA, as
      Controller, at a fair market value of $7,500, which was contributed to
      Additional Paid-in Capital. Accordingly, Mr. Heinke will not seek payment for
      the services provided during that period.





**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.





Unless
      the context otherwise requires, the terms “we,” “our,” “TCI,” “The Children’s
      Internet, Inc.,” and “the Company” refer to The Children’s Internet, Inc., a
      Delaware corporation.





**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.




18





**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.




19


**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, 2007
      and for the nine months ended September 30, 2007 as compared to the nine months
      ended September 30, 2006 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,
              2007
            
            For
                the nine
              months
                ended
              September
                30,
              2006
            
            For
                the period from September 25, 1996 (inception) through
              September
                30,
              2007**Statement
                of Operations Data:**Net
                revenues
            
            $
            631
            
            $
            636
            
            $
            1,506Operating
                expenses
            
            $
            916,814
            
            $
            917,948
            
            $
            5,044,420Operating
                loss
            
            
            ($916,268
            )
            
            ($917,531
            )
            
            ($5,043,154
            )Net
                loss
            
            
            ($941,700
            )
            
            ($929,056
            )
            
            ($5,092,086
            )




As
                of
              September
                30,
              2007**Balance
                Sheet Data:**Total
                assets
            
            $
            44,778Total
                liabilities
            
            $
            2,756,008Total
                stockholders’ deficit
            
            
            ($2,711,230
            )





Our
      total
      operating expenses were approximately the same for the nine months ended
      September 30, 2007, as compared to the nine months ended September 30, 2006.
      The
      major change was a decrease of $259,825 in legal expenses, which was primarily
      offset by increases of $149,010 in professional consulting services and $99,442
      in professional accounting services. The decrease in legal expenses is a result
      of reduced litigation activity in the nine months ended September 30, 2007
      compared to higher litigation efforts in the same period a year ago against
      former legal counsel Oswald & Yap and in connection with the SEC Complaint.
      The increase in consulting fees for the nine months ended September 30, 2007
      is
      attributable to services of consultants funded through Shadrack or TDN without
      charge for the same period a year ago. The increase in professional accounting
      services is a result of audit fees incurred for the restatement of prior year’s
      financial results as explained in Item 3(a).





20




**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.





The
      following describes the Company’s current plan of operation as the Company
      stands today, assuming the closing of the Definitive Stock Purchase Agreement
      does not occur. In the event such closing does occur, the Company’s plan of
      operation may be altered significantly by new management.




On
      September 10, 2002, we entered into a License Agreement with TDN for an
      exclusive worldwide license to market and sell The Children’s Internet® service.
      We subsequently replaced the royalty and license agreement with a new Wholesale
      Sales & Marketing Agreement with the same effective date of September 10,
      2002. The new agreement provides for us to be the exclusive marketer of TDN’s
      proprietary 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 TDN from $3.00 to $1.00. In
      consideration for this decrease of the royalty fee, TDN was granted an option
      to
      acquire 18,000,000 shares of the Company’s restricted common stock at an
      exercise price of $0.07 per share for five years from the date of grant. The
      shares underlying the option have “piggy back” registration rights for a period
      of one year following any exercise of the option.




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




Upon
      the
      closing of the Definitive Stock Purchase Agreement between the Company and
      TCI
      Holding, if such closing occurs, the Wholesale Sales and Marketing Agreement
      will be cancelled and TDN transfer to the Company the intellectual property
      related to The Children’s Internet® service. It is a condition to the closing of
      the DSPA that the Company cause
      TDN
      to transfer to the Company, “The Children’s Internet®” and “Safe Zone
      Technology®” software and related trademarks, registrations and software
      applications, as such software, trademarks, registrations, and software
      applications relate solely to the business of The Children’s Internet. After the
      closing of the DSPA, the Company has agreed to pay to TDN or its designee a
      one-time royalty fee of $1 for each subscriber of The Children’s Internet secure
      on-line service during the two-year period commencing on the closing of the
      DSPA, which is to be paid 30 days after receipt by the Company of its first
      monthly user fee from each subscriber. In addition, the TDN Option will be
      cancelled. However, after the closing of the Definitive Stock Purchase
      Agreement, the Company shall set aside 12,857,142 shares of its common stock
      solely for the purpose of offering such shares to certain stockholders of TDN
      at
      a price of $0.07 per share. The shares will be made available only to TDN
      stockholders who receive cash payments from the SEC from an escrow fund of
      $900,000 set aside for those stockholders under a final judgment to be entered
      into in connection with the SEC Complaint. The terms of the assignment of the
      technology from TDN to the Company, the payment of the royalty fee to TDN by
      the
      Company, and the cancellation of the TDN Option is set forth in the Assignment
      and Royalty Agreement.




21




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 (referred to in this
      Report as “the product”). In the August 2004 issue of PC Magazine, The
      Children’s Internet® was ranked as Editors’ Choice in the category of “Kids’
Browsers and Services,” and was voted number one over AOL, EarthLink and MSN
      Premium 9. Additionally in August 2006, The Children’s Internet® was declared
      winner of Outstanding Products of 2006 by iParenting Media Awards in the
      software category. Shortly thereafter in September 2006, The Children’s
      Internet® received the coveted National Parenting Center’s Seal of
      Approval.





The
      Company believes The Children’s Internet® is the most comprehensive, smart
      solution to the problems inherent to a child’s unrestricted and unsupervised
      Internet access. The Company offers a protected online service and “educational
      super portal” specifically designed for children at the pre-school to junior
      high school levels, providing them with secure, real-time access to the World
      Wide Web and 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
      2006 and 2007, the technology on which the product is based and the
      functionality of the service was improved. The Company, through TDN, also
      substantially upgraded the underlying system infrastructure by increasing
      redundant servers and improving control procedures which in turn increased
      the
      reliability of the service. Additionally, during the first quarter of 2007,
      where appropriate, the Company contracted with third party companies to
      outsource administrative support services and put in place the infrastructure
      to
      support marketing initiatives. These outsource providers handle telemarketing
      and the order taking process and media placement. In addition, the Company’s
      need for the services from Convergsys Customer Management Group were no longer
      warranted and therefore the Company cancelled its contract with this provider
      as
      of October 1, 2007.




**The
      Business Model**




The
      product sells for $9.95 per month to the consumer. The user must already have
      internet access, either through dial-up, DSL or cable broadband. The Company
      utilizes both retail and wholesale channels of distribution.




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





· Parents
      and Kids




· The
      School Market: School Administrators and Teachers




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




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




· ISP
      customers with an interest in protecting their families




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




22




During
      the third quarter of 2007, the Company focused the majority of the Company’s
      resources on negotiating and finalizing the Definitive Stock Purchase Agreement
      and negotiating a proposed settlement for the SEC Complaint. The Company limited
      it operational efforts to maintenance of the product and undertook no marketing
      initiatives during the third quarter of 2007.




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




·
            **Direct
                Response Marketing**.A
                TV Infomercial will be the cornerstone of our consumer-marketing
                program.
                This direct response-marketing vehicle provides a number of advantages,
                including, a direct sale opportunity, brand awareness development,
                cost
                effectiveness, and rapid market response and feedback.





·
            **Spot
                Media**.
                In markets where consumer reaction to our Direct Response Marketing
                program is high, the Company will run spot television and radio
                commercials in support of our Direct Response campaign to further
                enhance
                brand awareness and reinforce the consumer purchase decision. The
                Company
                will also be opportunistic marketers, purchasing airtime around relevant
                programming, such as MSNBC’s “To Catch a Predator”
                program.





·
            **Public
                Relations**.Public
                relations activities will combine events, special promotions, and
                traditional media relations with the objective of maintaining top-of-mind
                awareness of the product with consumers and media. The Company will
                work
                with our strategic partners, where possible and appropriate, to maximize
                resources and obtain optimum media
                coverage.





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





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





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




23




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





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




**Channels
      of Distribution:**





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





Also,
      subject to secure financing, the Company will hire a direct sales force. The
      primary targets will be the largest ISPs as well as other national organizations
      that market to the most appropriate demographic groups for our service. The
      Company believes 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 service to not only offer this much needed product to their existing
      customers, but also to take a significant market share from their competition.
      The Company also believes that almost any company that markets to its
      demographics will want to seize the public relations goodwill that will accrue
      to any company offering our service.




The
      indirect channel, composed of non-salaried independent agents and wholesale
      distributors, will target a wide range of opportunities, from local charities
      to
      national organizations where they may have an influential contact. These sales
      agents will have the opportunity to employ secondary resellers to work for
      them,
      but the Company will not market using a multi-level marketing plan. Through
      grassroots efforts during 2006 the Company entered into sales agent agreements
      with ten individuals. Through 2007, the Company intended to continue to support
      these sales agents in their efforts to distribute the product on an individual
      basis, through organizations and through key strategic online service providers.
      However, throughout the third quarter of 2007, the Company focused the majority
      of the Company’s resources on negotiating the Definitive Stock Purchase
      Agreement and negotiating a proposed settlement for the SEC Complaint. The
      Company limited its operational efforts to maintenance of the product and
      undertook no marketing initiatives during the third quarter of
      2007.




**Future
      Products and Services**




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




**Market
      Share, Cash Flow and Profitability**




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




24




**LIQUIDITY
      AND RESOURCES**




As
      of
      September 30, 2007, we had net loss from inception of approximately $5,092,000.
      Approximately $1,760,000 of the Company’s cumulative net losses are non-cash
      compensation charges. The cumulative net losses consist of approximately
      $603,000, which represents the estimated fair market value for the cost of
      wages, if paid, for services rendered by the Company’s former Chief Executive
      Officer, Controller and James Lambert, an outside financial consultant (we
      have
      recorded these amounts for the cost of wages and, since they did not charge
      the
      Company, as additional paid-in capital), $2,045,000 which represents
      professional fees such as legal and accounting expenses, $575,000 which
      represents a debt financing fee, $399,000 which represents officers and
      directors compensation for which options to purchase common stock were issued,
      $662,000 which represents accrued officers compensation, and the balance of
      $810,000 consists primarily of payroll, occupancy and telecommunications costs
      including internet costs, net of approximately $2,000 in revenues. To date,
      Shadrack, which
      holds approximately 44.7% ofthe Company’s outstanding
      common stock, has funded all of our expended costs, with the exception of
      short-term advances totaling approximately $381,000 made by other related
      parties during the first three quarters of 2007.




Since
      inception, the Company has been dependent on funding from Shadrack and other
      related parties for our current operations and for providing office space and
      utilities that for the nine months ended September 30, 2007, averaged $19,700
      per month in operating costs, exclusive of professional fees and officer
      compensation accrued but unpaid. Through September 30, 2007, the amount funded
      by Shadrack totaled approximately $1,471,000. On September 30, 2007, the balance
      due to Shadrack was approximately $1,014,000. The difference of approximately
      $457,000 was converted to common stock on February 15, 2005, when the Company’s
      Board of Directors authorized the conversion of all debt owed to Shadrack into
      13,054,628 shares of restricted common stock at a conversion price of $0.035
      per
      share. Shadrack has advised the Company that it will no longer continue to
      fund
      our operations and the Company has received advances from the pending purchaser
      of the Company pursuant to the Definitive Stock Purchase Agreement, TCI Holding,
      to fund operations during this quarter. TCI Holding is under no obligation
      to
      continue to advance funds to the Company. Therefore, if TCI Holding does not
      advance additional funds to the Company prior to the close of the Definitive
      Stock Purchase Agreement or if the DSPA is not consummated, the Company would
      have to obtain debt or equity financing from third parties in order to sustain
      operations.




Where
      practicable, we plan to contract with third party companies to outsource
      administrative support services that effectively support the growth of the
      business. These outsource providers handle technical support, telemarketing
      and
      the order taking process and media placement. We believe this strategy will
      minimize the number of employees required to manage our intended growth through
      2007.




25




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 were set at $4,700 per month for the contract period of six months
      ended on December 8, 2006. In addition to the monthly fees, on the date of
      the
      agreement, 15,600 restricted post-split shares of the Company’s common stock
      were awarded to two principals of Brazer Communications. The fair market value
      of these shares was $7,800, and was amortized over the period of the
      agreement.




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





On
      February 12, 2007, 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. This agreement replaced an existing agreement entered into on April
      5,
      2005. The term of the current agreement continues until the expiration of 30
      days after either party gives the other party written notice of its intent
      to
      terminate. Under the agreement, inbound live phone services are billed at $0.738
      per minute for the first million minutes annually, $0.72 for the second million
      minutes and $0.702 per minute thereafter. The minimum purchase commitment is
      $2,500 per month, which is waived for the first three months of service and
      during up to four months per year when no television infomercials are being
      aired. The Company’s need for the services of Convergys Customer Management
      Group are no longer warranted and therefore the Company cancelled its contract
      with this provider as of October 1, 2007.





On
      April
      2, 2007, the Company entered into an Executive Employment Agreement with Tim
      T.
      Turner, whereby Mr. Turner became the Director of Finance and Operations for
      the
      Company. Upon the Company obtaining Directors and Officers Insurance, Mr. Turner
      will be appointed an officer of the Company and made a member of the Company’s
      Board of Directors. The agreement states that Mr. Turner shall receive
      a yearly salary of $157,500. He shall earn a monthly salary of $13,125 of which
      $5,000 will be paid in cash and $8,125 shall be deferred and accrued for a
      maximum period of twelve months from the date of his employment agreement.
      In
      the event that the Company raises, during this twelve-month period, additional
      capital, through loans, equity investment or both, in the aggregate sum of
      one
      million dollars, Mr. Turner’s monthly cash compensation shall be increased to
      $6,562.50. The balance of Mr. Turner’s monthly compensation of $6,562.50 shall
      be deferred and accrued.  At
      the
      end of the twelve month period, the total amount of Mr. Turner’s deferred
      compensation shall be payable by the Company, and the cash compensation will
      be
      increased to $13,125 per month.




In
      the
      event that the Company, acting in good faith, determines that it does not have
      the resources to pay Mr. Turner’s deferred compensation, Mr. Turner and the
      Company agree that the total amount of deferred compensation will be converted
      into the Turner Note. The Turner Note shall have a term of one year and shall
      accrue interest at the annual rate of 7.75%, or 2.5% above the Federal Funds
      Rate then in effect, whichever amount is higher, payable at the end of each
      calendar month. At the end of the Turner Note term, the principal amount and
      any
      unpaid earned interest shall be due and payable. The Turner Note will have
      the
      Turner Warrant attached to it that will enable the holder to purchase shares
      of
      the Company’s common stock. The number of shares of the Company’s common stock
      that will be purchasable under the terms of the Turner Warrant will be equal
      to
      the principal amount of the Turner Note multiplied by four and divided by the
      then current market price of the Company’s common stock. The Turner Warrant
      Shares will be unregistered and subject to Rule 144. The Turner Warrant Shares
      shall have piggyback registration rights. The term of the Turner Warrant will
      be
      five years from the date of issue. Mr. Turner’s monthly salary will otherwise be
      payable pursuant to the Company’s normal payroll practices. The Turner Note will
      continue to be due and payable with interest from the date issued.




26





In
      addition to his base salary, Mr. Turner shall participate in a bonus program
      in
      which Mr. Turner will earn an annual bonus equal to 50% of Mr. Turner’s base
      salary subject to Mr. Turner meeting the performance objectives established
      by
      the Company.




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




The
      Company’s previous office space in Pleasanton, California had been leased by
      Shadrack for the past three years. Shadrack allowed the Company use of the
      space
      under a verbal lease agreement at the same rental rate charged to Shadrack.
      The
      original lease expired on April 30, 2007. From May 1 through July 15, 2007,
      the
      same office space was rented by Shadrack on a month-to-month basis. Shadrack
      and
      the lessor of the Pleasanton office could not reach an agreement on terms for
      a
      new lease. Therefore, the Company vacated the premises on July 13, 2007. Upon
      vacating the Pleasanton office, the Company moved its headquarters into office
      space in San Ramon, California. This office space is leased from RAM Properties
      by Nasser Hamedani, a related party, pursuant to a one year lease through July
      14, 2008, with an option to renew for one additional year. The Company currently
      reimburses Mr. Hamedani for the monthly lease payment of $1,762. Costs of the
      relocation were approximately $5,000.




**Going
      Concern Uncertainty**





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




27





**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 8,948,000 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 8,948,000 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, nor 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 the Company’s former
      Chief Executive Officer and Controller, we reevaluated our disclosure controls
      and procedures. We 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 implemented
      a
      review system whereby all agreements which have a material effect on the Company
      are reviewed by the Chief Executive Officer and outside counsel and filed.
      Copies are forwarded to the Company’s accounting department where they are
      logged and processed for follow-up. In addition to the above, we 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.





We
      believe that as of the date of this filing, the process enumerated above
      remediates the weaknesses that were identified in our internal
      controls.




28





**PART
      II - OTHER INFORMATION**





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





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





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





On
      February 14, 2005, 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.





On
      February 14, 2005, a cross-claim was filed in the Superior Court of California,
      County of Orange, Case No. 04CC11623, by the Company against O&Y, and the
      principal allegation is that O&Y was retained to assist the Company’s
      predecessor company in the purchase and acquisition of D.W.C. with the
      expectation that D.W.C. had available free-trading shares such that the Company
      could immediately raise capital on the relevant markets and that in advising
      the
      Company through the purchase, O&Y failed to properly advise the Company as
      to the status of D.W.C. and its shares which in fact were not free-trading.
      As a
      result of this conduct, the Company alleges damages in an unspecified amount,
      but including purchase costs, extended operation costs, refiling costs, audit
      costs, legal fees, loan fees, lost market share, and costs for registration.
      Litigation of this matter is currently stayed pending outcome of the SEC
      Complaint. The case is scheduled for a status conference on December 17, 2007
      before the Superior Court in Irvine, California.





**Stock
      Purchase Agreement**





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




29





**Stonefield
      Josephson, Inc. Arbitration**





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





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





On
      August
      25, 2006, the Company filed a complaint against its former accountants,
      Stonefield Josephson, Inc., and its principal, Dean Skupen, in the Superior
      Court of California, County of Alameda, Case No. VG06286054, alleging breach
      of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The Company seeks damages resulting from defendants’ actions,
      including recovering costs expended for a subsequent audit and the resultant
      loss in stock price following the Company’s inability to file necessary reports
      with the NASD. The matter was subsequently transferred to Los Angeles Superior
      Court. All parties have agreed to mediation in this matter currently scheduled
      for December 3, 2008. A status conference is scheduled for January 29,
      2008.





**SEC
      Complaint**





On
      September 27, 2006, the SEC filed a complaint in the United States District
      Court, Northern District of California, Case No. C066003CW, against, among
      others the Company, and its former CEO, Sholeh Hamedani, alleging violations
      of
      Section 10(b) of the Exchange Act and Rule 10b-5 against one or more of the
      defendants; violations of Section 13(a) of the Exchange Act and Rules 12b-20,
      13a-1, 13a-11, 13a-13 against one or more of the defendants; violations of
      Section 13(b)(2)(A) of the Exchange Act by the Company; violations of Section
      13(b)(2)(B) of the Exchange Act by the Company; and violations of Section
      13(b)(5) of the Exchange Act and Rules 13b2-1, 13b2-2, 13a-14, 16(a) by one
      or
      more of the defendants. The complaint generally alleges that the Company and
      the
      individual defendants made false or misleading public statements regarding
      the
      Company’s business and operations, made false statements in various filings with
      the SEC, and in particular, in the June 2005 Annual Report and Restatement
      and
      2005 Current and Quarterly Reports, and that the defendants, or some of them,
      induced investment in the Company through misrepresentation and omissions.
      The
      complaint seeks disgorgement, unspecified monetary damages, injunctive relief
      and other relief against the defendants. The Company has answered the complaint.
      Trial in the matter has been set for March 31, 2008.




30





The
      Company is currently seeking resolution of the SEC Complaint by virtue of
      settlement. The Company has reached a proposed settlement agreement with the
      SEC
      San Francisco staff. The proposed agreement is subject to the approval of the
      SEC Commission in Washington, D.C. and contingent upon the closing of the
      purchase transaction between the Company and TCI Holding. The proposed
      settlement agreement includes a requirement that the Company and its principals
      consent, without admitting or denying the allegations, to a judgment alleging
      negligent, reckless, and intentional violations of the federal securities
      laws, and other sanctions. Under the proposed settlement, the Company will
      be
      ordered to pay to the SEC disgorgement of $2,722,344, plus pre-judgment interest
      thereon in the amount of $342,097, and jointly and severally with Sholeh
      Hamedani and Nasser Hamedani, the amount of $752,700, plus pre-judgment interest
      thereon in the amount of $94,586. However, the SEC will deem such obligations
      satisfied upon payment of $2,700,000 from the proceeds escrowed from the sale
      of
      the Company’s common stock under the Definitive Stock Purchase Agreement, and
      will waive the remaining $1,211,727 that the Company, Sholeh Hamedani and Nasser
      Hamedani would be liable for to the SEC. Under the settlement, Sholeh Hamedani
      will also resign from the Board of Directors. Ms. Hamedani already resigned
      as
      the Company’s CEO and CFO and Richard J. Lewis, III, was appointed as the
      Company’s acting CEO and CFO in conjunction with the Definitive Stock Purchase
      Agreement, effective October 22, 2007. The proposed settlement agreement is
      subject to the SEC Commission’s approval. There is no assurance that the SEC
      Commission will approve the proposed settlement. If the proposed settlement
      agreement is not approved by the commission or the purchase transaction is
      not
      consummated, the prospect of litigation could ensue, which could seriously
      compromise the Company’s ability to continue as a going concern.




**William
      L. Arnold**





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





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





Subsequent
      to the filing of our Form 10-KSB on May 18, 2007, Mr. Arnold advised the Company
      that he disagreed with the Company’s position that his unpaid leave of absence
      was voluntary. Mr. Arnold informed the Company that he believed his leave of
      absence resulted from the Company’s breach of his Executive Employment
      Agreement. The Company and Mr. Arnold have had discussions in an effort to
      resolve the dispute between them but, to date, have not reached agreement.
      The
      Company believes that Mr. Arnold violated the terms of his employment agreement
      when he voluntarily left his position as President in September of 2006. The
      Company believes that they are only obligated to pay Mr. Arnold for back pay
      and
      bonus plus interest, for the period prior to September 2006. The total
      compensation that the Company believes is owed to Mr. Arnold as of September
      30,
      2007 is $89,274, which amount is reflected in our financial
      statements.




31





In
      a
      letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold seeks to
      negotiate an amicable settlement for alleged breach of contract, intentional
      and
      negligent misrepresentation arising out of his recruitment, hiring, and
      employment beginning in December 2005. Mr. Arnold has indicated an interest
      in
      resolving the matter with a full release of claims for payment of $400,000.
      If
      the parties are unable to negotiate a settlement of the matter, then Mr. Arnold
      has indicated his intent to file litigation or seek arbitration sometime before
      the stated closing date of the Definitive Stock Purchase Agreement. The Company
      is carefully considering the allegations made in Mr. Arnold’s correspondence,
      and is evaluating all of its options in the matter.





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





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





**ITEM
      5.**  **OTHER
      INFORMATION**





On
      October 3, 2006, the Company received notice from its independent accountant,
      Marc Lumer & Co. (“Lumer”) that they had resigned as auditors of the Company
      effective immediately. On October 9, 2006, the Company received a second letter
      from Lumer stating that they had withdrawn their opinions on our previous
      financial statements for unstated reasons.





During
      the prior fiscal year, Lumer’s report on the Company’s financial statements did
      not contain an adverse opinion or a disclaimer of opinion, audit scope, or
      accounting principles nor were the reports qualified or modified except as
      to
      uncertainty with respect to going concern, audit scope, or accounting
      principles.





During
      the prior two fiscal years ended December 31, 2004 and December 31, 2005, and
      the subsequent interim periods through the date of resignation, 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.




32





On
      March
      29, 2007, the Company entered into an agreement with the firm of Hunter,
      Flemmer, Renfro & Whitaker, LLP of Sacramento, California to replace Lumer
      as the Company’s independent accountant. On May 14, 2006, the agreement was
      replaced with an agreement for Hunter, Flemmer, Renfro & Whitaker, LLP to
      audit the financial statements for the year ended December 31, 2006 and the
      year
      ended December 31, 2005. This agreement was approved by the Company’s Board of
      Directors.





**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
      April
      5, 2007, the Company filed a Current Report on Form 8-K reporting that the
      accounting firm of Hunter, Flemmer, Renfro & Whitaker, LLP had been retained
      to replace the Company’s previous accountant. The engagement letter for the
      audit of the financial statements for the year ended December 31, 2006 was
      attached.





On
      April
      6, 2007, the Company filed a Current Report on Form 8-K reporting the Executive
      Employment Agreement signed with Tim T. Turner on April 2, 2007, to serve as
      Director of Finance and Operations of the Company.





On
      May
      25, 2007, the Company filed a Current Report on Form 8-KA reporting a new
      engagement agreement with Hunter, Flemmer, Renfro & Whitaker, LLP which
      included re-auditing the financial statements for the year ended December 31,
      2005, on which the former accountant had withdrawn its opinion. In addition,
      a
      letter approving the statements made in this Form 8-KA received from the
      previous accountant was reported.





On
      June
      21, 2007, the Company filed a Current Report on Form 8-K reporting a Definitive
      Interim Stock Purchase Agreement entered into with The Children’s Internet
      Holding Company, LLC, for the purchase of 120 million new shares of the
      Company’s common stock and 10 million shares of the Company’s common stock held
      by Shadrack Films, Inc., for an aggregate price of $8 million.




33





On
      August
      15, 2007, the Company filed a Current Report on Form 8-K reporting Amendment
      No.
      1 to the Definitive Interim Stock Purchase Agreement by and between The
      Children’s Internet, Inc., The Children’s Internet Holding Company, LLC and
      Shadrack Films, Inc., dated August 9, 2007.





On
      October 25, 2007, the Company filed a Current Report on Form 8-K reporting
      its
      Definitive Stock Purchase Agreement by and between The Children’s Internet,
      Inc., The Children’s Internet Holding Company, LLC and Shadrack Films, Inc.
      dated October 19, 2007.




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**SIGNATURES**





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


DATED:
              November 19, 2007
            The
              Children’s
              Internet, Inc./S/
                RICHARD J. LEWIS, IIIBy:
                Richard J. Lewis, IIIIts:
                Acting Chief Executive Officer, and Acting
              Chief
                Financial Officer (Principal Executive
              Officer,
                Principal Financial Officer and Principal
              Accounting
                Officer)


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