**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-KSB**





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





For
      the
      fiscal year ended December 31, 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.**


(Name
      of
      small business issuer in its charter)





Nevada
            
            20-1290331(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)110
                Ryan Industrial Court, Suite 9
              San
                Ramon, CA
            
            94583(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer’s
      telephone number: (925)
      743-9420





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $.001 par value


(Title
      of
      class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





**Note** -
      Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Exchange Act from their obligation under
      those Sections.





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 periods
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





Check
      if
      there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-B contained in this form, and no disclosure will be contained, to the best
      of
      registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. x





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


Yes o No x





For
      the
      fiscal year ended December 31, 2007, the Company’s revenue was
      $766.





As
      of
      March 31, 2008, the aggregate market value of the common equity held by
      non-affiliates computed by reference to the closing price at which the common
      equity was sold, was $4,876,445.





As
      of
      March 31, 2008, there were 26,873,738 shares of the Company’s common stock
      outstanding with voting power and there were 4,500,000 shares of the Company’s
      common stock outstanding and held in escrow for the benefit of the Company
      until
      released and not entitled to vote as further described in Item 4 of this
      Report.









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


**FORM
      10-KSB FOR THE YEAR ENDED DECEMBER 31, 2007**


**TABLE
      OF CONTENTS**





**Page****PART
                I**ITEM
                1
            DESCRIPTION
                OF BUSINESS
            
            1ITEM
                2
            DESCRIPTION
                OF PROPERTY
            
            7ITEM
                3
            LEGAL
                PROCEEDINGS
            
            8ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            10**PART
                II**ITEM
                5
            MARKET
                FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS
            
            11ITEM
                6
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
                OPERATIONS
            
            15ITEM
                7
            FINANCIAL
                STATEMENTS
            
            26ITEM
                8
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            
            26ITEM
                8A(T)
            CONTROLS
                AND PROCEDURES
            
            26ITEM
                8B
            OTHER
                INFORMATION
            
            28**PART
                III**ITEM
                9
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE
                GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                ACT
            
            28ITEM
                10
            EXECUTIVE
                COMPENSATION
            
            30ITEM
                11
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            
            32ITEM
                12
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
                INDEPENDENCE
            
            33ITEM
                13
            EXHIBITS
            
            37ITEM
                14
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            
            39SIGNATURES
            
            40FINANCIAL
                STATEMENTS
            
            F-1




i


**PART
      I** **PART
        I**





**ALL
      SHARE AMOUNTS REFLECT THE COMPANY’S 2:1 FORWARD SPLIT OF ITS ISSUED AND
      OUTSTANDING SHARES OF COMMON STOCK AS DECLARED EFFECTIVE BY NASDAQ ON MARCH
      11,
      2005 UNLESS OTHERWISE INDICATED.**





All
      references to “we,” “us,” “our,” “TCI,” or the “Company” in this Report refer to
      The Children’s Internet, Inc., a Nevada corporation, unless the context states
      or implies otherwise.





**Forward-Looking
      Statements**





*This
      report contains forward-looking statements within the meaning of Section 21E
      of
      the Securities and Exchange Act of 1934 and Section 27A of the Securities Act
      of
      1933. These forward-looking statements involve a number of risks and
      uncertainties that may cause actual results to differ materially from those
      discussed in, or implied by, such forward-looking statements. The Company’s
      future operating results are dependent upon many factors, including but not
      limited to: (i) whether the Company is able to complete its sale to The
      Children’s Internet Holding Company, LLC; (ii) whether the Company will settle
      the SEC Complaint (as defined below); (iii) whether the Company is able to
      obtain sufficient funding to fund its operations and business; (iv) whether
      the
      Company is able to build the management and human resources and infrastructure
      necessary to support the growth of its business; (v) competitive factors and
      developments in the industry in which the Company competes; (vi) intellectual
      property protection; and (vii) any economic conditions that would negatively
      affect the Company’s business and expansion plans. Forward-looking statements
      within this Form 10-KSB are identified by words such as “believes,”
“anticipates,” “expects,” “intends,” “may,” “will” and other similar
      expressions. However, these words are not the only means of identifying such
      statements. We are not obligated and expressly disclaim any obligation to
      publicly release any update to any forward-looking statement. Our actual results
      could differ materially from those anticipated in, or implied by,
      forward-looking statements as a result of various factors. Readers are urged
      to
      carefully review and consider the various disclosures made by the Company in
      this report and in our other reports filed with the SEC, and available on its
      website at www.sec.gov, that attempt to advise interested parties of the risks
      and factors that may affect our business.*





**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**





**Business
      Development**




We
      were
      incorporated in the State of Nevada on September 25, 1996 as D.W.C.
      Installations, Inc. We changed our name to The Children’s Internet, Inc. on
      December 27, 2002. We are a development stage company and currently have no
      significant revenues, no marketing budget, only minimal assets, and have
      incurred losses since our inception. The
      Company is currently authorized to conduct business in California, and as of
      July 15, 2007 the Company is located in San Ramon, California.




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 in the
      Company. Our
      former Chief Executive Officer and the Chairman of our Board of Directors,
      Sholeh Hamedani, is the sole officer, director and shareholder of
      Shadrack.





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. Through December 31, 2007, the Company
      devoted the majority of its efforts to activities focused on marketing, on
      financial planning, raising capital, developing sales strategies and new
      marketing materials and implementing its business plan. The Company markets,
      sells, and administers 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. (“Two Dog Net” or
“TDN”). Sholeh
      Hamedani was President of TDN until she resigned on August 1, 2002. Ms.
      Hamedani, currently owns approximately 10% of the total outstanding shares
      of
      common stock of TDN. Ms. Hamedani’s father, Nasser Hamedani, is the Chief
      Executive Officer, Chairman and majority shareholder of TDN and has been since
      TDN’s inception in July of 1995.





1





The
      Company’s marketing, selling and administration rights derive from a Wholesale
      Sales and Marketing Agreement the Company entered into with Two Dog Net on
      September 10, 2002, which was amended in February 2005 (the “Licensing
      Agreement”). The
      Licensing Agreement gives us the exclusive worldwide right to market, sell,
      and
      distribute The Children’s Internet® service and wholesale dial-up Internet
      service of Two Dog Net. The
      Licensing Agreement is effective through the year 2013 and includes the ability
      to obtain five year extensions. It is a condition to the closing of the DSPA
      (as
      defined below), that the Licensing Agreement be cancelled and that Two Dog
      Net
      transfer to the Company the intellectual property related to The Children’s
      Internet®.





On
      October 19, 2007, the Company entered into the Definitive Stock Purchase
      Agreement (the “DSPA” or the “Definitive Stock Purchase Agreement”) between the
      Company, Shadrack, The Children’s Internet Holding Company, LLC (“TCI Holding”),
      Sholeh Hamedani, and Richard Lewis, the Company’s Acting Chief Executive Officer
      and Chief Financial Officer, as reported in the Company’s Form 8-K filed on
      October 25, 2007. Pursuant to the DSPA, as amended from time to time, TCI
      Holding has agreed to purchase a controlling interest in the Company. In
      the event the transaction contemplated under the DSPA is not consummated, a
      pending suit against the Company by the Securities and Exchange Commission
      (the
“SEC”), which is further described below, 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 over the course of
      the next year through equity financing, primarily from the contemplated purchase
      of the Company pursuant to the DSPA, with the net proceeds to be used to fund
      continuing operations.




As
      a
      result of streamlining business operations, in January 2008 the Company closed
      down the co-location facility and Internet hosting services for the Children’s
      Internet® provided by Evocative Data Center. Since the product was taken
      offline, sales efforts have been suspended until the Company closes the DSPA.
      Additionally, the Company has terminated the Children’s Internet® support and
      content staff during this time. Prior to taking the Children’s Internet® service
      offline, the product was not being aggressively marketed due to the Company’s
      lack of resources to promote the product.  The number of users was
      exceedingly small, and the high cost of hosting was creating a cash drain on
      the
      Company which led to the Company’s decision to reduce its overall operating
      costs until the closing of the DSPA.




**Principal
      products or services and their markets**




The
      Children’s Internet Ò offers
      access to pre-selected and pre-approved educational and entertaining age
      appropriate web pages as well as secure e-mail, homework help, games, news,
      super-portals to learning activities and educational resources within a
      protected online environment. The Children’s Internet® incorporates the
      proprietary security software, SafeZone Technology®, which offers security
      against Internet predators and Internet content that is inappropriate for
      children.





Although
      the Licensing Agreement permits us to offer Two Dog Net’s dial-up Internet
      service, we do not have current plans to offer the dial-up Internet service
      because our plan is to initially focus on establishing a base of subscribers
      to
      the Children’s Internet® service.





The
      target market for The Children’s Internet Ò is the
      48 million children on-line. (Source: Report from Internet Commerce &
Communications Division, Information Technology Association of America,
      February, 2002), as well as America’s schools which are connected to the
      Internet. The rate of general Internet use in the United States is expected
      to
      grow by 2 million new users per month. (Source: Report from Internet Commerce
      & Communications Division, Information Technology Association of America,
      February, 2002). Nearly two-thirds (62%) of US families have computers at home,
      but roughly 1 out of 5 (17%) of those with computers do not have Internet access
      due to safety concerns.  (Source:
      Report from Internet Commerce & Communications Division, Information
      Technology Association of America, February, 2002). One-third of parents with
      kids in grades K-5 say they have, or will, use the Internet as a learning tool
      at home with their child. Nearly 56% of parents are concerned that their kids
      view only age-appropriate content when logging on to the Internet from the
      classroom. (Source: Consumer Internet Barometer study done in 3 rd quarter
      of 2005). Risk of exposure to pornography and online predators is also growing.
      The number of pornographic websites has increased by 140% to 372 million web
      pages and continues to grow and child pornography requests online have
      accumulated to 43 billion per year. (Source: Pew Internet and American Life
      Project study 2005).




2




**Competition**





In
      the
      past five years, competition in our market segment of protective software and
      secure online browsers and services for children ages pre-school to junior
      high
      has significantly declined as many of the companies providing these services
      and
      products have consolidated, merged, been acquired or have ceased doing business.
      However, the market for Internet products and services is still highly
      competitive and there is no substantial barrier to entry in these markets.
      Although we currently believe that the diverse segments of the Internet market
      provide opportunities for more than one supplier of products and services
      similar to ours, it is possible that a single supplier may dominate one or
      more
      market segments.





Our
      management believes that the principal competitive factors in our market are
      brand recognition, ease of use, comprehensiveness of available content,
      customization by the consumer, quality and responsiveness of search results,
      the
      availability of high-quality, focused value added services, and required
      technology to offer access to end users with few interruptions. Competition
      among current and future suppliers of Internet navigational and informational
      services, high-traffic websites, ISPs and broadband providers could result
      in
      significant price competition and reductions in revenues. There can be no
      assurance that we will be able to compete successfully.





We
      compete with other providers of security software, information and community
      services. Many companies offer competitive products or services addressing
      filtering of Internet content, including, among others, Net Nanny (Net Nanny
      Software, Inc.), Cyber Patrol (The Learning Company), Cyber Sentinel (Security
      Software Systems, Inc.), Cybersitter 9.0 (Solid Oak Software, Inc.), Clever
      Island (Alfy, Inc.) and 8e6 Home (Log On Data, Inc.). In addition, we compete
      with online services such as Yahoo! Kids (Yahoo!), an Internet search engine
      and
      portal designed for children in grades K-12; America Online (America Online,
      Inc.), which offers parental control options for Internet access; and Disney’s
      Blast Online, which also offers child-oriented Internet navigation. These
      companies already have an established market presence, and are far ahead of
      us
      in gaining market share. Also, entities that sponsor or maintain high-traffic
      websites or that provide an initial point of entry for Internet users, such
      as
      the Regional Bell Operating Companies or commercial online services such as
      the
      Microsoft Network (“MSN”) and America Online (“AOL”), currently offer and could
      further develop, acquire or license Internet search and navigation functions
      that could compete with our product.





Many
      of
      our existing competitors, as well as a number of potential new competitors,
      have
      significantly greater financial, technical, marketing and distribution
      resources. In addition, providers of Internet tools and services may be acquired
      by, receive investments from, or enter into other commercial relationships
      with
      larger, well-established and well-financed companies, such as Microsoft or
      AOL.
      Greater competition resulting from such relationships could have a material
      adverse effect on our business, operating results and financial condition.





**Sources
      and availability of raw materials and principal suppliers**





We
      offer
      one product, The Children’s Internet® service, through our License Agreement
      with Two Dog Net. Any events adversely affecting Two Dog Net will also affect
      us
      as we are entirely dependent on our agreement with Two Dog Net for revenues,
      hardware and technical support of The Children’s Internet® service and SafeZone
      Technology® software and infrastructure. If Two Dog Net were to cease its
      operations, we would need to find alternative sources of revenues, which we
      may
      be unable to do. In such an event, we could be forced to cease operations
      entirely.




3




Any
      disruption in the Internet access provided by third-party providers or any
      failure of third-party providers to handle higher volumes of user traffic could
      have a material adverse effect on our business, operating results, and financial
      condition.





**Dependence
      on one or a few major customers; Distribution methods of the products or
      services; and Status of any publicly announced new products or
      services**




Since
      our
      product launch in March of 2006 we have acquired minimal retail customers and
      do
      not have any major customers. As a result of streamlining business operations,
      in January 2008 the Company closed down the hosting services provided by
      Evocative. The product was taken off line, and therefore, sales efforts have
      been suspended until the Company closes the DSPA. Additionally, termination
      of
      the support and content team also occurred during this time. Prior to taking
      the
      site down, the product was not being aggressively marketed due to the Company’s
      lack of resources needed to promote the product.  The number of users was
      exceedingly small, and the high cost of hosting was creating a cash drain on
      the
      Company which led to the Company’s decision to reduce its overall operating
      costs until the closing of the DSPA is concluded. The
      Company is devoting the majority of its efforts to activities focused on
      developing marketing relationships, on financial planning, raising capital,
      developing sales strategies and strategic alliances and implementing its
      business plan.




**Intellectual
      property**





Our
      success is dependent on the proprietary technology developed by Two Dog Net
      that
      we market and sell. Two Dog Net owns the proprietary technology underlying
      The
      Children’s Internet® service. We do not have any patents, pending or otherwise.
      The following is a list of the intellectual property we have the exclusive
      rights to use from Two Dog Net under the Licensing Agreement:





·
            “The
                Children’s Internet®” registered
                trademark;




·
            “SafeZone
                Technology®” registered trademark;




·
            The
                SafeZone Technology® proprietary software;
                and




·
            “Two
                Dog NetTM” trademark.




“Children’s
      Internet” is a trademark of Two Dog Net and was registered with the U.S. Patent
      and Trademark Office on October 9, 2001 as Registration Number Serial Number
      75378450. We do not hold any registered service marks or
      trademarks.





It
      is a
      condition to the closing of the DSPA, that the Licensing Agreement be cancelled
      and that Two Dog Net transfer to the Company the intellectual property related
      to The Children’s Internet®.




Despite
      our efforts to protect our proprietary rights, unauthorized parties may attempt
      to copy aspects of products or to obtain and use information that we regard
      as
      proprietary. Policing unauthorized use of our products is difficult, and while
      we cannot determine the extent to which piracy of our software products exists,
      such piracy can be expected to be a persistent problem, particularly in
      international markets and as a result of the growing use of the Internet. Some
      courts have held that shrink-wrap licenses, because they are not signed by
      the
      licensee, are not enforceable. In addition there can be no assurance that Two
      Dog Net’s proprietary software will not be reverse engineered or designed around
      by others or that others will not obtain patents that we would need to license
      or design around. Impairment of our intellectual property rights could
      negatively affect our business or could allow competitors to minimize any
      advantage that our proprietary technology may give us.




**Government
      approval and effect of existing or probable governmental regulations on the
      Business**





Due
      to
      the increasing popularity and use of the Internet, laws and regulations with
      respect to the Internet may be adopted at federal, state and local levels,
      covering issues such as user privacy, freedom of expression, pricing,
      characteristics and quality of products and services, taxation, advertising,
      intellectual property rights, information security and the convergence of
      traditional telecommunications services with Internet communications. We cannot
      predict the nature of future legislation and the manner in which government
      authorities may interpret and enforce that legislation. As a result, we could
      be
      subject to potential liability under future legislation, which in turn could
      restrict our operations or cause additional expenses or losses. For example,
      if
      legislation were adopted in the U.S. or internationally that makes transacting
      business over the Internet less favorable or otherwise curtails the growth
      of
      the Internet, this could reduce demand for our products and services and reduce
      sales and profits.




4




In
      addition, applicability to the Internet of existing laws governing issues such
      as property ownership, copyright and other intellectual property issues,
      taxation, libel, obscenity and personal privacy is uncertain. These laws
      generally pre-date the advent of the Internet and related technologies and,
      as a
      result, do not consider or address the unique issues of the Internet and related
      technologies. Changes to laws intended to address these issues could create
      uncertainty in the marketplace, reducing demand for our services or increasing
      the cost of doing business as a result of litigation costs or increased service
      delivery costs.





**Research
      and Development**





To
      date,
      all of the research and development efforts have been performed by Two Dog
      Net.
      Over the course of the past eight years, Two Dog Net has been focused on the
      development of SafeZone Technology®, The Children’s Internet Ò **,** and the
      creation of unique user interfaces and the functionality of the proprietary
      features for The Children’s Internet Ò .





In
      the
      future, in association with Two Dog Net, we will explore ways to leverage our
      current knowledge of compatible product enhancements. For example, some of
      the
      development may focus on interactive learning systems, a parent’s portal,
      massive multi-player online games (“MMOG’s”), and a companion product to The
      Children’s Internet Ò aimed at
      the teen market, and on-line books.





We
      will
      only begin development of new products after we have successfully launched
      The
      Children’s Internet Ò and feel
      comfortable that the research and development effort will not dilute our focus
      and resources from the success of The Children’s Internet Ò .





**Staff
      and Consultants**





We
      currently have one full-time staff member: John Heinke, Controller. The
      provision of additional service to the Company is governed by the terms of
      the
      DSPA. Under the terms of the DSPA, additional services are provided by former
      Shadrack or Two Dog Net staff and TCI Holding has paid for certain costs
      incurred related to maintaining the day to day operations of the Company. If
      the
      stock purchase contemplated by the DSPA is consummated, TCI Holding shall
      receive a credit or reduction in purchase price for costs, and if the stock
      purchase is not consummated and the DSPA is terminated by the mutual written
      consent of the Company and TCI Holding, the Company shall be obligated to repay
      TCI Holding for monies advanced for operations. Prior to entering into the
      Definitive Stock Purchase Agreement with TCI Holding, certain services were
      provided to the Company through Shadrack or TDN without charge. We have no
      collective bargaining agreements.





During
      the past three years, the Company has provided compensation to two employees:
      William Arnold, its former President, and Tim Turner, its former Director of
      Finance and Operations. Each of these individuals is no longer with the Company
      and further information regarding their employment and their termination is
      provided immediately below.




On
      April
      2, 2007, the Company entered into an Executive Employment Agreement with Tim
      T.
      Turner, whereby Mr. Turner became the Director of Finance and Operations for
      the
      Company. This position was not an executive officer position. Upon the Company
      obtaining Directors and Officers insurance, Mr. Turner would have been appointed
      an officer of the Company and made a member of the Company’s Board of Directors.
      Mr. Turner resigned his position with the Company effective on December 15,
      2007. The agreement provided that Mr. Turner would receive a yearly salary
      of
      $157,500, part of which was to be deferred for a year, and if the Company was
      not able to pay such deferred compensation, it was to be evidenced by a
      promissory note and have an attached warrant. The agreement also provided Mr.
      Turner certain severance benefits if his employment was terminated for cause
      by
      the Company or if he resigned for good reason. On
      March
      17, 2008, Mr. Turner informed the Company that amounts owed to Mr. Turner
      included a bonus of $78,750 and severance of $360,937.50, in addition to amounts
      accrued by the Company for Mr. Turner’s unpaid salary of $110,562 and consulting
      fees of $13,125.  The Company disputes the bonus and severance amounts
      claimed by Mr. Turner and intends to legally contest such disputed
      amounts in the event Mr. Turner further attempts collection.




5




William
      L. Arnold was appointed by the Chairman of the Company’s Board of Directors to
      act as the President of the Company beginning December 30, 2005, under an
      Executive Employment Agreement executed on the same date. Beginning on September
      1, 2006 Mr. Arnold took an unpaid leave of absence. Mr. Arnold’s compensation
      included a monthly salary of $10,000, of which $2,500 per month was to be
      deferred with 9% accrued interest until January 2007. The agreement also
      included a performance bonus of up to 50% of the annual salary and a combination
      of nonqualified and qualified stock options (the “Arnold Option”). The Arnold
      Option was for the purchase of up to 1,000,000 post-split shares of the
      Company’s common stock at an exercise price of $0.55 per share, which was more
      than the closing market price of $0.48 on the date of the agreement. One half
      of
      the Arnold Option vested immediately and the remaining 500,000 shares subject
      to
      the option were to vest at the rate of 1/36 th each
      month until fully vested. The agreement with Mr. Arnold provided Mr. Arnold
      certain severance benefits if he was terminated by the Company without
      cause.





Since
      the
      time of his absence, the Company has maintained that Mr. Arnold’s leave of
      absence was voluntary. 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 December 31, 2007 is $89,274. This amount is reflected in the
      Company’s financial statements. During Mr. Arnold’s leave of absence the vesting
      of the Arnold Option was suspended.





In
      May
      2007, Mr. Arnold advised the Company that he disagreed with the Company’s
      position that his unpaid leave of absence was voluntary. In a letter from Mr.
      Arnold’s counsel dated November 7, 2007, Mr. Arnold indicated that he sought to
      negotiate an amicable settlement for alleged breach of contract, intentional
      and
      negligent misrepresentation arising out of his recruitment, hiring, and
      employment beginning in December 2005. Mr. Arnold has also indicated an interest
      in resolving the matter with a full release of claims for payment of $400,000.
      However, on or about December 6, 2007, Mr. Arnold filed a lawsuit in the
      Superior Court of California, County of Alameda Case No. 07-359949 alleging
      breach of contract, fraud and violation of California Labor Code Section 200
      in
      connection with the dispute surrounding his employment. The Company filed an
      answer to the Complaint and intends to vigorously defend the claim.





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, former Chief Financial Officer, and Director, Sholeh
      Hamedani, would be accrued when earned. The decision is to be made at the end of
      each year whether to make the payment in cash, shares of the Company’s
      restricted common stock, or a combination of both. Accordingly, for the period
      from January 31, 2007 through her date of resignation, on October 19, 2007,
      $144,194 has been accrued and charged to Officers’ Compensation. For the years
      ended December 31, 2006 and December 31, 2005, $180,000 was accrued and charged
      to Officers’ Compensation for each year. 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 DSPA, 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. Sholeh
      Hamedani, former Chief Executive Officer and former Chief Financial Officer,
      resigned upon the appointment of Richard J. Lewis, III as Acting Chief Executive
      Officer and Chief Financial Officer pursuant to the terms of the DSPA. Ms.
      Hamedani continues to remain as the Company’s Chairman of the Board of
      Directors.




6





We
      hire
      independent contractors on an “as needed” basis only. During the past three
      years, the Company has paid for consulting services from related parties,
      including Roaya Wooler and Soraiya Smida and Two Dog Net, and from Crosslink
      Financial Communications, Inc. (“Crosslink”).





On
      December 6, 2007, the Company entered into a Services Agreement with Two Dog
      Net, which was made effective as of October 19, 2007. Under the Services
      Agreement, Two Dog Net provides the Company with office space in San Ramon,
      California, computer and office equipment, and certain supplies and services
      until the earlier of January 31, 2008 or the closing of the DSPA, for which
      the
      Company is obligated to pay Two Dog Net a monthly charge of $9,961 pro rated
      based on the actual number of days for any partial months. Although the Services
      Agreement expired, because the DSPA has not closed, TDN continues to provide
      the
      Company with its San Ramon office space, computer and office equipment, and
      certain supplies and services. TCI Holding signed an agreement with TDN on
      February 5, 2008 providing that it will pay all unpaid invoices of the monthly
      service fees associated with the Services Agreement. It is important that Two
      Dog Net continue to provide the services, facilities and equipment uninterrupted
      under the Services Agreement because the services being provided under the
      agreement are essential to TCI’s operations and the San Ramon office space is
      the location of the Company’s operations.





From
      April 1 through December 31, 2007, Roaya Wooler and Soraiya Smida, sisters
      of
      the former Chief Executive Officer of the Company, Sholeh Hamedani, and both
      of
      whom have twelve years experience with TDN in developing and marketing the
      Children’s Internet®, performed consulting services for the Company and together
      earned a total of $57,310 for their services. In addition, Lewis Wooler, husband
      of Roaya Hamedani, earned a total of $24,803 for his customer
      support and technical services
      to the Company during the same period.





On
      February 25, 2005 we entered into a Consulting Agreement with Crosslink, of
      which William Arnold is the principal shareholder. The agreement, which was
      originally for a 12-month term was terminated at the end of December 2005 after
      Mr. Arnold was named President of the Company. Crosslink represented the Company
      in stockholder communications and public relations with existing shareholders,
      brokers, dealers and other investment professionals as to the Company’s then
      current and proposed activities, and in consulting with management. For
      undertaking this engagement, the Company issued to Crosslink a “Commencement
      Bonus” payable in the form of 200,000 restricted post-split shares of the
      Company’s common stock. In addition, the Company agreed to a monthly stock
      compensation of 8,000 post-split shares of common stock every month on the
      contract anniversary date, and a cash fee of $5,000 per month for the term
      of
      the agreement. Out of this fee, Crosslink paid for complementary services (e.g.,
      other mailing services, email services, data base extensions) up to an average
      of $2,500 per month and never less than $1,500 per month. During the months
      of
      March through December 2005, Crosslink received an additional 80,000 restricted
      post-split shares, bringing their total remuneration to 280,000 shares and
      $50,000.00 in cash fees under this agreement.





**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**





From
      2004
      to July 15, 2007, Shadrack allowed the Company to use the office space Shadrack
      leased in Pleasanton, California under a verbal lease agreement at the same
      rental rate charged to Shadrack. Shadrack’s 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 and was used by the Company until the Company vacated
      the
      premises on July 13, 2007.





Upon
      vacating the Pleasanton office, the Company moved into office space in San
      Ramon, California. Costs of the relocation were approximately $5,000. This
      office space 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. On October 19, 2007, the Company entered into a Services
      Agreement with Two Dog Net pursuant to which monthly rental payments of $1,762
      are payable by the Company to Two Dog Net for use of the office space. The
      Company reimbursed Mr. Hamedani for lease payments made prior to entry into
      the
      Services Agreement based on a monthly lease payment of $1,762. Although
      the Services Agreement expired, because the DSPA has not closed, TDN continues
      to provide the Company with its San Ramon office space. TCI Holding signed
      an
      agreement with TDN on February 5, 2008 providing that it will pay all unpaid
      invoices of the monthly service fees associated with the Services
      Agreement.





7




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





**Stonefield
      Josephson, Inc. Arbitration**





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





**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. Mediation of this matter went forward on February 29, 2008 in Los
      Angeles, California but was unsuccessful.





Under
      the
      terms of the DSPA, the Company and Shadrack have agreed to vigorously prosecute
      the Oswald and Yap litigation and the Stonefield Josephson litigation. Further,
      under the terms of the DSPA, the Company and Shadrack have agreed that any
      recovery will be paid in its entirety to Shadrack and that Shadrack will pay
      in
      advance all fees, costs and expenses going forward for prosecution of the
      litigations.




8





**SEC
      Complaint**




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.




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 SEC San Francisco staff has received stand-by
      authority from the SEC Commission in Washington D.C to accept the proposed
      settlement offer of the Company which is contingent upon the closing of the
      purchase transaction between the Company and TCI Holding pursuant to the DSPA.
      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 DSPA, 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 DSPA, effective October 19,
      2007. The proposed settlement agreement is subject to the SEC Commission’s
      approval. The SEC San Francisco staff has received stand-by authority from
      the
      SEC Commission in Washington, D.C. to accept the settlement offer of the Company
      if the purchase
      transaction with
      TCI
      Holding closes in the near future and $2.7 million is made available in the
      escrow account to transfer to the court’s registry. The Company has agreed to a
      bifurcation of the proceedings now pending in Federal Court. Under this
      agreement, the injunctive relief sought by the Commission will be granted by
      judgment against the Company, with a remedies hearing to be held on April 29,
      2008 as to the amount of disgorgement, penalties and other monetary issues.
      The
      Commission is prepared to accept the terms of the settlement proposal with
      the
      Company, including the settlement figure of $2.7 million, should the acquisition
      by TCI Holding close prior to that date and the funds made available.





**William
      L. Arnold**





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 of the Company’s Board of
      Directors to act as President of the Company under an Executive Employment
      Agreement. Commencing on September 1, 2006, Mr. Arnold took a voluntary unpaid
      leave of absence. Mr. Arnold’s compensation included a monthly salary of
      $10,000, of which $2,500 per month was to be deferred with 9% accrued interest
      until January 2007. The Executive Employment Agreement also included a
      combination of nonqualified and qualified stock options (referred to herein
      as
      the Arnold Option). The Arnold Option was for the purchase of up to 1,000,000
      shares at an option price of $0.55 per share, and was to expire on December
      31,
      2010. The closing market price of the Company’s common stock was $0.48 per share
      on the date of the Mr. Arnold’s employment agreement. One-half of the Arnold
      Option vested immediately and the remaining 500,000 option shares were to vest
      at the rate of 1/36 th each
      month until fully vested. During Mr. Arnold’s leave of absence the vesting of
      his options was suspended. Additionally, the Executive Employment Agreement
      included 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 met 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 Option would have been recorded at
      $235,000.




9




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




Adverse
      outcomes in some or all of the claims pending against us may result in
      significant monetary damages or injunctive relief against us that could
      adversely affect our ability to conduct our business. 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
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





Pursuant
      to an Action by Written Consent of the Stockholders effective as of October
      3,
      2007 (the “October Stockholder Consent”), Shadrack, which holds 14,040,988
      shares of the Company’s common stock and is the Company’s majority stockholder,
      approved the amendment of the Company’s Articles of Incorporation to increase
      the number of authorized shares of the Company’s common stock from 75,000,000
      shares to 250,000,000 shares. Subsequent to the October Stockholder Consent,
      pursuant to an Action by Written Consent of the Stockholders effective as of
      November 5, 2007 (the “November Stockholder Consent”), Shadrack approved the
      amendment of the Company’s Articles of Incorporation to increase the number of
      authorized shares of the Company’s common stock from 75,000,000 shares to
      500,000,000 shares and resolved that the November Stockholder Consent superseded
      the October Stockholder Consent.





Although
      the increase in the number of authorized shares of the Company’s common stock to
      500,000,000 shares has been approved by a sufficient amount of voting power
      of
      the Company’s shareholders to file an amendment to the Company’s Articles of
      Incorporation with the Nevada Secretary of State and has been approved by the
      Company’s Board of Directors, the Company has not filed an amendment with the
      Nevada Secretary of State to officially increase the number of its authorized
      shares. The Company intends to file an amendment to its Articles of
      Incorporation enacting the increase in its authorized shares prior to the
      closing of the DSPA.




10





**PART
      II**




**ITEM
      5.**  **MARKET
      FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**




The
      Company’s common stock was approved for trading on the OTC Bulletin Board on
      December 23, 2004 under the trading symbol CITC.OB. Actual trading of our shares
      began on February 23, 2005. The following are the approximate high and low
      closing bid quotations on the OTC Bulletin Board since the first quarterly
      period of trading as reported on the online resources of Market Watch and Yahoo!
      Finance. The quotations reflect inter-dealer prices, without retail mark-up,
      mark-down, or commission and may not represent actual transactions.




Period
            
            High
                Closing Bid
            
            Low
                Closing Bid1stQuarter 2006
            
            $
            1.15
            
            $
            0.432ndQuarter 2006
            
            $
            0.71
            
            $
            0.213rdQuarter 2006
            
            $
            0.35
            
            $
            0.1254thQuarter 2006
            
            $
            0.17
            
            $
            0.061stQuarter 2007
            
            $
            0.17
            
            $
            0.082ndQuarter 2007
            
            $
            0.18
            
            $
            0.163rdQuarter 2007
            
            $
            0.15
            
            $
            0.134thQuarter 2007
            
            $
            0.18
            
            $
            0.17




**Holders**




As
      of
      March 28, 2008, there were 265 shareholders of record. The Company’s transfer
      agent is Transfer Online, 317 SW Alder Street, 2nd Floor, Portland, OR
      97204.




**Dividend
      Policy**




The
      Company has not paid any cash dividends on its common stock since its inception
      and does not anticipate or contemplate paying cash dividends in the foreseeable
      future.





**Securities
      Authorized For Issuance Under Equity Compensation Plans**




**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****(a)**
            
            **(b)**
            
            **(c)****Equity
                compensation plans approved by security holders****(1)(2)**
            
            
            1,471,300
            
            $
            0.08
            
            
            4,528,700**Equity
                compensation plans not approved by security holders****(1)(3)**
            
            
            19,611,112
            
            $
            0.07
            
            
            -**Total**
            
            
            21,082,412
            
            
            -
            
            
            4,528,700







(1)
            All
                securities issuable upon exercise of outstanding options, warrants,
                and
                rights are shares of the Company’s common
                stock.





(2)
            Comprised
                entirely of shares reserved for future issuance under theCompany’s
                2007 Equity Incentive Plan.





(3)
            Comprised
                entirely of shares of common stock issuable upon exercise of the
                TDN
                Option (as defined below), the Wheeler Option (as defined below),
                and the
                Arnold Option (as defined below). A description of the material features
                of the TDN Option, the Wheeler Option, and the Arnold Option is provided
                below.




11




**Recent
      Sales of Unregistered Securities**





On
      February 15, 2005, because Two Dog Net agreed to reduce their licensing fee
      under the Licensing Agreement, the Company issued an option to Two Dog Net
      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 DSPA, the TDN Option will be cancelled without any further action
      or any payment by Two Dog Net or the Company upon the closing of the DSPA.
      However, after the closing of the DSPA, 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 Two Dog Net at a price of $.07 per share. The shares
      will be made available only to Two Dog Net 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. This offering will be held open for a period of ninety days
      following the date of the $900,000 cash distribution by the SEC. The
      TDN
      Option was issued in reliance upon the exemption provided by Section 4(2) of
      the
      Securities Act for the offer and sale of securities not involving a public
      offering.





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. These
      shares of the Company’s common stock were issued in reliance upon the exemption
      provided by Section 4(2) of the Securities Act for the offer and sale of
      securities not involving a public offering.





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 “Wheeler
      Option”). 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. The
      option granted to Tyler Wheeler was issued in reliance upon the exemption
      provided by Section 4(2) of the Securities Act for the offer and sale of
      securities not involving a public offering.




12





On
      December 30, 2005, William Arnold was appointed by the Chairman of the Board
      of
      Directors of the Company to act as President of the Company under an Executive
      Employment Agreement. Mr. Arnold’s included a combination of nonqualified and
      qualified stock options (referred to herein as the Arnold Option). 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. The
      Arnold Option was for the purchase of up to 1,000,000 shares at an option price
      of $0.55 per share, and was to expire on December 31, 2010. The closing market
      price of the Company’s common stock was $0.48 per share on the date of the
      agreement. One half of the Arnold Option vested immediately and the remaining
      500,000 option shares vested at the rate of 1/36 th each
      month until fully vested. 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. If the stock-based compensation provisions of
      SFAS No. 123R had been adopted prior to January 1, 2006, the fair
      value of the 500,000 shares which vested on December 30, 2005 under the Arnold
      Option would have been recorded at $235,000. From December 30, 2005 through
      August 31, 2006, options to purchase a total of 611,112 shares pursuant to
      the
      Arnold Option 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. The
      Arnold Stock Option was issued in reliance upon the exemption provided by
      Section 4(2) of the Securities Act for the offer and sale of securities not
      involving a public offering.





On
      June
      9, 2006, the Company entered into a public relations consulting agreement with
      Brazer Communications of Mill Valley, California 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 of common stock of the Company
      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. The
      shares of common stock were issued in reliance upon the exemption provided
      by
      Section 4(2) of the Securities Act for the offer and sale of securities not
      involving a public offering.





On
      April
      30,  2007,
      subject to the terms of the Company’s 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. Turner resigned effective on December 15, 2007 and a total of 796,300 shares
      subject to his option had vested. Mr. Heinke was granted options to purchase
      300,000 shares of the Company’s common stock at the purchase price of $0.081 per
      share. Mr. Heinke’s options vest at the rate of one thirty-sixth per month of
      employment. The purchase price of $0.081 per share for Mr. Turner and Mr.
      Heinke’s options was the fair market value of the shares at the date of the
      grant. The
      options granted to Tim Turner and John Heinke were issued in reliance upon
      the
      exemption provided by Section 4(2) of the Securities Act for the offer and
      sale
      of securities not involving a public offering.





On
      April,
      30, 2007, subject to the terms of the Company’s 2007 Equity Incentive Plan, the
      Company granted non-qualified 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. In light of the on-going obligations of the Board of Directors
      of
      the Company and in order to provide incentives to the Company’s directors to
      continue as Board members until the closing of the DSPA, the Company resolved
      to
      use its best efforts to cause the registration of the shares of common stock
      underlying the options held by the independent directors under the Securities
      Act as soon as commercially possible after the closing under the DSPA. The
      options granted to the directors were issued in reliance upon the exemption
      provided by Section 4(2) of the Securities Act for the offer and sale of
      securities not involving a public offering.





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.




13





On
      December 6, 2007, the Company issued a warrant (the “TCI Holding Warrant”) to
      purchase 128,040,988 shares of the Company’s common stock (the “Warrant Shares”)
      at an exercise price of $0.0625 per share to TCI Holding. The TCI Holding
      Warrant may only be exercised after the closing of the DSPA, and then, only
      until April 30, 2008. The TCI Holding Warrant provides for adjustment in its
      exercise price and the Warrant Shares in case the Company engages in a
      recapitalization, authorizes dividends or distributions, or engages in a
      reorganization. The
      TCI
      Holding Warrant was issued in reliance upon the exemption provided by Section
      4(2) of the Securities Act for the offer and sale of securities not involving
      a
      public offering.





**Definitive
      Stock Purchase Agreement**





On
      June
      15, 2007, the Company entered into the Interim Stock Purchase Agreement (the
      “Interim Stock Purchase Agreement” or the “ISPA”) with TCI Holding and Shadrack,
      which holds approximately 52.2% of **** the
      voting power of the Company’s outstanding common stock, pursuant 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 the
      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 would 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. Because such shares are held for the benefit of the Company in escrow
      until released, these shares have not been considered voting shares under Nevada
      law. However, such shares are considered outstanding for financial reporting
      purposes. 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 was 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.




On
      October 19, 2007, the Company and TCI Holding entered into the Definitive Stock
      Purchase Agreement. The DSPA supersedes 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 in
      Washington, D.C.





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 to the Company’s Form 8-K filed on October 25, 2007 available at the
      SEC’s web site, www.sec.gov.




14





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, 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 Item 3, Legal
      Proceedings). This offering will be held open for a period of ninety days
      following the date of the $900,000 cash distribution by the SEC.





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 regarding the DSPA and the amendments thereto can be found
      in
      the Company’s Form 8-K’s filed on October 25, 2007, December 12, 2007, February
      12, 2008, March 6, 2008, and March 21, 2008.





**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATIONS**





*This
      report contains forward-looking statements within the meaning of Section 21E
      of
      the Securities and Exchange Act of 1934 and Section 27A of the Securities Act
      of
      1933. These forward-looking statements involve a number of risks and
      uncertainties that may cause actual results to differ materially from those
      discussed in, or implied by, such forward-looking statements. The Company’s
      future operating results are dependent upon many factors, including but not
      limited to: (i) whether the Company is able to complete its sale to The
      Children’s Internet Holding Company, LLC; (ii) whether the Company will settle
      the SEC Complaint (as defined below); (iii) whether the Company is able to
      obtain sufficient funding to fund its operations and business; (iv) whether
      the
      Company is able to build the management and human resources and infrastructure
      necessary to support the growth of its business; (v) competitive factors and
      developments in the industry in which the Company competes; (vi) intellectual
      property protection; and (vii) any economic conditions that would negatively
      affect the Company’s business and expansion plans. Forward-looking statements
      within this Form 10-KSB are identified by words such as “believes,”
“anticipates,” “expects,” “intends,” “may,” “will” and other similar
      expressions. However, these words are not the only means of identifying such
      statements. We are not obligated and expressly disclaim any obligation to
      publicly release any update to any forward-looking statement. Our actual results
      could differ materially from those anticipated in, or implied by,
      forward-looking statements as a result of various factors. Readers are urged
      to
      carefully review and consider the various disclosures made by the Company in
      this report and in our other reports filed with the SEC, and available on its
      website at www.sec.gov, that attempt to advise interested parties of the risks
      and factors that may affect our business.*





**Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





*Overview*





Management’s
      discussion and analysis of financial condition and results of operations, or
      MD&A, is provided as a supplement to the consolidated financial statements
      and notes included elsewhere in this Form 10-KSB and are designed to provide
      an
      understanding of our results of operations, financial condition and changes
      in
      financial condition. Our MD&A is comprised of:





·
            *Introduction*.
                This section provides a general description of our business. This
                section
                also includes a table of selected financial data.




15




·
            *Results
                of Operations*.
                This section provides our analysis of the significant line items
                on our
                consolidated statements of operations.





·
            *Going
                Concern Uncertainty.*This
                section provides a discussion of our uncertainty to continue as a
                going
                concern.





·
            *Critical
                Accounting Policies*.
                This section discusses the accounting policies we consider important
                to
                our financial condition and results of operations and that require
                us to
                exercise subjective or complex judgments in their application. This
                section also includes a discussion about recent accounting pronouncements
                and the impact those pronouncements are expected to have on our financial
                condition and results of operations.





·
            *Liquidity
                and Capital Resources, Debt and Lease Obligations*.
                This section provides an analysis of our liquidity and cash flows
                as well
                as a discussion of our outstanding debt and commitments as of December
                31,
                2007.





·
            *Forward
                Looking Statements and Risk Factors*.
                This section describes circumstances or events that could have a
                negative
                effect on our financial results or operations and existing trends
                in our
                business that could change for the
                worse.





*Introduction*





We
      were
      incorporated in the State of Nevada on September 25, 1996 as D.W.C.
      Installations, Inc. We changed our name to The Children’s Internet, Inc. on
      December 27, 2002. We are a development stage company and currently have no
      significant revenues, no marketing budget, only minimal assets, and have
      incurred losses since our inception. The
      Company is currently authorized to conduct business in California, and as of
      July 15, 2007 the Company has been located in San Ramon,
      California.




The
      Company was primarily inactive until July 3, 2002 when Shadrack purchased
      2,333,510 newly-issued shares of the Company’s common stock for $150,000,
      thereby obtaining a majority ownership interest in the Company. Our
      former Chief Executive Officer and the Chairman of our Board of Directors,
      Sholeh Hamedani, is the sole officer, director and shareholder of Shadrack.
      Through October 2007, we have relied exclusively on loans from Shadrack to
      fund
      all of our expenses. Since October 2007, the Company has relied upon TCI Holding
      for the funding of its daily operations.





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. Through December 31, 2007, the Company
      devoted the majority of its efforts to activities focused on raising capital,
      developing sales strategies and new marketing materials, updating its
      infomercial, implementing its business plan, and reaching a resolution of the
      SEC Complaint. The Company markets, sells, and administers 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. The Company’s marketing, selling and administration rights
      derive from the Licensing Agreement, which
      gives us the exclusive worldwide right to market, sell, and distribute The
      Children’s Internet® service and wholesale dial-up Internet service of Two Dog
      Net. It
      is a
      condition to the closing of the DSPA, that the Licensing Agreement be cancelled
      and that Two Dog Net transfer to the Company the intellectual property related
      to The Children’s Internet®.





On
      September 27, 2006, the SEC filed a complaint (referred to herein as the SEC
      Complaint) against, among others, the Company, and its former Chief Executive
      Officer, Sholeh Hamedani, alleging violations of the Securities Act and the
      Exchange Act. The complaint seeks disgorgement, unspecified monetary damages,
      injunctive relief and other relief against the defendants. Partly as a means
      to
      resolve the SEC Complaint and continue operations, on October 19, 2007, the
      Company entered into the DSPA, pursuant to which, TCI Holding will purchase
      a
      controlling interest in the Company.




16





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 in
      Washington D.C. and contingent upon the closing of the purchase transaction
      between the Company and TCI Holding pursuant to the DSPA. The SEC San Francisco
      staff has received stand-by authority to accept the settlement offer of the
      Company if the deal with TCI Holding closes in the near future and $2.7 million
      is made available to transfer to the court’s registry. The Company has agreed to
      a bifurcation of the proceedings now pending in Federal Court. Under this
      agreement, the injunctive relief sought by the Commission will be granted by
      judgment against the Company, with a remedies hearing to be held on April 29,
      2008 as to the amount of disgorgement, penalties and other monetary issues.
      The
      Commission is prepared to accept the terms of the settlement proposal with
      the
      Company, including the settlement figure of $2.7 million, should the acquisition
      by TCI Holding close prior to that date and the funds made available.





In
      the
      event the transaction contemplated under the DSPA is not consummated the SEC
      Complaint 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 over the course of the next year through equity financing,
      primarily from the contemplated purchase of the Company pursuant to the DSPA,
      with the net proceeds to be used to fund continuing operations.





*Selected
      Financial Data*





The
      following selected financial data for the period from September 25, 1996, the
      date of our inception, through December 31, 2007 and for the fiscal year ended
      December 31, 2007 were derived from our financial statements and notes thereto
      included in this annual report which are audited. 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 our audited financial
      statements, including the related footnotes.




As
                of December 31, 2007**Balance
                Sheet Data:**Total
                assets
            
            $
            43,213Current
                liabilities
            
            $
            1,934,722Long-term
                Liabilities
            
            $
            1,028,831Total
                stockholders’ deficit
            
            $
            (2,920,340
            )


For
                  the year
                ended
                  December 31,
                2007
              
              For
                  the period from September 25, 1996 (inception) through December
                  31,
                  2007**Statement
                  of Operations Data:**Net
                  revenues
              
              $
              766
              
              $
              1,641Operating
                  expenses
              
              $
              1,122,600
              
              $
              5,250,206Total
                  expenses
              
              $
              1,166,652
              
              $
              5,317,758Operating
                  loss
              
              $
              1,121,936
              
              $
              5,248,822Net
                  loss
              
              $
              1,165,988
              
              $
              5,316,374




17





*Results
      of Operations*





Our
      total
      expenses increased by $78,944 for the year ended December 31, 2007, as compared
      to the year ended December 31, 2006. The increase was primarily due to increases
      of $103,942 in financial audit services, $182,277 in consulting services,
      $225,389 in salary expense, $23,752 in interest expense, and $30,000 in
      directors stock compensation expense, which were offset against decreases in
      legal expenses of $282,124 and officer’s compensation of $205,125. The increase
      in directors stock compensation resulted from stock options granted during
      the
      year ended December 31, 2007. The increase in consulting fees for the year
      is
      attributable to services of consultants funded through Shadrack or Two Dog
      Net
      without charge for the same period a year ago.





Our
      operating expenses decreased by $192,744 for the year ended December 31, 2006,
      as compared to the year ended December 31, 2005. The decrease was primarily
      due
      to decreases of $145,681 in officers and directors compensation and $183,257
      in
      investor relations expenses, offset by an increase in legal expenses of
      $183,901. The decrease in officers and directors compensation resulted primarily
      from more stock options granted during the year ended December 31, 2005. The
      decrease in investor relations expense is because the principal of our former
      investor relations consulting firm, which received 280,000 restricted post-split
      shares valued at $126,600 in addition to $55,000 in cash fees during the year
      ended December 31, 2005, performed these functions as an officer of the Company
      during the year ended December 31, 2006. The increase in legal expenses during
      this period is due primarily to the Oswald & Yap litigation and responding
      to the SEC investigation and complaint.





*Going
      Concern Uncertainty*





Through
      October 2007, we have relied exclusively on loans from Shadrack to fund all
      of
      our expenses. Since October 2007, the Company has primarily relied upon TCI
      Holding for the funding of its daily operations. There is no assurance that
      Shadrack or TCI Holding will be able or be willing to continue such funding.
      We
      will be required to obtain additional funds through private placements of debt
      or equity securities or by other borrowing. Other than the pending DSPA, we
      do
      not have any arrangements with potential investors or lenders to provide such
      funds as of the date of this filing and there is no assurance that such
      additional financing will be available when required in order to proceed with
      our business plan. Further, our ability to respond to competition or changes
      in
      the market place or to exploit opportunities will be significantly limited
      by
      lack of available capital financing. If we are unsuccessful in securing the
      additional capital needed to continue operations within the time required,
      we
      will not be in a position to continue operations. In this event, we would
      attempt to sell the Company or file for bankruptcy.





*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.





*Liquidity
      and Capital Resources, Debt and Lease Obligations*





As
      of
      December 31, 2007, we had a net loss from inception of approximately $5,316,000.
      Approximately $1,610,000 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), $2,138,000 which represents
      professional fees such as legal and accounting expenses, $575,000 which
      represents a debt financing fee, $414,000 which represents officers, employees
      and directors compensation for which options to purchase common stock were
      issued, $593,000 which represents accrued officers compensation, and the balance
      of $993,000 consists primarily of payroll, occupancy and telecommunications
      costs including internet costs, net of approximately $1,600 in revenues.




18





To
      date,
      Shadrack, which holds approximately 52.2% of the voting power of the Company’s
      outstanding common stock, has funded all of our expended costs from inception,
      with the exception of short-term
      advances totaling $74,249 made during the first nine months of 2007 by Nasser
      Hamedani, a related party, short-term advances totaling $19,469 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 $7,800
      made by John Heinke, the Company’s Controller, and advances totaling $264,504
      made by TCI Holding as an advance against the purchase price of the Company’s
      common stock pursuant to the DSPA. Currently, we are dependent on funding from TCI Holding for our operations.
      Prior to the DSPA, Shadrack provided funding for the Company for day to day
      operations. The
      total
      amount advanced by Shadrack through December 31, 2007 and 2006 was $1,485,743
      and $1,471,258, 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 DSPA, the Company
      shall be fully and completely released from all obligations that are owed to
      Sholeh Hamedani, Nasser Hamedani, Shadrack, Two Dog Net or any of their
      affiliates. Neither Shadrack nor TCI Holding is under any obligation to continue
      funding our operations and could stop at any time without notice.





From
      2004
      to July 15, 2007, Shadrack allowed the Company to use the office space Shadrack
      leased in Pleasanton, California under a verbal lease agreement at the same
      rental rate charged to Shadrack. Shadrack’s 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 and was used by the Company until the Company vacated
      the
      premises on July 13, 2007.





Upon
      vacating the Pleasanton office, the Company moved into office space in San
      Ramon, California. Costs of the relocation were approximately $5,000. This
      office space 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. On October 19, 2007, the Company entered into a Services
      Agreement with Two Dog Net pursuant to which monthly rental payments of $1,762
      are payable by the Company to Two Dog Net for use of the San Ramon office space.
      The Company reimbursed Mr. Hamedani for lease payments made prior to entry
      into
      the Services Agreement based on a monthly lease payment of $1,762. Although
      the Services Agreement expired, because the DSPA has not closed, TDN continues
      to provide the Company with its San Ramon office space. TCI Holding signed
      an
      agreement with TDN on February 5, 2008 providing that it will pay all unpaid
      invoices of the monthly service fees associated with the Services
      Agreement.





*Forward
      Looking Statements and Risk Factors*




**CONSUMMATION
      OF THE PURCHASE TRANSACTION UNDER
      THE DSPA MAY NOT OCCUR**




Consummation
      of the transaction under the DSPA is
      subject to numerous conditions and completion of fundraising by TCI Holding.
      There can be no assurance that the conditions will be satisfied or that the
      transaction will be completed. In the event the transaction contemplated under
      the DSPA is not consummated, the SEC Complaint raises substantial doubt
      concerning the Company’s ability to continue as a going concern.




**WE
      ARE A DEVELOPMENT-STAGE COMPANY WITH A LIMITED OPERATING
      HISTORY**




We
      were
      incorporated as a Nevada corporation on September 25, 1996 as D.W.C
      Installations. We changed our name to The Children’s Internet, Inc. on December
      27, 2002. We are a development stage company and currently have no significant
      revenues, no marketing budget, only minimal assets, and have incurred
      significant losses since its inception. Any future success that we might enjoy
      will depend upon many factors, including factors which may be beyond our control
      or which cannot be predicted at this time. These factors may include but are
      not
      limited to:




·
            changes
                in or increased levels of competition, including the entry of additional
                competitors and increased success by existing competitors;




19




·
            changes
                in general economic conditions;




·
            increases
                in operating costs, including the costs of supplies, personnel, and
                equipment;




·
            lack
                of commercial acceptance of our products at either the wholesale
                or retail
                level or both;




·
            failure
                of our intended intellectual property strategy; and




·
            an
                inability to enter into agreements with business partners.




These
      factors may have a material adverse effect upon us or may force us to reduce
      or
      cease operations.




**WE
      HAVE A HISTORY OF SIGNIFICANT LOSSES**


**AND
      THESE LOSSES MAY CONTINUE IN THE FUTURE**





As
      of
      December 31, 2007, we had an accumulated deficit of $5.3 million, and losses
      may
      continue in the future. We may need to raise capital to cover these losses,
      in
      addition to that being provided by TCI Holding, and financing may not be
      available to us when needed on favorable terms, if at all. After the Closing
      of
      the DSPA, we expect to continue to incur significant sales and marketing,
      research and development, and general and administrative expenses. As a result,
      we will need to generate significant revenues to achieve profitability and
      may
      never achieve sustained profitability.




We
      encounter risks and difficulties frequently encountered by companies in an
      early
      stage of development in highly technical and rapidly evolving markets. In order
      to overcome these risks and difficulties, we must, among other
      things:




·
            retain
                customers and convince them to purchase additional products and services;




·
            penetrate
                new markets and sell its products and services to new customers;




·
            continue
                to develop our technology; and




·
            continue
                to attract, hire, motivate and retain qualified
                personnel.




If
      we
      fail to achieve these objectives, we may never become profitable.




Our
      planned operating costs are based to a considerable extent on the anticipated
      growth of our future revenues. However, we may not be able to forecast growth
      accurately due to our limited operating history in the Internet security market
      segment. If we do not grow as anticipated, our operating results could decline
      significantly, and we may never be profitable.




**SETTLEMENT
      OF THE SEC LAWSUIT IS SUBJECT TO SEC COMMISSIONER APPROVAL AND OTHER
      CONDITIONS**




On
      September 27, 2006, the Commission filed a complaint against the Company, its
      CEO, Sholeh Hamedani, and others, alleging violations of certain federal
      securities laws. The complaint generally alleges that the Company and the
      individual defendants made false or misleading public statements regarding
      our
      business and operations, made false statements in various filings with the
      Commission, and induced investment in the Company through misrepresentation
      and
      omissions. The complaint seeks disgorgement, unspecified monetary damages,
      injunctive relief and other relief against the defendants. We have answered
      the
      complaint.




20


A
      potential settlement has been agreed to with the SEC Staff that includes the
      payment of $2,700,000 at the closing of the DSPA and an injunction requiring
      the
      Company not violate the federal securities laws in the future. This proposed
      settlement is subject to final SEC Commissioner approval and we cannot guarantee
      that such approval will be obtained. In the event this settlement is not
      approved, we would be required to negotiate a new settlement and potentially
      continue to defend the lawsuit.





**SETTLEMENT
      OF THE SEC LAWSUIT DOES NOT RELEASE US FROM OTHER POTENTIAL CLAIMS WITH RESPECT
      TO THE SUBJECT MATTER OF THE SEC LAWSUIT OR OTHER ACTS OR OMISSIONS OF OUR
      MANAGEMENT**




Settlement
      of the SEC lawsuit will result in a settlement of the specific claims that
      are
      the subject matter of the lawsuit but this settlement does not release us from
      any other claims that may be brought by the SEC with respect to other actions
      or
      omissions of the Company management, even other actions or omissions that are
      related to the actions that are the subject of the lawsuit. Settlement of the
      SEC lawsuit also does not preclude a private party from bringing a claim based
      on the same actions that are the subject of the lawsuit. The SEC or such other
      parties may bring claims in the future that would require us to expend resources
      in defense and may result in the Company being required to pay settlements
      or
      judgments.




Our
      Articles of Incorporation and bylaws require the Company to indemnify our
      officers and directors to the fullest extent under Nevada law. While we have
      no
      reason to believe that any current management would present a claim for
      indemnification, or that after presenting a claim, would be entitled to
      indemnification under Nevada law, it is possible that such a claim may be
      brought. In the event an indemnification claim is made, we would be required
      to
      expend resources in assessing such a claim. In the event of a successful claim,
      we may be required to pay amounts as indemnification, which amounts may be
      substantial. TCI Holding has obtained expressions of interest and intends to
      obtain insurance coverage from insurance underwriters of Directors and Officer’s
      Liability insurance for the Company upon reaching settlement with the SEC and
      replacement of existing management.




**POSSIBLE
      UNKNOWN CLAIMS AND OBLIGATIONS**




As
      a
      result of the SEC lawsuit, we have depleted our cash resources and can no longer
      pay our obligations when due. As a result, we have significant past due payables
      and other unpaid obligations. Management intends to settle all known past due
      Company payables in due course after the Closing. However, there may be
      additional claims or obligations of which the Company is not aware, and our
      ability to pass those claims or obligations on to former Company management
      would be limited at best.




**CONTROL
      OVER THE BUSINESS OPERATIONS; RELIANCE ON MANAGEMENT**




Upon
      the
      closing of the DSPA and becoming the majority stockholder of the Company, TCI
      Holding may appoint a new management team and new directors to its Board of
      Directors. The management team and directors that TCI Holding may elect may
      have
      a limited amount of experience in working with Internet-based businesses.
      Although the expected management team and directors may have managed other
      types
      of businesses, including software businesses, their potential lack of experience
      specifically in Internet business can have a significant and adverse impact
      on
      the growth and development of our company.





**WE
      DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY AND IF WE ARE UNABLE
      TO RETAIN KEY PERSONNEL, OUR ABILITY TO COMPETE COULD BE
      HARMED**




Our
      ability to implement our business strategy and our future success depends
      largely on the continued services of our executive officers, as well as key
      engineering and marketing personnel. The loss of any of these key personnel
      could result in delays in product and service development, loss of sales and
      diversion of management resources, which could seriously harm our business.
      Moreover, the loss of one or a group of our key employees and any resulting
      loss
      of customers, particularly to a competitor, could harm our operating
      results.




**WE
      MAY BE UNABLE TO SUCCESSFULLY MANAGE ITS GROWTH**




After
      closing of the DSPA, we anticipate a period of rapid and substantial growth.
      This growth will place a significant strain on our management and operational
      resources. There can be no assurance that our procedures or controls will be
      adequate to support our operations or that management will be able to keep
      pace
      with such growth. If we are unable to manage growth effectively, or growth
      occurs more rapidly or slowly than expected, our business, prospects, operating
      results, and financial condition will be materially adversely
      affected.




21




**WE
      CURRENTLY HAVE LIMITED CASH RESOURCES AND SUBSTANTIAL PAYABLES AND MAY NEED
      ADDITIONAL FUNDING TO FINANCE WORKING CAPITAL REQUIREMENTS**





Of
      the
      TCI Holding’s contemplated investment in TCI, approximately $5,300,000 (if the
      minimum is raised) and approximately $13,300,000 (if the maximum is raised)
      will
      be used to fund our working capital needs, including, without limitation the
      satisfaction of outstanding payables. It is anticipated that the proceeds of
      the
      investment will be sufficient to fund our expected capital needs for
      approximately twelve months, if only the minimum is raised, after which time
      we
      may need to raise additional capital or incur additional indebtedness. We may
      be
      required to obtain funds through arrangements with third parties that require
      the Company to relinquish rights to certain of our technologies or products
      that
      we would normally seek to develop or commercialize ourself.





**MAINTENANCE
      OF OVER THE COUNTER BULLETIN BOARD LISTING**





Currently,
      our common stock is traded on the Over The Counter Bulletin Board (OTCBB).
      We
      cannot guarantee that we will be able to satisfy the criteria for continued
      listing on the OTCBB. If we were to be delisted from the OTCBB, the value of
      our
      common stock could suffer a material decline.





**OUR
      BUSINESS MODEL IS UNPROVEN AND MAY NOT BE ADAPTABLE TO A CHANGING
      MARKET**





Our
      combination of the Children’s Internet® service and Safe Zone Technology®
software product is novel and it is difficult to predict how the market for
      our
      products and services will grow or develop. As is typical for a new and rapidly
      evolving industry, demand and market acceptance for recently introduced products
      are subject to a high level of uncertainty. Since the market for our product
      is
      new and evolving, it is difficult to predict our future growth rate, if any,
      and
      the size of this market.





**WE
      MAY FAIL TO SUCCESSFULLY DEVELOP OUR PRODUCTS, WHICH MAY AFFECT OUR FUTURE
      SUCCESS**





Our
      future success depends in part on our ability to develop and market our
      technology for providing protective software and secure online browsers for
      children. If we fail in these goals, our business strategy and ability to
      generate revenues and cash flow would be significantly impaired. While we intend
      to expend significant resources to develop our technology, the successful
      development of new technology cannot be predicted and as such we cannot
      guarantee that we will succeed in these goals.





**IF
      WE FAIL TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, OUR BUSINESS COULD
      SUFFER**





Our
      industry is characterized by rapid technological change. As a result, the
      emergence of new industry standards and practices could render our existing
      technologies and systems, and thus a portion of our products and services,
      obsolete. The development of our technologies and necessary service enhancements
      entails significant technical and business risks and requires substantial
      lead-time and expenditures. We may not be able to keep pace with the latest
      technological developments, successfully identify and meet our customer demands,
      use new technologies effectively or adapt our services to customer requirements
      or emerging industry standards. If we cannot adapt or respond in a
      cost-effective and timely manner to technological changes, our business,
      operating results and financial condition could suffer.





**WE
      RELY ON PRIVATE THIRD PARTY SERVICE PROVIDERS**





Upon
      closing of the DSPA, we will be dependent upon private third party providers
      to
      host our servers and provide the principal Internet connections for The
      Children’s Internet®. Any disruption in the Internet access provided by
      third-party providers or any failure of third-party providers to handle higher
      volumes of user traffic could have a material adverse effect on our business,
      operating results, and financial condition.




22





**WE
      DO NOT HAVE U.S. OR FOREIGN PATENT PROTECTION FOR OUR PRODUCTS, AND A COMPETITOR
      MAY BE ABLE TO REPLICATE OUR TECHNOLOGY**





Our
      business is based on our technology, and our success depends in part on our
      ability to protect our intellectual property rights. If we do not adequately
      protect our intellectual property, our business will be seriously harmed. We
      do
      not currently have patent protection for any of our technology incorporated
      in
      the The Children’s Internet® service. We plan to explore patentability of our
      technology after the closing of the DSPA and some of the technology used in
      The
      Children’s Internet® service is protected by copyrights and various trade secret
      protections afforded to the Company by law. There can be no assurance that
      these
      steps will be adequate or that third parties will not infringe upon or
      misappropriate our intellectual property rights. In the future, litigation
      may
      be necessary to enforce and protect our trade secrets or other intellectual
      property rights.





We
      may
      also be subject to litigation to defend against claims of infringement of the
      rights of others or to determine the scope and validity of the intellectual
      property rights of others. If third parties hold patents, trademarks, or
      copyrights that conflict with our business, then we may be forced to litigate
      infringement claims that could result in substantial costs to us. Any litigation
      regarding our proprietary rights could be costly and divert management’s
      attention, result in the loss of certain of our proprietary rights, require
      us
      to seek licenses from third parties and prevent us from selling our product,
      any
      one of which could have a material adverse effect on our business, results
      of
      operations, and financial condition.





There
      can
      be no assurance that the steps taken by us will prevent misappropriation of
      our
      proprietary information or that agreements entered into for that purpose would
      be enforceable. Notwithstanding the precautions taken by us, it might be
      possible for a third party to copy or otherwise obtain and use our proprietary
      information without authorization. The laws of some countries may afford us
      little or no effective protection of our intellectual property.




**WE
      FACE INTENSE COMPETITION THAT COULD CAUSE OUR BUSINESS TO
      SUFFER**




Many
      of
      our actual and potential competitors have significantly greater financial,
      marketing, technical, sales and customer support and other resources, larger
      customer bases and longer relationships with customers than we do. Compared
      to
      us, some of these potential competitors may be able to devote greater resources
      to the development, promotion and sale of their products and services, and
      adopt
      more aggressive pricing strategies. We may not be able to compete successfully
      against current and future competitors, and competitive pressures we face could
      harm our business, operating results and financial condition.




**OUR
      CURRENT INTERNAL CONTROLS ARE INEFFECTIVE AND MAY ADVERSELY IMPACT OUR ABILITY
      TO REPORT OUR FINANCIAL CONDITION**




We
      have
      determined that our internal controls over financial reporting are currently
      ineffective. If we are unsuccessful in our focused effort to permanently and
      effectively remediate the weaknesses in our internal controls, it may
      adversely impact our ability to report our financial condition accurately and
      in
      a timely manner.




**RELATED
      RISK FACTORS TO CONSIDER**




From
      time
      to time in connection with both public filings made with the SEC and other
      publicly available press releases, materials and statements, the Company sets
      forth certain items it believes may constitute risk factors regarding an
      investment in its securities. Those statements of cautionary note and risk
      factors contained within such public filings and statements made by or on behalf
      of the Company are herein incorporated by reference. Copies of our Annual Report
      on Form 10-KSB for the fiscal year ending December 31, 2006 and our Quarterly
      Reports on Form 10-QSB through the quarter ending September 30, 2007 are
      available online under the Securities and Exchange Commission’s EDGAR filings.




23





**Plan
      of Future Operations**





This
      plan
      of future operations 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.





This
      plan
      of future operations provides a summary of the intended operations of the
      Company’s interim management following the closing of the DSPA.





*The
      Product—The Children’s Internet®*





On
      September 10, 2002, we entered into the Licensing Agreement with Two Dog Net
      for
      an exclusive worldwide license to market and sell The Children’s Internet®
service. The agreement provides for us to be the exclusive marketers of Two
      Dog
      Net’s proprietary secured Internet service for pre-school to junior high school
      aged children called The Children’s Internet®. The Company released The
      Children’s Internet®, version 9.0, to the market on March 2, 2006, but as
      discussed in this report, took the product offline in January 2008 to streamline
      business operations until we have the resources to market and operate it
      effectively. We believe The Children’s Internet® provides a comprehensive, smart
      solution to the problems inherent to a child’s unrestricted and unsupervised
      Internet access. It offers a protected online service and “educational super
      portal” specifically designed for children, pre-school to junior high, providing
      them with safe, real-time access to the World Wide Web; access to hundreds
      of
      thousands of the best pre-selected, pre-approved educational and entertaining
      web pages accessed through a secure propriety browser and search engine.





Under
      the
      terms of the DSPA, TCI Holding commenced funding the Company’s operations in
      October 2007, and as a result, the technology on which the product is based
      was
      updated and the functionality of the service was improved. The Company, through
      Two Dog Net 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 2007, where appropriate, the Company contracted with third party
      companies to outsource administrative support services and effectively put
      in
      place the infrastructure to support operations.




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




*Sales
      and Marketing Plan*





Although
      The Children’s Internet® service is not currently being offered, upon closing
      the DSPA, we intend to affect a broad based Sales and Marketing Plan. We 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




24




We
      will
      focus our sales and marketing programs on five distinct areas where we can
      produce revenue:





1.
            **Consumer
                Sales**-
                We intend to sell monthly subscriptions of the service directly to
                consumers via a nationwide Sales Agent program. Consumers may also
                acquire
                the product directly from the Company via our website at:
                www.thechildrensinternet.com. Previously, through grassroots efforts
                during 2006 the Company entered into sales agent agreements with
                ten
                individuals. In 2007, these agreements automatically terminated.





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





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




*Channels
      of Distribution*





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





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




The
      indirect channel, composed of non-salaried independent sales 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 may have the opportunity to employ secondary resellers to
      work for them, but we will not market using a multi-level marketing
      plan.





*Future
      products and services*




In
      the
      future, we anticipate generating revenues via advertising sold to the purveyors
      of children goods and services. After successfully distributing our core
      service, we intend to engage in the merchandising of The Children’s Internet®
themed products, from clothing to toys to books.





*Future
      Staff and Employees*





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 will handle technical support, telemarketing
      and the order taking process and media placement. We intend to hire employees
      where their contributions to our business will be the most significant, such
      as
      in technology development and management.





*Market
      Share, Cash Flow and Profitability*




Although
      market data is not exact, and varies depending on the source, with a mix of
      business generated from the respective channels of distribution, we believe
      that, subject to the closing of the DSPA, we can be cash flow positive and
      profitable within eighteen months of closing the DSPA. This estimate is based
      on
      data that indicates that in the United States alone, there are approximately
      48
      million homes with internet access with children under the age of 16. However,
      as discussed in the MD&A section above, if the DSPA fails to close or 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.




25




**Off-Balance
      Sheet Arrangements**





None.





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**




The
      financial statements required to be filed pursuant to this Item 7 begin on
      page
      F-1 of this report.




**ITEM
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.




**ITEM
      8A(T).**  **CONTROLS
      AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




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




In
      making
      this evaluation, our Chief Executive Officer and Chief Financial
      Officer considered the material weaknesses discussed in Management’s Report
      on Internal Control Over Financial Reporting. Based on this evaluation, we
      concluded that our disclosure controls and procedures were not effective at
      a
      reasonable assurance level as of December 31, 2007 because of the identification
      of material weaknesses in our internal control over financial reporting. The
      lack of an effective control environment has been identified as a material
      weakness contributing to the inadequacy of the Company’s disclosure
      controls and procedures as further discussed below with respect to the
      weaknesses in the Company’s internal control over financial
      reporting.




**Management’s
      Annual Report on Internal Control Over Financial Reporting**





Management
      of The Children’s Internet, Inc. is responsible for establishing and maintaining
      adequate internal control over financial reporting (as defined in Exchange
      Act
      Rules 13a-15(f) and 15d-15(f)). Internal control over financial reporting is
      the
      process designed by, or under the supervision of, our CEO and CFO, and effected
      by our board of directors, management and other personnel, to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with generally
      accepted accounting principles (“GAAP”).





All
      internal control systems, no matter how well designed, have inherent
      limitations, including the possibility of the circumvention or overriding of
      controls. Therefore, even a system determined to be effective can provide only
      reasonable assurance with respect to financial statement preparation and
      presentation. Further, because of changes in conditions, internal control
      effectiveness may vary over time.




26





Interim
      management conducted an assessment of the effectiveness of the company’s
      internal control system as of December 31, 2007. In making this assessment,
      interim management used the criteria set forth in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on this assessment, interim management has concluded that internal control
      over financial reporting was not effective as of December 31, 2007.





A
      material weakness is a deficiency, or a combination of deficiencies, that
      results in a reasonable possibility that a material misstatement of the annual
      or interim financial statements will not be prevented or detected. Interim
      management identified the following material weaknesses in our internal control
      over financial reporting as of December 31, 2007:




*Ineffective
      Control Environment*




The
      Company did not maintain an effective control environment based on criteria
      established in the COSO framework. Specifically, the Company:





(1)
            did
                not effectively train personnel on compliance with the company’s Code of
                Ethics.


(2)
            did
                not create or implement a written fraud prevention
                policy.


(3)
            did
                not establish an audit committee.


(4)
            did
                not maintain a majority of independent
                directors.


(5)
            did
                not ensure the Board of Directors understood and exercised oversight
                and
                responsibility related to financial reporting and related internal
                control.


(6)
            did
                not establish clearly articulated financial reporting objectives
                including
                those related to internal controls.


(7)
            did
                not establish and implement written human resource policies and
                procedures.





Our
      evaluation concluded that, although policies and procedures appropriate for
      operating control activities were designed, and in large part instituted, the
      Company has not been successful in designing and implementing polices for the
      control environment. The control environment sets the tone of an organization,
      influences the control consciousness of its people, and is the foundation of
      all
      other components of internal control over financial reporting. A material
      weakness in the control environment affects all other internal control
      components.





Management
      believes these deficiencies in internal control did not result in material
      inaccuracies or omissions of material fact and, to the best of its knowledge,
      believes that the consolidated financial statements for the year ended December
      31, 2007 fairly present in all material respects the financial condition and
      results of operations for the Company in conformity with generally accepted
      accounting principles. There is however, a reasonable possibility that a
      material misstatement of the annual or interim financial statements would not
      have been prevented or detected as a result of the control environment
      weaknesses.





Management’s
      assessment of the effectiveness of the Company’s internal control over financial
      reporting has not been audited by Hunter & Renfro, LLP, an independent
      registered public accounting firm, as stated in their report which is included
      herein.





**Changes
      in Internal Control Over Financial Reporting**





There
      were no changes in the Company’s internal control over financial reporting as of
      December 31, 2007 that materially affected, or are reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.





Interim
      management is currently taking corrective action to remedy the internal control
      weaknesses. See “Remediation of Material Weaknesses in Internal Control over
      Financial Reporting” described below.





**Remediation
      of Material Weaknesses in Internal Control over Financial
      Reporting**





Interim
      management is committed to remediating each of the material weaknesses
      identified above by implementing changes to the Company’s internal control over
      financial reporting. Interim management has implemented, or is in the process
      of
      implementing, the following changes to the Company’s internal control systems
      and procedures:




·
              Formation
                  of a new Board of Directors containing a majority of members who
                  are
                  independent directors as set forth by SEC Corporate Governance
                  Standards.




27




·
            Establishment
                  of an audit committee per Sarbanes Oxley requirements including
                  implementing audit committee best practices as recommended by the
                  Treadway
                  Commission, NASDAQ, AMEX and the NYSE.  ·
            Updating
                of the company code of ethics including the creation of an active
                anti-fraud program. Creation of a written, clearly articulated statement
                of the company’s core values and mission.  ·
            Creation
                of education and training programs for all employees covering ethics,
                company policies and procedures, and good business practices in general.  ·
            Creation
                of additional guidelines with respect to senior management’s
                responsibilities for SEC filings, financial reports, budgets and
                maintenance of controls over assets and
                expenditures.  ·
            Establishment
                of a Human Resource department.




Interim
      management is committed to creating and implementing an effective internal
      control system for each of the five internal control components set forth in
      the *Internal
      Control - Integrated Framework* issued
      by COSO. In this regard, we are consulting with legal and accounting
      professionals to support us in the development of internal controls that are
      built into our business infrastructure and part of the every day consciousness
      of our organization.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




**ITEM
      8B.**  **OTHER
      INFORMATION**





None.




**PART
      III**




**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**




Our
      directors and executive officers are as follows:


**Name**
              
              **Age**
              
              **Position**Sholeh
                  Hamedani
              
              40
              
              Chairman
                  of the Board of DirectorsRichard
                  J. Lewis, III
              
              55
              
              Acting
                  Chief Executive Officer and Acting Chief Financial
                  OfficerJamshid
                  Ghosseiri
              
              68
              
              Secretary,
                  DirectorTyler
                  Wheeler
              
              37
              
              DirectorRoger
                  Campos, Esq.
              
              61
              
              Director




28




**Ms.
      Sholeh Hamedani** currently
      serves as the Chairman of the Board. From August 23, 2002 to October 2007,
      Ms.
      Hamedani also served as **** Chief
      Executive Officer, Chief Financial Officer and Chairman of the Board. From
      May
      2002 through the present, she has served as the President, CEO and founder
      of
      Shadrack, the Company’s majority shareholder. From July 1995 to August
      2002, she was President and Co-Founder of Two Dog Net, a security solutions
      provider and software developer and an affiliate of the Company. She was
      responsible for managing product development of new technologies, as well as
      creating and implementing Two Dog Net’s marketing strategies. Ms. Hamedani’s
      experience includes local and national advertising campaigns on television,
      radio and print, as well as producing, scripting and directing educational
      video
      programs and television infomercials. Prior to joining Two Dog Net, Ms. Hamedani
      was part of the founding team at SyberVision Systems in the Production and
      TV
      Media Department from 1985 to 1989.





**Mr.
      Richard J. Lewis** , **III** became
      our Acting Chief Executive Officer and Acting Chief Financial Officer in October
      2007. Mr. Lewis became licensed to practice law in California in 1985. He has
      practiced with Wall Street law firms, including Mudge Rose Guthrie Alexander
      & Ferdon and Whitman Breed Abbott & Morgan. In 1996, Mr. Lewis stopped
      practicing law full time to act as the Chief Executive Officer of EcoTechnology,
      Inc., a waste-to-energy start-up company. Mr. Lewis was the CEO for
      EcoTechnology, Inc. for ten years where he oversaw the funding, construction
      and
      installation of the first gasification plant in the municipal wastewater
      treatment industry at Philadelphia, Pennsylvania.




**Mr.
      Jamshid Ghosseiri** has
      been
      a director since August 23, 2002 and Secretary since January 2, 2003. From
      January 9, 1989 through the present, he has served as Chief of the Microbiology
      Department at Mt. Diablo Medical Center. Mr. Ghosseiri has over 36 years of
      experience in the field of clinical microbiology and research in infectious
      diseases. He received a B.S. from San Jose State University in 1966 and
      completed his Post Graduate Studies in Infectious Diseases at Stanford
      University in 1969.





**Mr.
      Tyler Wheeler** has
      been
      our Chief Software Architect and a director since August 23, 2002. He co-founded
      Micro Tech Systems in 1989. In 1993, he and his father founded Integrative
      Systems, Inc., a hardware and software computer consulting firm. From January
      1996 to August 2002, Mr. Wheeler served as Vice President of Technology at
      Two
      Dog Net. Mr. Wheeler completed a B.A. in Finance and Business Law at California
      State University, Fresno in 1996.





**Mr.
      Roger Campos, Esq.** has
      been
      a director since August 23, 2002. Mr. Campos received his B.A. in 1969 from
      the
      University of California at Santa Barbara and received his J.D. (law) degree
      in
      June 1972 from the United States International University (San Diego, CA).
      From
      February 2002 through the present, he has served as President and CEO of the
      Minority Business Roundtable, a national membership organization, based in
      Washington DC, for CEOs of the nation’s largest minority-owned companies. From
      January 2000 to February 2002, Mr. Campos was Executive Director of the Minority
      Business Roundtable. From January 1997 to January 2000, he served as Vice
      President of government relations for the Hispanic Association of Colleges
      and
      Universities. Mr. Campos provides consulting services in the areas of
      contracting, marketing, and business transactions.





**Key
      Staff**




**John
      J. Heinke, C.P.A.** has
      been
      our Controller since September 2004. He received his B.A. Degree in Economics
      from California State University, Chico, and became a Certified Public
      Accountant in the District of Columbia in 1967. From 1996 to 2004, he was
      Accounting Manager at HighSoft, Inc., a software development company and
      reseller of computer products and services. Previously, Mr. Heinke served as
      Controller of SyberVision Systems where he directed the accounting and
      management information systems, as SyberVision grew from a startup to a $100
      million company in four years. Other experience includes managing the
      accounting for a $1.7 billion investment portfolio at Prudential’s Real Estate
      Investment Department in San Francisco from 1978 through 1982. Previously,
      he
      was with Price Waterhouse, serving as Manager of the El Salvador office from
      1974 through 1977.




29




Directors
      are elected to serve until the next annual meeting of stockholders or until
      their successors have been elected. Officers are appointed to serve until the
      meeting of the Board of Directors following the next annual meeting of
      stockholders, or continue as composed at the pleasure of the Board of
      Directors.





**Involvement
      in Certain Legal Proceedings**





The
      Company is currently seeking resolution of the SEC Complaint described below
      by
      virtue of settlement. As a
      result of the injunctive provisions of the settlement and terms thereof, Sholeh
      Hamedani, the current Chairman of the Board for The Children’s Internet, is
      permanently enjoined from involvement in certain activities related to the
      securities industry.





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      officers, as well as persons who own more than 10% of our common stock
      (“Reporting Persons”) to file reports of ownership and changes in ownership on
      Forms 3, 4 and 5 with the Securities and Exchange Commission. The Company
      believes that all Reporting Persons have complied on a timely basis with all
      filing requirements applicable to them.





**Code
      of Ethics**





On
      March
      20, 2003, the Board of Directors of the Company adopted a written Code of Ethics
      designed to deter wrongdoing and promote honest and ethical conduct, full,
      fair
      and accurate disclosure, compliance with laws, prompt internal reporting and
      accountability to adherence to the Code of Ethics. The code applies to every
      officer, director and employee of the Company. The Code of Ethics was filed
      with
      the Securities and Exchange Commission as an Exhibit to the Company’s Form
      10-QSB for the period ended March 31, 2003.





**Audit
      Committee**





The
      Company does not have a designated audit committee. The Company does not have
      an
      audit committee financial expert serving on its audit committee because it
      does
      not have an audit committee.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




**Summary
      Compensation Table**





The
      following table sets forth the total compensation earned by or paid to the
      executive officers for the last two fiscal years.





SUMMARY
      COMPENSATION TABLE


Name
                  and Principal Position
              
              
              Year
              
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Stock
                  Awards
                ($)
              
              
              Option
                  Awards ($)
              
              
              Non-Equity
                  Incentive Plan Compensation
                ($)
              
              
              All
                  Other Compensation
                ($)
              
              
              Total
                ($)Sholeh
                Hamedani,
              
              
              2006
              
              $
              180,000
              (1)
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              180,000Former
                  CEO and CFO
              
              
              2007
              
              
              144,194
              (2)
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              144,194Richard
                  J. Lewis, III
                Acting
                  CEO and CFO
              
              
              2007
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0







(1) The
      officer’s salary was accrued but has not been paid through the date of this
      report.




30




(2) Ms.
      Hamedani resigned as Chief Executive Officer and Chief Financial Officer as
      of
      October 19, 2007.





**Outstanding
      Equity Awards**





No
      named
      executive officer had equity awards outstanding as of the end of the Company’s
      2007 fiscal year.




All
      decisions regarding compensation for our executive officers and executive
      compensation programs are reviewed, discussed, and approved by the Board of
      Directors. All compensation decisions are determined following a detailed review
      and assessment of external competitive data, the individual’s contributions to
      our success, any significant changes in role or responsibility, and internal
      equity of pay relationships.





The
      Company did not maintain a written employment agreement with Sholeh Hamedani
      during her service as Chief Executive Officer and Chief Financial Officer and
      does not maintain a written employment agreement with Richard Lewis for his
      role
      as acting Chief Executive Officer and Chief Financial Officer. Mr. Lewis serves
      on an at-will basis at the pleasure and discretion of the Board of Directors
      of
      the Company.




**Compensation
      of Directors**





The
      following table sets for the compensation of the Company’s directors for the
      Company’s 2007 fiscal year:





DIRECTOR
      COMPENSATION TABLE




Name
              
              
              Fees
                  Earned or Paid in Cash
                ($)
              
              
              Stock
                  Awards
                ($)
              
              
              Option
                  Awards
                ($)
              
              
              Non-Equity
                  Incentive Plan Compensation
                ($)
              
              
              Nonqualified
                  Deferred Compensation Earnings
                ($)
              
              
              All
                  Other Comp-ensation
                ($)
              
              
              Total
                ($)Jamshid
                  Ghosseiri(1)
              
              $
              0
              
              $
              0
              
              $
              10,125
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              10,125Tyler
                  Wheeler(2)
              
              $
              0
              
              $
              0
              
              $
              10,125
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              10,125Roger
                  Campos, Esq.(1)
              
              $
              0
              
              $
              0
              
              $
              10,125
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              10,125Sholeh
                  Hamedani
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0








(1) The director
      is entitled to purchase an aggregate of 125,000 shares of the Company’s common
      stock pursuant to an option grant which was made to the director under the
      Company’s 2007 Equity Incentive Plan on April 30, 2007 with an exercise price of
      $0.081 and which is outstanding and fully exercisable as of the fiscal year
      end.




31





(2) The
      director is entitled to purchase an aggregate of 1,125,000 shares of the
      Company’s common stock pursuant to option awards granted to the director
      outstanding as of the fiscal year end. The director is entitled to purchase 125,000
      of these shares pursuant to an option grant which was made to the director
      under
      the Company’s 2007 Equity Incentive Plan on April 30, 2007 with an exercise
      price of $0.081 and which is outstanding and fully exercisable as of the fiscal
      year end.





The
      Company is not under any obligation to provide any compensation to directors,
      except for reimbursement of their reasonable expenses incurred in attending
      directors’ meetings.





**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**





The
      following table sets forth information with respect to the number of shares
      of
      common stock beneficially owned by (i) each of our directors, (ii) each named
      executive officer, (iii) all executive officers and directors as a group, and
      (iv) each person known by us to be a beneficial owner of more than 5% of any
      class of our common stock as of March 31, 2008. The percent of common stock
      outstanding in the table below is based on 26,873,738 shares of the outstanding
      Common Stock of the Company with voting power and does not include the 4,500,000
      shares held in escrow for the benefit of the Company until released pursuant
      to
      the DSPA.





Name
                and Address of Beneficial Owner(1)
            
            Amount
                and Nature of Beneficial Ownership (#)
            
            Percent
                of Common Stock Outstanding
              (Approximations)Sholeh
                Hamedani, Chairman of the Board(2)
            
            
            14,040,988
            
            
            52.2
            %Richard
                J. Lewis, Acting Chief Executive Officer and Chief Financial
                Officer(3)
            
            
            14,040,988
            
            
            52.2
            %Jamshid
                Ghosseiri, Ph.D., Secretary, Director(4)
            
            
            125,000
            
            
            0.5
            %Roger
                Campos, Director(4)
            
            
            125,000
            
            
            0.5
            %Tyler
                Wheeler, CTO, Director(5)
            
            
            1,125,000
            
            
            4.0
            %All
                Officers and Directors as a group (5 people)
            
            
            15,415,988
            
            
            54.6
            %Shadrack
                Films, Inc.
            
            
            14,040,988
            
            
            52.2
            %Two
                Dog Net, Inc.(6)
            
            
            18,000,000
            
            
            40.1
            %The
                Children’s Internet Holding Company, LLC(3)
            
            
            14,040,988
            
            
            52.2
            %





(1) Except
      as
      otherwise noted, the address of each person listed on the table is c/o The
      Children’s Internet, Inc., 110 Ryan Industrial Court, Suite 9, San Ramon, CA
      94583. Except
      as
      otherwise indicated, we believe that the beneficial owners of common stock
      listed above, based on information furnished by such owners, have sole
      investment and voting power with respect to such shares, subject to community
      property laws where applicable. Beneficial ownership is determined in accordance
      with the rules of the SEC and generally includes voting or investment power
      with
      respect to securities. Shares of common stock subject to options or warrants
      currently exercisable, or exercisable within 60 days, are deemed outstanding
      for
      purposes of computing the percentage of the person holding such options or
      warrants, but are not deemed outstanding for purposes of computing the
      percentage of any other person.





(2) Consists
      of 14,040,988 post-split shares of common stock owned by Shadrack Films, Inc.
      formerly known as The Children’s Internet, Inc., a California corporation, of
      which Sholeh Hamedani is the sole shareholder.





(3) TCI
      Holding, and Richard Lewis, TCI Holding’s Manager, can be deemed to beneficially
      own 14,040,988 shares of the Company’s common stock under Rule 16a-1(a)(1)
      because, pursuant to the DSPA, Shadrack, which directly owns 14,040,988 shares
      of the Company’s common stock, must engage in certain actions in order to close
      the DSPA and consummate the transactions contemplated thereby. These actions
      include, without limitation, approving an amendment to the Articles of
      Incorporation of the Company to increase the number of authorized shares of
      the
      Company’s common stock from 75,000,00 shares to 250,000,000 shares and approving
      the appointment of the directors to the Company’s board of directors designated
      by TCI Holding. TCI Holding and Richard Lewis disclaim beneficial ownership
      of
      these securities and this report shall not be deemed an admission that TCI
      Holding or Richard Lewis are the beneficial owner of these securities for
      purposes of Section 16 of the Exchange Act or for any other
      purpose.




32





(4) Consists
      of 125,000 shares of the Company’s common stock underlying options which are
      exercisable within 60 days of March 31, 2008.





(5) Consists
      of 1,125,000 shares of the Company’s common stock underlying options which are
      exercisable within 60 days of March 31, 2008.





(6) Consists
      of 18,000,000 shares of the Company’s common stock underlying options which are
      exercisable within 60 days of March 31, 2008. Such options shall be canceled
      pursuant to the terms of the DSPA upon the closing of the DSPA.





**Securities
      Authorized For Issuance Under Equity Compensation Plans**





Information
      regarding securities authorized for issuance under equity compensation plans
      can
      be found in Part II, Item 5 of this Report .





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**





**Shadrack
      Films, Inc.**




Our
      Chairman, Sholeh Hamedani, is the sole officer, director and shareholder of
      Shadrack, the Company’s majority shareholder.





On
      July
      3, 2002, we entered into a Plan of Reorganization and Acquisition agreement
      with
      Shadrack thereby obtaining a majority ownership interest and becoming the
      majority shareholder of the Company. Pursuant to the agreement, we sold
      2,333,510 newly issued post-split shares of our common stock to Shadrack in
      exchange for an aggregate purchase price of $150,000.





In
      a
      Stock Purchase Agreement dated October 11, 2002 and in reliance on an exemption
      from registration pursuant to Section 4(1) of the Securities Act of 1933, our
      original shareholders sold 2,237,000 of their post-split shares of our common
      stock to various purchasers, two of who are related to members of our management
      at that time, Nasser Hamedani, Sholeh Hamedani’s father, and Soraiya Hamedani,
      Sholeh Hamedani’s sister. Some of these purchasers were introduced to the
      original shareholders by Sholeh Hamedani. Some of these purchasers resold their
      shares to unrelated third parties, relying on an exemption from registration
      pursuant to Section 4(1) of the Securities Act of 1933. The proceeds received
      from the stock sale was loaned to Two Dog Net who, in turn, loaned a portion
      of
      such proceeds to Shadrack, and Shadrack loaned a portion of these funds to
      the
      Company to finance our operations. These amounts are reflected on the financial
      statements as “Due to Related Party.”





Substantially
      all of the Company’s funding has been provided by Shadrack, which holds
      approximately 52.2% of the voting power of the Company’s outstanding common
      stock, as of the date of this report with the exception of short-term advances
      totaling $74,249 made during 2007 by Nasser Hamedani, a related party as
      explained below, short-term advances totaling $19,469 made by Larry Wheeler,
      father of Tyler Wheeler, the Company’s Chief Software Architect Consultant and a
      director of the Company, short-term advances totaling $7,800 made by John
      Heinke, the Company’s Controller, and advances totaling $264,504 made by TCI
      Holding as an advance against the purchase price of the Company’s common stock.
      The total amount advanced by Shadrack through December 31, 2007 and 2006 was
      $1,485,743 and $1,471,258, 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 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.





From
      2004
      to July 15, 2007, Shadrack allowed the Company to use the office space Shadrack
      leased in Pleasanton, California under a verbal lease agreement at the same
      rental rate charged to Shadrack. Shadrack’s 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 and was used by the Company until the Company vacated
      the
      premises on July 13, 2007.




33





Shadrack
      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 approximately 52.2% of the
      voting power of the Company’s outstanding common stock (without giving effect to
      any presently exercisable options) as of December 31, 2007. Under the terms
      of
      the DSPA, TCI Holding will purchase 8,040,988 shares of the Company’s common
      stock currently owned by Shadrack upon the closing of the DSPA for
      $500,000.




**Two
      Dog Net, Inc.**





Sholeh
      Hamedani was President of TDN until she resigned on August 1, 2002. Ms. Hamedani
      currently owns approximately 10% of the total outstanding shares of common
      stock
      of TDN. Ms. Hamedani’s father, Nasser Hamedani, is the Chief Executive Officer,
      Chairman and majority shareholder of TDN and has been since TDN’s inception
      in  July of 1995.




On
      September 10, 2002, we entered into the Licensing Agreement with TDN. This
      Licensing Agreement gives us the exclusive worldwide right to market, sell,
      and
      distribute The Children’s Internet® service and wholesale dial-up Internet
      service of TDN. We agreed to pay Two Dog Net a per user charge of $3.00 per
      month for each subscriber accessing The Children’s Internet® service. The
      Licensing Agreement has a term of five years and renews for additional five
      year
      terms automatically unless either we or TDN give written notice of termination
      of the agreement not less than one year before the end of any five year term.
      TDN did not give written notice to terminate the contract one year prior to
      the
      expiration of the initial five year term, therefore the licensing agreement
      was
      automatically renewed for an additional five years expiring in 2013.




In
      February 2005, we amended the Licensing Agreement reducing the per user charge
      from $3.00 to $1.00 paid per month. In consideration for this decrease, on
      February 15, 2005, the Company granted TDN, or its designees an option (referred
      to herein as the TDN Option) to acquire up to 18,000,000 post-split shares
      of
      our restricted common stock at a price of $0.07 per share, exercisable in whole
      or in part at any time for five years from the date of grant. The TDN Option
      also provides for “piggy back’ 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.





Under
      the
      terms of the DSPA, the TDN Option will be cancelled without any further action
      or any payment by TDN or the Company upon the closing of the DSPA. However,
      after the closing of the DSPA, 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. This offering
      will be held open for a period of ninety days following the date of the $900,000
      cash distribution by the SEC.





The
      DSPA
      with TCI Holding, requires that, prior to the closing of the DSPA, the Company
      and TDN cancel the Licensing 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 DSPA.





Upon
      vacating the Pleasanton office in July 2007, the Company moved into office
      space
      in San Ramon, California. Costs of the relocation were approximately $5,000.
      This office space is leased from RAM Properties by Nasser Hamedani, pursuant
      to
      a one year lease through July 14, 2008, with an option to renew for one
      additional year. On October 19, 2007, the Company entered into a Services
      Agreement with Two Dog Net pursuant to which monthly rental payments of $1,762
      are payable by the Company to Two Dog Net for use of the office space. The
      Company reimbursed Mr. Hamedani for lease payments made prior to entry into
      the
      Services Agreement based on a monthly lease payment of $1,762.




34





On
      December 6, 2007, the Company entered into a Services Agreement with TDN, which
      was made effective as of October 19, 2007. Under the Services Agreement, TDN
      provides the Company with office space, computer and office equipment, and
      certain supplies and services until the earlier of January 31, 2008 or the
      closing of the DSPA, for which the Company is obligated to pay Two Dog a monthly
      charge of $9,961 pro rated based on the actual number of days for any partial
      months. Although the Services Agreement expired, because the DSPA has not
      closed, TDN continues to provide the Company with its San Ramon office space,
      computer and office equipment, and certain supplies and services. TCI Holding
      signed an agreement with TDN on February 5, 2008 providing that it will pay
      all
      unpaid invoices of the monthly service fees associated with the Services
      Agreement. It is important that Two Dog Net continue to provide the services,
      facilities and equipment uninterrupted under the Services Agreement because
      the
      services being provided under the agreement are essential to TCI’s operations
      and the San Ramon office space is the location of the Company’s operations.





**Sholeh
      Hamedani**





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 is to be made at the end of each year
      whether to make the payment in cash, shares of the Company’s restricted common
      stock, or a combination of both. Accordingly, for the period from January 31,
      2007 through her date of resignation, October 19, 2007, $144,194 has been
      accrued and charged to Officers’ Compensation. For
      the
      years ended December 31, 2006 and December 31, 2005, $180,000 was accrued and
      charged to Officers’ Compensation for each year. 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.





From
      April 1 through December 31, 2007, Roaya Wooler and Soraiya Smida, sisters
      of
      the former Chief Executive Officer of the Company, Sholeh Hamedani, and both
      of
      whom have twelve years experience with TDN developing and marketing the
      Children’s Internet®, performed consulting services for the Company and together
      earned a total of $57,310 for their services. In addition, Lewis Wooler, husband
      of Roaya Hamedani, earned a total of $24,803 for his customer service and
      technical support services to the Company during the same period.





**The
      Children’s Internet Holding Company, LLC & Richard J. Lewis,
      III**





On
      June
      15, 2007, the Company entered into the Interim Stock Purchase Agreement with
      TCI
      Holding and Shadrack, which holds approximately 52.2% of **** the
      voting power of the Company’s outstanding common stock, pursuant 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 the
      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 (referred to herein as the 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 would 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. Because such shares are held for the benefit of the Company
      in
      escrow until released, these shares have not been considered voting shares
      under
      Nevada law. However, such shares are considered outstanding for financial
      reporting purposes. 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 was 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.




35




On
      October 19, 2007, the Company and TCI Holding entered into the Definitive Stock
      Purchase Agreement. The DSPA supersedes 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 in
      Washington, D.C.





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
      the software and trademarks, registrations and software applications related
      to
      the business of marketing and operating The Children’s Internet® service. 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 (referred to herein as 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 the Company’s Form 8-K filed on October 25, 2007 and
      is available 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.





As
      discussed above, under the terms of the DSPA, the TDN Option will be cancelled
      without any further action or any payment by TDN or the Company.




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 regarding the DSPA and the amendments thereto can be found
      in
      the Company’s Form 8-K’s filed on October 25, 2007, December 12, 2007, February
      12, 2008, March 6, 2008, and March 21, 2008.




36





**ITEM
      13.**  **EXHIBITS**





The
      following exhibits are incorporated herein by reference or are filed with this
      report as indicated below.


Exhibit
                  Number
              
              Exhibit
                  Description1
              
              Lease
                  Agreement entered into by Shadrack Films, Inc. dated March 11,
                  2004(8)1.1
              
              Definitive
                  Stock Purchase Agreement dated as of October 19, 2007(9)1.1
              
              Definitive
                  Interim Stock Purchase Agreement dated as of June 15, 2007(10)1.1
              
              Amendment
                  No. 4 to the Definitive Stock Purchase Agreement dated March 18,
                  2008(11)1.1
              
              Amendment
                  No. 3 to the Definitive Stock Purchase Agreement dated February
                  29,
                  2008(12)1.1
              
              Amendment
                  No. 2 to the Definitive Stock Purchase Agreement dated February
                  6,
                  2008(13)1.1
              
              Amendment
                  No. 1 to the Definitive Stock Purchase Agreement dated December
                  6,
                  2007(14)1.2
              
              Warrant
                  to Purchase Common Stock of The Children’s Internet, Inc. dated December
                  6, 2007(14)1.2
              
              Assignment
                  And Royalty Agreement(9)1.3
              
              Services
                  Agreement entered into on December 6, 2007, but made effective
                  as of
                  October 19, 2007(14)3.1
              
              Articles
                  of Incorporation, dated September 25, 1996(1)3.2
              
              Certificate
                  of Amendment of Articles of Incorporation, dated February 10,
                  2000(1)3.3
              
              Certificate
                  of Amendment of Articles of Incorporation, dated December 27,
                  2002(1)3.4
              
              Certificate
                  of Designation of Series A Preferred Stock, dated November 8,
                  2002(1)3.5
              
              Bylaws(1)10.1
              
              Plan
                  of Reorganization and Acquisition, July 3, 2002(1)10.2
              
              Consulting
                  Agreement with Alan Schram, dated June 28, 2002(1)10.3
              
              License
                  Agreement dated September 10, 2002(1)10.4
              
              Amendment
                  to License Agreement, dated November 5, 2002(1)10.5
              
              Wholesale
                  Sales & Marketing Agreement, dated March 3, 2003(2)10.6
              
              Stock
                  Purchase Agreement, dated October 11, 2002(3)10.7
              
              Co-Location
                  Agreement, dated July 11, 2003(4)10.8
              
              Independent
                  Sales Agreement with Infolink, dated August 14, 2003(3)





37




10.9
            
            Licensing
                Agreement with Infolink, dated August 14, 2003(3)10.10
            
            Co-Location
                Agreement, dated September 26, 2003(5)10.12
            
            Agreement
                between the Company and Crosslink Financial Communications dated
                February
                25, 2005(6)10.13
            
            Loan
                Agreement, dated October 11, 2002(7)10.14
            
            TCI
                2007 Equity Incentive Plan dated April 30, 2007(15)14
            
            Code
                of Ethics(16)31.1
            
            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




(1) Incorporated by reference to the Company’s Registration Statement on Form SB-2,
      filed on February 10, 2003, as amended (Registration No.
      333-103072).




(2) Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year
      ended December 31, 2002, filed on March 31, 2003 (SEC File No.
      000-29611).





(3) Incorporated by reference to Amendment 2 to the Company’s Registration Statement
      on Form SB-2, filed on September 11, 2003, as amended (Registration No.
      333-103072).




(4) Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for
      the quarter ended June 30, 2003 (File No. 000-29611) filed on August 14,
      2003.





(5) Incorporated by reference to the Company’s Registration Statement on Form SB-2,
      filed on February 2, 2004, as amended (Registration No.
      333-103072).




(6) Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
      fiscal year ended December 31, 2004, filed on June 9, 2005 (SEC File No.
      000-29611).




(7) Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for
      the quarter ended June 30, 2005 (File No. 000-29611) filed on August 15,
      2005.





(8) Incorporated
      by reference to Exhibit 10.11 to Amendment No. 5 to the Form SB-2 filed by
      the
      Company on April 6, 2004.





(9) Incorporated
      by reference to the Form 8-K filed by the Company (File
      No.
      000-29611) on
      October 25, 2007.





(10) Incorporated
      by reference to the Form 8-K filed by the Company (File
      No.
      000-29611) on June
      21, 2007.





(11) Incorporated
      by reference to the Form 8-K filed by the Company (File No. 000-29611) on March
      21, 2008.





(12) Incorporated
      by reference to the Form 8-K filed by the Company (File No. 000-29611) on March
      6, 2008.





(13) Incorporated
      by reference to the Form 8-K filed by the Company (File No. 000-29611) on
      February 12, 2008.





(14) Incorporated
      by reference to the Form 8-K filed by the Company (File No. 000-29611) on
      December 12, 2007.





(15) Incorporated
      by reference to the Form 10-KSB filed by the Company (File No. 000-29611) on
      May
      18, 2007.




(16)Incorporated
      by reference to the Form 10-QSB filed by the Company (File No. 000-29611) on
      May
      15, 2003.




38





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Marc
      Lumer & Company was the Company’s independent accountant beginning with the
      second quarter of 2004 through the second quarter of 2006. Marc Lumer resigned
      as the Company’s accountants prior to the Company’s third quarter review of
      financial statements in 2006.





The
      third
      quarter review of 2006 of the Company’s financial statements was performed by
      DeJoya Griffith & Company, LLC.





The
      Company’s independent accountant for the year 2006 was Hunter & Renfro, LLP
      (Hunter, Flemmer, Renfro & Whitaker, LLP). In addition, Hunter & Renfro,
      LLP (formerly known as Hunter, Flemmer, Renfro & Whitaker, LLP) performed an
      audit of the Company’s 2005 financial statements in 2006.





The
      Company’s independent accountant for the year 2007 is Hunter & Renfro,
      LLP.




**Audit
      Fees**





Marc
      Lumer & Co. billed aggregate fees of approximately $43,000 and $52,000 for
      the years ended December 31, 2006 and 2005, respectively, for professional
      services rendered in the audit of the Company’s 2005 annual financial statements
      and the review of the Company’s Quarterly Reports on Form 10-QSB through the
      second quarter of 2006. After resigning, Marc Lumer & Co. billed additional
      fees of approximately $6,000 with which the Company does not agree, and
      therefore has not recorded in the accompanying financial statements. DeJoya
      Griffith & Company, LLC billed fees of $6,500 for the review of the
      Company’s financial statements included in the Quarterly Report on Form 10-QSB
      for the third quarter of 2006.





Hunter
      & Renfro, LLP (formerly known as Hunter, Flemmer, Renfro & Whitaker,
      LLP) have billed fees of $102,570 for the audit of the financial statements
      for
      the year ended December 31, 2006 and the audit of the Company’s financial
      statements for the year ended December 31, 2005.





The
      current accountants, Hunter & Renfro, LLP have billed fees of $89,056
      through March 31, 2008 for the review of the Company’s Quarterly Reports on Form
      10-QSB from first through third quarters of 2007 and audit of the financial
      statements for the year ended December 31, 2007.





**Audit-Related
      Fees**





Neither
      Marc Lumer & Company, nor DeJoya Griffith & Company, LLC, provided or
      billed for any audit-related services during the two years ended December 31,
      2006 and 2007. Hunter & Renfro, LLP (formerly known as Hunter, Flemmer,
      Renfro & Whitaker, LLP) did not provide or bill for any audit-related
      services for the year ended December 31, 2007.





**Tax
      Fees**




Su-Gene,
      Inc. provided professional services in preparing the income tax returns for
      the
      Company and for advice on tax compliance and tax planning, for which
      approximately $1,000 was billed for each of the years 2006 and
      2005.





Neither
      Marc Lumer & Company, DeJoya Griffith & Company, LLC, nor Hunter &
Renfro, LLP (formerly known as Hunter, Flemmer, Renfro & Whitaker, LLP)
      provided or billed for any professional services during the two years ended
      December 31, 2007 and 2006 in connection with tax advice, tax compliance or
      tax
      planning.




**All
      Other Fees**





Neither
      Marc Lumer & Company DeJoya Griffith & Company, LLC, nor Hunter &
Renfro (formerly known as Hunter, Flemmer, Renfro & Whitaker, LLP) provided
      any other professional services for the Company during the years ended December
      2007 and 2006.




39


**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      duly authorized.




THE
                CHILDREN’S INTERNET, INC.DATED:
                April 11, 2008
            By:
            /s/
              Richard
              LewisRichard
                LewisActing
                Chief Executive Officer and Acting Chief Financial
                Officer




In
      accordance with the Securities Exchange Act of 1934, this Report has been signed
      by the following persons on behalf of the registrant in the capacities and
      on
      the dates indicated.





Signature
            
            Title
            
            Date/s/
                Sholeh
                Hamedani
            
            Chairman
                of the Board
            
            April
                11, 2008Sholeh
                Hamedani/s/
                Jamshid
                Ghosseiri
            
            Secretary,
                Director
            
            April
                11, 2008Jamshid
                Ghosseiri/s/
                Tyler
                Wheeler
            
            Director
            
            April
                11, 2008Tyler
                Wheeler/s/
                Roger
                Campos
            
            Director
            
            April
                11, 2008Roger
                Campos




40




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


**(A
      Development Stage Company)**





**FINANCIAL
      STATEMENTS**





**TABLE
      OF CONTENTS**





PAGEReport
                of Independent Registered Public Accounting Firm
            
            
            F-1Balance
                Sheets
            
            
            F-2Statements
                of Operations
            
            
            F-3Statements
                of Stockholders’ Deficit
            
            
            F-4Statements
                of Cash Flows
            
            
            F-6Notes
                to Financial Statements
            
            
            F-7




F-i




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board
      of
      Directors and Shareholders


The
      Children’s Internet





We
      have
      audited the balance sheet of The Children’s Internet, Inc. (formerly DWC
      Installations) (a development stage company) (the “Company”) as of December 31,
      2007 and as of December 31, 2006, and the related statements of operations,
      stockholders’ deficit, and cash flows for each of the two years ended December
      31, 2007 and 2006 and the period from September 25, 1996 (inception) to December
      31, 2007. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company has determined that
      it
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audit provided
      a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of The Children’s Internet, Inc.
      (formerly DWC Installations) (a Development Stage Company) as of December 31,
      2007 and December 31, 2006, and the results of its operations and its cash
      flows
      for each of the two years in the period ended December 31, 2007 and December
      31,
      2006, and the period from September 25, 1996 (inception) to December 31, 2007
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company has incurred a net loss of $5,316,374 and had negative
      cash flow from operations of 1,628,210. In addition, the Company had an
      accumulated deficit of $2,920,340 and a stockholders’ deficient of $5,316,374 at
      December 31, 2007. These factors, among others, as discussed in Note 1 to the
      financial statements, raise substantial doubt about the Company’s ability to
      continue as a going concern. Management’s plans in regard to these matters are
      also described in Note 1. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





HUNTER
      & RENFRO LLP





Sacramento,
      California


March
      31,
      2008





F-1


THE
        CHILDREN’S INTERNET, INC.
 (A
        Development Stage Company)
 BALANCE
        SHEETS
 December
                    31,2007
                
                2006ASSETSCurrent
                    Assets:Cash
                
                $
                104
                
                $
                1,106Deposit
                    held in escrow, offsets $37,378 accountpayable
                    to Oswald & Yap (Note 4)
                
                
                37,378
                
                
                37,378Prepaid
                    marketing expenses
                
                
                -
                
                
                1,260Total
                    Current Assets
                
                
                37,482
                
                
                39,744Equipment:Equipment
                    at cost
                
                
                13,034
                
                
                12,196Accumulated
                    depreciation
                
                
                (9,421
                )
                
                (5,100
                )Equipment,
                    net
                
                
                3,613
                
                
                7,096Other
                    Assets:Deposit
                    - State Board of Equalization
                
                
                2,000
                
                
                2,000Utility
                    deposit
                
                
                118Deferred
                    tax asset, net of valuation allowance of$1,398,462
                    (2007) and $1,004,625 (2006)
                
                
                -
                
                
                -TOTAL
                    ASSETS
                
                $
                43,213
                
                $
                48,840LIABILITIES
                    AND STOCKHOLDERS’ EQUITYCurrent
                    Liabilities:Accounts
                    payable and accrued expenses
                
                $
                791,622
                
                $
                422,369Accrued
                    salaries
                
                
                729,319
                
                
                449,274Notes
                    payable to TCI Holding Co., LLC
                
                
                264,504
                
                
                -Loans
                    payable to related parties
                
                
                101,518
                
                
                -Accrued
                    payroll taxes
                
                
                42,942
                
                
                21,184Taxes
                    payable
                
                
                4,817
                
                
                2,557Total
                    Current Liabilities
                
                
                1,934,722
                
                
                895,384Long-Term
                    Liabilities:Due
                    to related party
                
                
                1,028,831
                
                
                1,014,346TOTAL
                    LIABILITIES
                
                
                2,963,553
                
                
                1,909,730COMMITMENTS
                    AND CONTINGENCIES (NOTES 3 & 4)
                
                
                -
                
                
                -STOCKHOLDERS’
                    DEFICITPreferred
                    stock, $0.001 par value; 10,000,000 sharesauthorized;
                    zero shares issued and outstanding.
                
                
                -
                
                
                -Common
                    stock, $0.001 par value; 75,000,000 sharesauthorized;
                    31,373,738 shares (2007) and26,873,738
                    shares (2006), issued and outstanding
                
                
                31,374
                
                
                26,874Additional
                    paid-in capital
                
                
                2,364,660
                
                
                2,262,622Deficit
                    accumulated during the development stage
                
                
                (5,316,374
                )
                
                (4,150,386
                )TOTAL
                    STOCKHOLDERS’ DEFICIT
                
                
                (2,920,340
                )
                
                (1,860,890
                )TOTAL
                    LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                $
                43,213
                
                $
                48,840


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


F-2




THE
        CHILDREN’S INTERNET, INC.
 (A
        Development Stage Company)
 STATEMENTS
        OF OPERATIONS
  For
                  the Year
              
              For
                  the period fromEnded
                  December 31,
              
              Inception
                  through2007
              
              2006
              
              December
                  31, 2007NET
                  REVENUES
              
              $
              766
              
              $
              875
              
              $
              1,641COSTS
                  OF REVENUES
              
              
              102
              
              
              155
              
              
              257Gross
                  margin
              
              
              664
              
              
              720
              
              
              1,384OPERATING
                  EXPENSESSales
                  and marketing
              
              
              36,330
              
              
              31,244
              
              
              70,225General
                  and administrative
              
              
              937,755
              
              
              682,828
              
              
              3,587,047Officers’
                  compensation
              
              
              144,194
              
              
              349,319
              
              
              1,583,513Depreciation
                  expense
              
              
              4,321
              
              
              4,023
              
              
              9,421Total
                  operating expenses
              
              
              1,122,600
              
              
              1,067,414
              
              
              5,250,206Loss
                  from operations
              
              
              (1,121,936
              )
              
              (1,066,694
              )
              
              (5,248,822
              )Interest
                  expense
              
              
              43,252
              
              
              19,500
              
              
              62,752Loss
                  before income taxes
              
              
              (1,165,188
              )
              
              (1,086,194
              )
              
              (5,311,574
              )Provision
                  for income taxes
              
              
              800
              
              
              800
              
              
              4,800NET
                  LOSS
              
              $
              (1,165,988
              )
              $
              (1,086,994
              )
              $
              (5,316,374
              )Net
                  loss per common share-
                  basic and diluted
              
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.49
              )Shares
                  used in computingbasic
                  and diluted net lossper
                  share
              
              
              26,873,738
              
              
              26,866,942
              
              
              10,932,492





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




F-3




THE
      CHILDREN’S INTERNET, INC.


(A
        Development Stage Company)
 STATEMENTS
        OF STOCKHOLDERS’ DEFICIT


Common
                  Stock,after
                  giving
              
              
              
              
              
              
              
              Deficitretroactive
                    effect
              
              
              
              Deferred
              
              
              
              Accumulatedto
                  2 for 1
              
              Additional
              
              Charges
                    -
              
              
              
              during
                      thestock
                  split on
              
              Paid-In
              
              Related
              
              Prepaid
              
              Development
              
              Stockholders’March
                  11, 2005
              
              Capital
              
              Company
              
              Expenses
              
              Stage
              
              DeficitShares
              
              AmountBalance,
                  December 31, 2001
              
              
              2,242,000
              
              $
              2,242
              
              $
              6,363
              
              $
              -
              
              $
              -
              
              $
              (8,605
              )
              $
              -Issuance
                  of common stock for cashon
                  July 3, 2002 at $0.0643 perpost-split
                  share to activate thedevelopment
                  stage
              
              
              2,333,510
              
              
              2,334
              
              
              147,666
              
              
              -
              
              
              -
              
              
              -
              
              
              150,000Issuance
                  of common stock for debtfinancing
                  fee on October 11, 2002at
                  $0.0643 per post-split share
              
              
              8,948,000
              
              
              8,948
              
              
              566,408
              
              
              -
              
              
              -
              
              
              -
              
              
              575,356Expenses
                  paid by former officer onbehalf
                  of the Company
              
              
              -
              
              
              -
              
              
              2,000
              
              
              -
              
              
              -
              
              
              -
              
              
              2,000Services
                  performed as capital contribution
              
              
              -
              
              
              -
              
              
              125,000
              
              
              -
              
              
              -
              
              
              -
              
              
              125,000Net
                  Loss (restated)
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (966,894
              )
              
              (966,894
              )Balance,
                  December 31, 2002
              
              
              13,523,510
              
              
              13,524
              
              
              847,437
              
              
              -
              
              
              -
              
              
              (975,499
              )
              
              (114,538
              )Services
                  performed as capital contribution
              
              
              -
              
              
              -
              
              
              290,000
              
              
              -
              
              
              -
              
              
              -
              
              
              290,000Net
                  Loss (restated)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (449,056
              )
              
              (449,056
              )Balance,
                  December 31, 2003
              
              
              13,523,510
              
              
              13,524
              
              
              1,137,437
              
              
              -
              
              
              -
              
              
              (1,424,555
              )
              
              (273,594
              )Services
                  performed as capital contribution
              
              
              -
              
              
              -
              
              
              180,000
              
              
              -
              
              
              -
              
              
              -
              
              
              180,000Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (377,879
              )
              
              (377,879
              )Balance,
                  December 31, 2004
              
              
              13,523,510
              
              
              13,524
              
              
              1,317,437
              
              
              -
              
              
              -
              
              
              (1,802,434
              )
              
              (471,473
              )Issuance
                  of common stock in exchangefor
                  debt to parent company on 2/15/05at
                  $0.035 per post-split share
              
              
              13,054,628
              
              
              13,054
              
              
              443,858
              
              
              -
              
              
              -
              
              
              -
              
              
              456,912Option
                  to purchase 18,000,000 post-splitshares
                  at an exercise price of $0.07 pershare
                  granted to Two Dog Net, Inc. on2/15/05,
                  valued at option price
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Option
                  to purchase 1,000,000 post-splitshares
                  at an exercise price of $0.07 pershare
                  granted to Tyler Wheeler on2/15/05,
                  valued at $0.315 per share
              
              
              -
              
              
              -
              
              
              315,000
              
              
              -
              
              
              -
              
              
              -
              
              
              315,000Issuance
                  of common stock for consultingservices
                  by Crosslink Financial Communi-cations,
                  Inc. on 2/25/05 at $0.33 perpost-split
                  share
              
              
              200,000
              
              
              200
              
              
              65,800
              
              
              -
              
              
              -
              
              
              -
              
              
              66,000Issuance
                  of common stock for consultingservices
                  by Crosslink Financial Communi-cations,
                  Inc. - 8,000 shares on the 25th ofeach
                  month from March through December2005
                  at an average of $0.76 per share
              
              
              80,000
              
              
              80
              
              
              60,520
              
              
              -
              
              
              -
              
              
              -
              
              
              60,600Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,260,958
              )
              
              (1,260,958
              )Balance,
                  December 31, 2005
              
              
              26,858,138
              
              $
              26,858
              
              $
              2,202,615
              
              $
              -
              
              $
              -
              
              $
              (3,063,392
              )
              $
              (833,919
              )
  The
          accompanying notes are an integral part of the financial
          statements.
  F-4
  THE
        CHILDREN’S INTERNET, INC.
 (A
          Development Stage Company)
 STATEMENTS
          OF STOCKHOLDERS’ DEFICIT (Continued)
  Common
                    Stock,after
                    giving
              
              
              
              
              
              
              
              
              
              
              
              Deficitretroactive
                    effect
              
              
              
              
              
              Deferred
              
              
              
              
              
              Accumulatedto
                    2 for 1
              
              
              Additional
              
              
              Charges
                    -
              
              
              
              
              
              during
                    thestock
                  split on
              
              
              Paid-In
              
              
              Related
              
              
              Prepaid
              
              
              Development
              
              
              Stockholders’March
                  11, 2005
              
              
              Capital
              
              
              Company
              
              
              Expenses
              
              
              Stage
              
              
              DeficitShares
              
              
              AmountOption
                  to purchase 111,112 post-splitshares
                  at an exercise price of $0.55 pershare
                  granted to William L. Arnold,valued
                  at $0.47 per share
              
              
              -
              
              
              -
              
              
              52,223
              
              
              -
              
              
              -
              
              
              -
              
              
              52,223Issuance
                  of common stock for prepaidpublic
                  relations consulting services underagreement
                  with Brazer Communicationsdated
                  6/9/06, valued at $0.50 per share
              
              
              15,600
              
              
              16
              
              
              7,784
              
              
              -
              
              
              (7,800
              )
              
              -
              
              
              -Amortization
                  of deferred charges -related
                  company
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Amortization
                  of prepaid expenses
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,800
              
              
              -
              
              
              7,800Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,086,994
              )
              
              (1,086,994
              )Balance,
                  December 31, 2006
              
              
              26,873,738
              
              $
              26,874
              
              $
              2,262,622
              
              $
              -
              
              $
              -
              
              $
              (4,150,386
              )
              $
              (1,860,890
              )Services
                  performed as capital contributionduring
                  the first quarter of 2007
              
              
              -
              
              
              -
              
              
              7,500
              
              
              -
              
              
              -
              
              
              -
              
              
              7,500Option
                  to purchase 375,000 commonshares
                  at an exercise price of $0.081 pershare
                  granted to three directors (125,000shares
                  each) on 4/30/07, valued at$0.08
                  per share
              
              
              -
              
              
              -
              
              
              30,000
              
              
              -
              
              
              -
              
              
              -
              
              
              30,000Option
                  to purchase 2,687,374 commonshares
                  at an exercise price of $0.081 pershare
                  granted to Director of Finance andOperations
                  on 4/30/07 - 796,300 optionshares
                  vested valued at $0.08 per share
              
              
              -
              
              
              -
              
              
              63,705
              
              
              -
              
              
              -
              
              
              -
              
              
              63,705Option
                  to purchase 300,000 commonshares
                  at an exercise price of $0.081 pershare
                  granted to Controller on 4/30/07 -66,667
                  option shares vested valued at$0.08
                  per share
              
              
              -
              
              
              -
              
              
              5,333
              
              
              -
              
              
              -
              
              
              -
              
              
              5,333Issuance
                  of 4,500,000 common sharesto
                  TCI Holding Company, LLC, deposited inescrow
                  on 7/3/07 persuant to a stockpurchase
                  agreement between theCompany
                  and TCI Holding Company, LLC
              
              
              4,500,000
              
              
              4,500
              
              
              (4,500
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,165,988
              )
              
              (1,165,988
              )Balance,
                  December 31, 2007
              
              
              31,373,738
              
              $
              31,374
              
              $
              2,364,660
              
              $
              -
              
              $
              -
              
              $
              (5,316,374
              )
              $
              (2,920,340
              )




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




F-5




THE
        CHILDREN’S INTERNET, INC
 (A
        Development Stage Company)
 STATEMENTS
        OF CASH FLOWS


For
                    the Year
                
                For
                    the period fromEnded
                    December 31,
                
                Inception
                    through2007
                
                2006
                
                December
                    31, 2007CASH
                    FLOWS USED IN OPERATING ACTIVITIESNet
                    Loss
                
                $
                (1,165,988
                )
                $
                (1,086,994
                )
                $
                (5,316,374
                )Adjustments
                    to reconcile net loss to net cashused
                    in operating activities:Depreciation
                    on equipment
                
                
                4,321
                
                
                4,023
                
                
                9,421Amortization
                    of prepaid marketing expense
                
                
                1,260
                
                
                -
                
                
                1,260Stock
                    compensation to directors
                
                
                30,000
                
                
                -
                
                
                345,000Stock
                    compensation to officers and employees
                
                
                69,038
                
                
                52,223
                
                
                121,261Shares
                    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
                
                
                -
                
                
                (1,260
                )
                
                (1,260
                )Increase
                    in current liabilities -Accounts
                    payable and accrued expenses
                
                
                393,271
                
                
                261,853
                
                
                839,381Accrued
                    salaries
                
                
                280,045
                
                
                269,274
                
                
                729,319Notes
                    payable to TCI Holding Company, LLC
                
                
                264,504
                
                
                -
                
                
                264,504Loans
                    payable to related parties
                
                
                101,518
                
                
                -
                
                
                101,518Net
                    cash used in operating activities
                
                
                (14,649
                )
                
                (495,081
                )
                
                (1,628,210
                )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
                
                
                14,485
                
                
                393,112
                
                
                1,485,743Majority
                    shareholder advances converted to stock
                
                
                -
                
                
                -
                
                
                (456,912
                )Net
                    cash provided by financing activities
                
                
                14,485
                
                
                393,112
                
                
                1,641,348Net
                    change in cash and cash equivalents
                
                
                (1,002
                )
                
                (102,743
                )
                
                104Cash
                    and cash equivalents - Beginning of period
                
                
                1,106
                
                
                103,849
                
                
                -Cash
                    and cash equivalents - End of period
                
                $
                104
                
                $
                1,106
                
                $
                104SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATIONCash
                    paid for interest
                
                $
                180
                
                $
                3,122
                
                $
                3,302Cash
                    paid for taxes
                
                $
                800
                
                $
                800
                
                $
                4,800




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




F-6




THE
        CHILDREN’S INTERNET, INC.
 (A
        Development Stage Company)
 NOTES
        TO
        FINANCIAL STATEMENTS
 December
        31, 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 was increased to 4,575,510 shares
        as a result of this sale to Shadrack. On December 27, 2002, the Company’s name
        was changed from D.W.C. Installations to The Children’s Internet,
        Inc.
 
 The
        Company is currently authorized to conduct business in California, and as
        of
        July 15, 2007 the Company has been located in San Ramon, California. The
        Company’s primary operations consist of marketing, selling, and administering a
        secure Internet service and safe online community for children. The system,
        known as The Children’s Internet®, is not owned by the Company, but is owned by
        a related party, Two Dog Net, Inc. (“TDN”). The Company’s marketing, selling and
        administration rights derive from a Wholesale Sales 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 (“DSPA”), 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
        3.
 
 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.
 
 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 December 31, 2007 and 2006, the net amount
        loaned to the Company by Shadrack was $1,485,743 and $1,471,258,
        respectively.
  F-7
 
 During
        the year ended December 31, 2005, an additional 13,334,628 restricted shares
        of
        common stock were issued. Of these shares, 13,054,628 were issued to Shadrack,
        a
        related party which holds approximately 52.2% of the voting power of the
        Company’s outstanding common stock, for conversion of existing debt and 280,000
        shares were issued to Crosslink Financial Communications, a non-related
        party  in
        payment for providing investor relation services. Although Crosslink was
        not a
        related party at the time of issuance, its principal shareholder, William
        L.
        Arnold served as President of the Company from December 30, 2005 through
        September 30, 2006 under an Executive Employment Agreement dated December
        30,
        2005.
 
 On
        June
        9, 2006, 15,600 shares were issued to two principals of Brazer Communications
        under a public relations consulting agreement, as explained in Note
        4.
 
 On
        June
        29, 2007, 4,500,000 shares (the “Escrowed Shares”) were issued in the name of
        The Children’s Internet Holding Company, LLC, a Delaware limited liability
        company (“TCI Holding” or “TCI Holding Company, LLC”), and deposited in escrow
        on July 3, 2007 in accordance with the 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
        December 31, 2007 for the purposes of financial reporting. The 4,500,000
        shares
        held in escrow have not been deemed to carry voting rights under Nevada law
        as
        they are held for the benefit of the Company until released.
 
 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.
 
 Additionally,
        the Company is not a shell company as defined in Rule 12b-2 of the Exchange
        Act.
  Basis
          of
          Presentation
  The
          accompanying 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.
  F-8


Use
                  of Estimates
                
                The
                  preparation of financial statement in conformity with accounting
                  principals generally accepted in the United States requires management
                  to
                  make estimates and assumptions that affect the reported amounts
                  of assets
                  and liabilities and disclosure of contingent assets and liabilities
                  at the
                  date of the financial statements and the reported amounts of revenue
                  and
                  expenses during the reporting period. Actual results could differ
                  from
                  those estimates.
                
                Cash
                  and Cash Equivalents
                
                The
                  Company considers all highly liquid, short-term investments purchased
                  with
                  original maturities of three months or less to be cash equivalents.
                  There
                  were no cash equivalents as of December 31, 2007 and 2006.
                
                Fair
                  Value of Financial Instruments
                
                The
                  carrying amounts of financial instruments, including accounts payable
                  and
                  accrued expenses, professional fees, and payable to related parties
                  approximate fair value as of December 31,
                  2007.




Property
        and Equipment
 
 Property
        and equipment are recorded at cost, less accumulated depreciation. In accordance
        with FASB 144, the Company reviews its long-lived assets for impairment on
        a
        yearly basis. Whenever events or changes in circumstances indicate that the
        carrying amount of the assets might not be recovered through undiscounted
        future
        cash flows, such losses are recognized in the statement of
        operations.
 
 The
        cost
        of property and equipment is depreciated over the remaining useful lives
        of the
        assets, all of which currently are based on a three-year life. Depreciation
        is
        computed using the straight-line method for financial reporting and for income
        tax purposes. Expenditures for maintenance and repairs are expensed when
        incurred, while betterments are capitalized. Gains and losses on the sale
        of
        property and equipment are reflected in the statement of
        operations.
 
 Going
        Concern
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business. As reflected in the
        accompanying financial statements, the Company had net losses and a negative
        cash flow from operations for the years ended December 31, as
        follows:
  **2007**
              
              **2006**Net
                  loss
              
              $
              1,165,988
              
              $
              1,086,994Cash
                  flow from operations
              
              $
              (14,649
              )
              $
              (495,081
              )
 
 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 the DSPA 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 DSPA 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, 2008 through equity financing,
        primarily from the contemplated purchase of the Company pursuant to the DSPA,
        with the net proceeds to be used to fund continuing operations.
  F-9
 
 Advertising
 
 The
        Company expenses advertising expenses as they are incurred. Advertising expenses
        for the years ended December 31, 2007 and 2006 were $15,573 and $6,008,
        respectively.
 Income
          Taxes
 
 Income
          taxes are provided for based on the liability method of accounting pursuant
          to
          SFAS No. 109, “Accounting for Income Taxes”. This method requires the
          recognition of deferred tax assets and liabilities for the expected future
          tax
          consequences of events that have been included in the financial statements
          or
          tax returns. Under this method, deferred income taxes, if any, are recorded
          to
          reflect the tax consequences in future years of differences between the
          tax
          bases of assets and liabilities and their financial reporting amounts at
          each
          year-end.
 
 Valuation
          allowances are established, when necessary, to reduce deferred tax assets
          when
          evidence is such that it appears that a portion of the assets may not be
          realized. Deferred tax assets and liabilities are measured using the enacted
          tax
          rates expected to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. The effect on deferred
          tax
          assets and liabilities of a change in tax rates is recognized in income
          in the
          period that includes the enactment date.
 
 As
          of
          December 31, 2007 and 2006, the deferred tax assets related to the Company’s net
          operating loss carry-forwards are fully reserved. Due to the provisions
          of
          Internal Revenue Code Section 382, the Company may not have any net operating
          loss carry-forwards available to offset financial statement or tax return
          taxable income in future periods as a result of a change in control involving
          50
          percentage points or more of the issued and outstanding securities of the
          Company.
 
 Loss
          Per Share
 
 SFAS
          No.
          128, “Earnings (Loss) Per Share”, requires the presentation of basic loss per
          share and diluted loss per share. The computation of basic loss per share
          is
          computed by dividing loss available to common stockholders by the weighted
          average number of outstanding common shares during the period. Diluted
          loss per
          share is computed the same way but the denominator is increased to include
          the
          number of additional common shares that would have been outstanding if
          the
          potential common shares had been issued during the period and if the additional
          common shares were dilutive. Common equivalent shares are excluded from
          the
          computation if their effect is anti-dilutive. As of December 31, 2007,
          the
          Company had 25,349,079 potentially dilutive post-split common shares outstanding
          (including the 4,500,000 Escrowed Shares), but did not include these shares
          in
          its computation of loss per share because doing so would decrease the loss
          per
          share, which is anti-dilutive and not permitted by SFAS No. 128.
 
 Comprehensive
          Income
 
 The
          company utilizes SFAS No. 130, “Reporting on Comprehensive Income.” This
          statement establishes standards for reporting comprehensive income and
          its
          components in a financial statement. Comprehensive income as defined includes
          all changes in equity (net assets) during a period from non-owner sources.
          Examples of items to be included in comprehensive income, which are excluded
          from net income, include foreign currency translation adjustments, minimum
          pension liability adjustments, and unrealized gains and losses on
          available-for-sale marketable securities. As of December 31, 2007, the
          Company
          had no items that represent comprehensive income and therefore, has not
          included
          a Statement of Comprehensive Income in the accompanying financial
          statements.
 
 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.
  F-10
  Segment
            Reporting
 
 The
            Company identifies its operating segments based on how management internally
            evaluates separate financial information (if available), business activities
            and
            management responsibility. The Company believes it operates in a single
            business
            segment. Through December 31, 2007 there have been no foreign
            operations.
 Concentrations
                        of Credit Risk
                      
                      Financial
                        instruments which potentially subject the Company to concentrations
                        of
                        credit risk consist of cash and cash equivalents. The Company
                        places its
                        cash and cash equivalents with high credit, quality financial
                        institutions. At times, such cash and cash equivalents may
                        be in excess of
                        the Federal Deposit Insurance Corporation insurance limit
                        of $100,000. The
                        Company has not experienced any losses in such accounts and
                        believes it is
                        not exposed to any significant credit risk on cash and cash
                        equivalents.
                      
                      New
                        Accounting Pronouncements
                      
                      In
                        May 2005, the FASB issued Statement of Accounting Standard
                        (SFAS) No. 154,“Accounting
                        Changes and Error Corrections”, an amendment to Accounting Principles
                        Bulletin (APB) Opinion No. 20 “Accounting Changes” and SFAS No. 3,
                        “Reporting Accounting Changes in Interim Financial Statements” though SFAS
                        No. 154 carries forward the guidance in APB No. 20 and SFAS
                        No. 3 with
                        respect to accounting for changes in estimates, changes in
                        reporting
                        entity, and the correction of errors. SFAS No. 154 requires
                        retrospective
                        application to prior period financial statements for changes
                        in accounting
                        principle, unless it is impracticable to determine either
                        the
                        period-specific effects or the cumulative effect of the change.
                        SFAS No.
                        154 also requires that retrospective application of a change
                        in accounting
                        principle be limited to the direct effects of the change.
                        Indirect effects
                        of a change in accounting principle should be recognized
                        in the period of
                        the accounting change. SFAS No. 154 became effective for
                        the Company’s
                        fiscal year beginning January 1, 2006. The impact of SFAS
                        No. 154 will
                        depend on the nature and extent of any voluntary accounting
                        changes and
                        correction of errors after the effective date, but management
                        does not
                        expect this pronouncement to have a material impact on the
                        Company’s
                        current results of operations, financial condition or cash
                        flows.
  **NOTE
              2 - PROPERTY AND EQUIPMENT**
 
 The
              following is a summary of property and equipment at cost, less accumulated
              depreciation. Depreciation on these assets is based on a 3-year life.
              The
              majority of the office furniture and equipment utilized by the Company
              is owned
              by Two Dog Net, Inc., a related party, and was provided to the Company
              without
              fee until the Company entered into a Services Agreement which became
              effective
              on October 19, 2007, as explained in Note 3.
 2007
                      
                      2006Computer
                          Hardware
                      
                      $
                      6,281
                      
                      $
                      6,281Computer
                          Software
                      
                      
                      6,753
                      
                      
                      5,91513,034
                      
                      
                      12,196Less:
                          Accumulated Depreciation
                      
                      
                      (9,421
                      )
                      
                      (5,100
                      )Total
                      
                      $
                      3,613
                      
                      $
                      7,096




**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 is to be made at the end of each year
        whether to make the payment in cash, shares of the Company’s restricted common
        stock, or a combination of both. Accordingly, for the period from January
        31,
        2007 through her date of resignation, October 19, 2007, $144,194 has been
        accrued and charged to Officers’ Compensation. For the years ended December 31,
        2006 and December 31, 2005, $180,000 was accrued and charged to Officers’
Compensation for each year. 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.
  F-11
  The
        salary of the Company’s former President, William L. Arnold, was not fully paid,
        but was accrued from May 1, 2006 through August 31, 2006. Beginning on September
        1, 2006, Mr. Arnold took an unpaid leave of absence. The Company believes
        that
        Mr. Arnold’s leave of absence was voluntary while Mr. Arnold claims that his
        leave of absence was related to a breach of his employment agreement with
        the
        Company.
 In
        a
        letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold seeks to
        negotiate an amicable settlement for alleged breach of contract, intentional
        and
        negligent misrepresentation arising out of his recruitment, hiring, and
        employment beginning in December 2005. On
        or
        about December 6, 2007, Mr. Arnold filed a lawsuit in the Superior Court
        of
        California, County of Alameda Case No. 07-359949 alleging breach of contract,
        fraud and violation of California Labor Code Section 200 in connection with
        the
        dispute surrounding his employment. The Company filed an answer to the Complaint
        and intends to vigorously defend the claim.
  From
        April 1 through December 31, 2007, Roaya Wooler and Soraiya Smida, sisters
        of
        the former Chief Executive Officer of the Company, Sholeh Hamedani, and both
        of
        whom have twelve years experience with TDN developing and marketing the
        Children’s Internet®, performed consulting services for the Company and together
        earned a total of $57,310 for their services. In addition, Lewis Wooler,
        husband
        of Roaya Hamedani, earned a total of $24,803 for his customer service and
        technical support services to the Company during the same period.
 
 On
        December 6, 2007, the Company entered into a Services Agreement with TDN,
        which
        was made effective as of October 19, 2007. Under the Services Agreement,
        TDN
        provides TCI with office space, computer and office equipment, and certain
        supplies and services until the earlier of January 31, 2007 or the closing
        of
        the Definitive Stock Purchase Agreement, explained in Note 4, for which TCI
        is
        obligated to pay TDN a monthly charge of $9,961 pro rated based on the actual
        number of days for any partial months. Although the Services Agreement expired
        on January 31, 2008, because the DSPA has not closed, TDN continues to provide
        the Company with its San Ramon office space, computer and office equipment,
        and
        certain supplies and services. TCI Holding signed an agreement with TDN on
        February 5, 2008 providing that it will pay all unpaid invoices of the monthly
        service fees associated with the Services Agreement. It is important that
        Two
        Dog Net continue to provide the services, facilities and equipment uninterrupted
        under the Services Agreement because the services being provided under the
        agreement are essential to TCI’s operations and San Ramon office space is the
        location of the Company’s operations.
  Advances
  Substantially
        all of the Company’s funding has been provided by Shadrack, which holds
        approximately 52.2% of the voting power of the Company’s outstanding common
        stock, as of the date of this report 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 $19,469 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 $7,800
        made by John Heinke, the Company’s Controller, and advances totaling $264,504
        made by TCI Holding as an advance against the purchase price of the Company’s
        common stock, as described in Note 4. The total amount advanced by Shadrack
        through December 31, 2007 and 2006 was $1,485,743 and $1,471,258, 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 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.
  F-12
 
 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 approximately 52.2% of the voting power of the
        Company’s outstanding common stock (without giving effect to any presently
        exercisable options) as of December 31, 2007. Under the terms of the DSPA,
        TCI
        Holding shall purchase 8,040,988 shares of the Company’s common stock currently
        owned by Shadrack upon the closing of the DSPA for $500,000.
 
 Beneficial
        Ownership
 
 The
        Company, Shadrack and TDN are related parties. The Company’s former Chief
        Executive Officer and Chief Financial Officer and current Chairman of the
        Board,
        Sholeh Hamedani, is the sole shareholder of Shadrack, which as of December
        31,
        2007 owns approximately 52.2% of the voting power of the Company’s common stock
        outstanding. Ms. Hamedani was President of TDN until she resigned on August
        1,
        2002, and is a 10% shareholder of TDN. In addition, TDN’s Chief Executive
        Officer, Chairman and Founder, Nasser Hamedani, is the father of Sholeh
        Hamedani. TDN also owns an option to purchase up to 18,000,000 shares of
        the
        Company’s common stock and is therefore beneficial owner of approximately 40.1%
        of the Company’s common stock. Under the terms of the DSPA, 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 DSPA.
 
 Licensing
        Agreement
 
 The
        Wholesale Sales and Marketing Agreement between the Company and TDN, dated
        September 10, 2002 (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.
 
 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
        DSPA
        with TCI Holding Company, LLC, as explained in Note 4, requires that, prior
        to
        the closing of the DSPA, 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 market and operate The Children’s
        Internet® service. In turn, the Company entered into a royalty agreement with
        TDN which provides 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 DSPA.
 
 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 into office space in San
        Ramon, California. Costs of the relocation were approximately $5,000. 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. On October 19, 2007, the Company entered into a Services
        Agreement with Two Dog Net whereby monthly rental payments of $1,762 are
        payable
        to Two Dog Net by the Company. Prior to the Services Agreement, the Company
        reimbursed Mr. Hamedani for the monthly lease payment of $1,762. Although
        the Services Agreement expired on January 31, 2008, because the DSPA has
        not
        closed, TDN continues to provide the Company with its San Ramon office space.
        TCI Holding signed an agreement with TDN on February 5, 2008 providing that
        it
        will pay all unpaid invoices of the monthly service fees associated with
        the
        Services Agreement.
  F-13
  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 DSPA, 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 DSPA. However, after the closing of the DSPA, 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.
 
 **NOTE
        4 - COMMITMENTS AND CONTINGENCIES**
 
 The
        Company entered into two equipment leases with Dell Financial Services L.P.
        of
        Round Rock, Texas. The cash value of the equipment leased, including sales
        tax,
        is $11,775. The Company entered into these leases in November 2006, however,
        lease payments commenced in January 2007. The total value of the 48 monthly
        lease payments is $17,424. At the end of the four year period in December
        2010,
        each lease has a purchase option at $1. These leases are considered to be
        operating leases as the period over which payments are to be made exceeds
        the
        period over which the assets would be depreciated, if purchased.
 
 The
        future minimum operating lease payments as of December 31, 2007, are as
        follows:
 Year
                    ending December 31, 2008
                
                $
                4,356Year
                    ending December 31, 2009
                
                
                4,356Year
                    ending December 31, 2010
                
                
                4,356Total
                
                $
                13,068




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. ****
  F-14
 
 On
        February 14, 2005, a cross-claim was filed in the Superior Court of California,
        County of Orange, Case No. 04CC11623 by the Company against O&Y alleging
        breach of contract, professional negligence, negligent representation, and
        breach of good faith and fiduciary duty The basis of the allegations is that
        O&Y was retained to assist the Company’s predecessor company in the purchase
        and acquisition of D.W.C. Installations (“D.W.C.”) with the expectation that
        D.W.C. had available free-trading shares such that the Company could immediately
        raise capital on the relevant markets and that in advising the Company through
        the purchase, O&Y failed to properly advise the Company as to the status of
        D.W.C. and its shares, which in fact were not free-trading. As a result of
        this
        conduct, the Company alleges damages in an unspecified amount but including
        purchase costs, extended operation costs, refiling costs, audit costs, legal
        fees, loan fees, lost market share, and costs for registration. O&Y has
        vigorously disputed the claims set forth in the cross-complaint and has
        indicated its intention, should it prevail in its defense, to institute a
        malicious prosecution action against the Company, Nasser Hamedani, Sholeh
        Hamedani and Company counsel. Litigation of this matter is currently stayed
        pending outcome of the SEC Complaint discussed below. The case is scheduled
        for
        a status conference on April 7, 2008 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.
  On
        June
        13, 2006, the Company became subject to an arbitration demand from Stonefield
        Josephson, Inc., its former accountant, seeking reimbursement costs for legal
        fees spent in connection with the SEC inquiry of the Company. Stonefield
        Josephson, Inc.’s claim seeks recovery of $29,412.74. The Company disputes any
        amounts owed because of a settlement agreement entered into between the
        respective parties in December 2004 effectively terminating their relationship.
        This matter was submitted to binding arbitration through AAA in January 2007.
        The Arbitrator’s decision was issued on February 2, 2007, awarding Stonefield
        Josephson, Inc. the sum of $19,000 plus costs and fees in the amount of $1,425
        due and payable March 15, 2007. The decision also awarded Stonefield Josephson,
        Inc. interest at the rate of 10% per annum on $19,000 from March 15, 2007.
        On
        August 30, 2007, an additional $2,500 in post-arbitration attorney’s fees and
        costs was awarded by the Los Angeles Superior Court. No amounts have been
        paid
        to Stonefield Josephson since the date of the Arbitrator’s
        decision.
 
 On
        August
        25, 2006, the Company filed a complaint against its former accountants,
        Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
        Court
        of California, County of Alameda, Case No. VG06286054 alleging breach of
        contract, promissory estoppel, breach of implied covenant of good faith and
        fair
        dealing, negligent misrepresentation, fraud, and unfair business practices
        arising out of defendants’ alleged failure to properly perform contractual
        obligations. The Company seeks damages resulting from defendants’ actions,
        including recovering costs expended for a subsequent audit and the resultant
        loss in stock price following the Company’s inability to file necessary reports
        with the NASD. The matter was subsequently transferred to Los Angeles Superior
        Court. Mediation on this matter took place on February 29, 2008 in Los Angeles,
        California but was unsuccessful.
 
 Under
        the
        terms of the DSPA, the Company and Shadrack have agreed to vigorously prosecute
        the Oswald and Yap litigation and the Stonefield Josephson litigation. Further,
        under the terms of the DSPA, the Company and Shadrack have agreed that any
        recovery will be paid in its entirety to Shadrack and that Shadrack will
        pay in
        advance all fees, costs and expenses going forward for prosecution of the
        litigations.  Additional
        details regarding the DSPA and the amendments thereto can be found in the
        Company’s Form 8-K’s filed on October 25, 2007, December 12, 2007, February 12,
        2008, March 6, 2008, and March 21, 2008.
 
 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.
  F-15
  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 pursuant to the
        DSPA.
        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 DSPA, and will
        waive the remaining $1,211,727 that the Company, Sholeh Hamedani and Nasser
        Hamedani would be liable 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 DSPA, effective October 19, 2007.
        The
        proposed settlement agreement is subject to the SEC Commission’s approval. The
        SEC
        San Francisco staff has received stand-by authority to accept the settlement
        offer of the Company if the deal with TCI Holding closes in the near future
        and
        $2.7 million is made available to transfer to the court’s registry. The Company
        has agreed to a bifurcation of the proceedings now pending in Federal Court.
        Under this agreement, the injunctive relief sought by the Commission will
        be
        granted by judgment against the Company, with a remedies hearing to be held
        on
        April 29, 2008 as to the amount of disgorgement, penalties and other monetary
        issues. The Commission is prepared to accept the terms of the settlement
        proposal with the Company, including the settlement figure of $2.7 million,
        should the acquisition by TCI Holding close prior to that date and the funds
        made available.
 
 On
        December 30, 2005, William L. Arnold, the principal shareholder of Crosslink
        Financial Communications, Inc., the Company’s former investor relations
        consulting firm, was appointed by the Chairman to act as President of the
        Company under an Executive Employment Agreement. Compensation included a
        monthly
        salary of $10,000, of which $2,500 per month was deferred with 9% accrued
        interest until January 2007. The Executive Employment Agreement also included
        a
        combination of nonqualified and qualified stock options (the “Arnold Option”).
        The Arnold Option was for the purchase of up to 1,000,000 shares at an option
        price of $0.55 per share, and expired on December 31, 2010. The closing market
        price of the Company’s common stock was $0.48 per share on the date of the
        agreement. One half of the Arnold Option vested immediately and the remaining
        500,000 option shares were to vest at the rate of 1/36 th each
        month until fully vested. Commencing on September 1, 2006, Mr. Arnold took
        a
        voluntary unpaid leave of absence. During Mr. Arnold’s leave of absence the
        vesting of his options was suspended. Of the 500,000 option shares which
        vested
        immediately, 360,000 are Incentive Stock Options (ISO’s). The remaining 640,000
        option shares are non-qualified. Additionally, the Executive Employment
        Agreement includes a performance bonus of up to 50% of the annual salary
        to be
        paid on or before the sixtieth day following the close of the Company’s
        fiscal year, provided that Mr. Arnold meets the performance standards as
        established by the Board of Directors. Pursuant to this provision, $40,000
        was
        accrued as an expense for the period of January 1 through August 31, 2006.
        If
        the stock-based compensation provisions of SFAS No. 123R had been
        adopted prior to January 1, 2006, the fair value of the 500,000 shares which
        vested on December 30, 2005 under the Arnold Option would have been recorded
        at
        $235,000.
  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.
  F-16
 
 In
        a
        letter from Mr. Arnold’s counsel dated November 7, 2007, Mr. Arnold indicated
        that he sought to negotiate an amicable settlement for alleged breach of
        contract, intentional and negligent misrepresentation arising out of his
        recruitment, hiring, and employment beginning in December 2005. On
        or
        about December 6, 2007, Mr. Arnold filed a lawsuit in the Superior Court
        of
        California, County of Alameda Case No. 07-359949 alleging breach of contract,
        fraud and violation of California Labor Code Section 200 in connection with
        the
        dispute surrounding his employment. The Company filed an answer to the Complaint
        and intends to vigorously defend the claim.
 
 Adverse
        outcomes in some or all of the claims pending against the Company may result
        in
        significant monetary damages or injunctive relief against the Company that
        could
        adversely affect the Company’s ability to conduct its business. Although
        management currently believes that resolving all of these matters, individually,
        or in the aggregate, will not have a material adverse impact on the Company’s
        financial position or results of operations, the litigation and other claims
        are
        subject to inherent uncertainties and management’s view of these matters may
        change in the future. There exists the possibility of a material adverse
        impact
        on the Company’s financial position and the results of operations for the period
        in which the effect of an unfavorable final outcome becomes probable and
        reasonably estimable.
 
 The
        Company is not aware of any other pending or threatened litigation that could
        have a material adverse effect on its business.
 
 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.
  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. The co-location
        agreement with Evocative was cancelled as of January 31, 2008, as explained
        in
        Note 9.
 
 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 is 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 with
        Tim T.
        Turner, whereby Mr. Turner became the Director of Finance and Operations
        for the
        Company. This position was not deemed an executive officer position. Upon
        the
        Company obtaining Directors and Officers insurance, Mr. Turner would have
        been
        appointed an officer of the Company and made a member of the Company’s Board of
        Directors. Mr. Turner resigned his position with the Company effective on
        December 15, 2007. The agreement provided that Mr. Turner would receive a
        yearly
        salary of $157,500, part of which was to be deferred for a year, and if the
        Company was not able to pay such deferred compensation, it was to be evidenced
        by a promissory note and have an attached warrant.
  F-17
 
 On
        March
        17, 2008, Mr. Turner informed the Company that amounts owed to Mr. Turner
        included a bonus of $78,750 and severance of $360,937.50, in addition to
        amounts
        accrued by the Company for Mr. Turner’s unpaid salary of $110,562 and consulting
        fees of $13,125.  The Company disputes the bonus and severance amounts
        claimed by Mr. Turner and intends to legally contest such disputed
        amounts in the event Mr. Turner further attempts collection.
 
 On
        April
        30, 2007, the Company and the Board of Directors adopted “The Children’s
        Internet, Inc. 2007 Equity Incentive Plan” (the “Plan”). The purpose of the Plan
        is to provide incentives to attract, retain and motivate eligible persons
        whose
        present and potential contributions are important to the success of the Company
        by offering them an opportunity to participate in the Company’s future
        performance through awards of Options, Restricted Stock and Stock Bonuses.
        Under
        the terms of the Plan, the Company has made available six million (6,000,000)
        shares of the Company’s stock to be issued to officers, directors, employees,
        consultants and advisors of the Company with certain restrictions as set
        forth
        in the Plan. The Plan will be administered by a Committee of the Board of
        Directors. The Plan will terminate ten years from the effective date of the
        Plan
        unless terminated earlier under terms of the Plan.
 
 On
        June
        15, 2007, the Company entered into the Interim Stock Purchase Agreement with
        TCI
        Holding and Shadrack, which holds approximately 52.2% of **** the
        voting power of the Company’s outstanding common stock, pursuant 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. However, such shares have been deemed not to carry
        voting rights under Nevada law because they are held in escrow for the benefit
        of the Company until released. 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.
  On
        October 19, 2007, the Company and TCI Holding entered into the Definitive
        Stock
        Purchase Agreement. The DSPA supersedes 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  and
        none
        of the amount payable will be paid to Shadrack. The proposed settlement with
        the
        SEC is subject to approval by the SEC in
        Washington, D.C.
  F-18
 
 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
        the software and trademarks, registrations and software applications related
        to
        the operation and marketing 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
        the
        Company’s Form 8-K filed on October 25, 2007 and is available at the SEC’s web
        site, www.sec.gov . TDN’s
        options of 18,000,000 shares of common stock shall be
        canceled pursuant to the terms of the DSPA upon the closing of the
        DSPA.
 
 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 requires
        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 regarding the DSPA and the amendments thereto can be found in the
        Company’s Form 8-K’s filed on October 25, 2007, December 12, 2007, February 12,
        2008, March 6, 2008, and March 21, 2008.
 
 **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.
  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. However, the 4,500,000
        shares held in escrow have not been deemed to carry voting rights under Nevada
        law as they are held for the benefit of the Company until released.
 
 No
        other
        new shares were issued by the Company during the period from January 1, 2006
        through the date of this report.
 
 **NOTE
        6 - INCOME TAX** ES
 
 As
        of
        December 31, 2007, the Company had a net operating loss carry forward for
        federal income tax purposes of $4,113,124. This net operating loss carry
        forward, if not used, will begin to expire in 2022. Deferred tax assets
        (liabilities) are comprised of the following:
 December
                    31,2007
                
                2006Net
                    operating loss carryforwards
                
                $
                1,398,462
                
                $
                1,004,625Less
                    -Valuation allowance
                
                
                (1,398,462
                )
                
                (1,004,625
                )Net
                    deferred tax assets
                
                $
                -
                
                $
                -
  F-19
  For
        the
        year ended December 31, 2007, the valuation allowance was increased by $393,837
        due to uncertainties surrounding the realization of the deferred tax assets,
        resulting from the Company’s net book loss of $1,165,988 for the year and an
        accumulated deficit of $5,316,374 at December 31, 2007. The valuation allowance
        has been estimated in an amount equal to the projected future benefit of
        the
        loss carry forward due to the assumption the Company may not generate sufficient
        income to utilize the future tax benefit. The
        valuation allowance is provided to reduce the deferred tax asset to a level
        which, more likely than not, will be realized.
 
 The
        provision (benefit) for income taxes differs from the provision (benefit)
        amount
        computed by applying the statutory federal tax rate (34%) to the taxable
        loss
        due to the following:
 2007
                
                2006Statutory
                    regular federal income benefit rate
                
                
                34.00
                %
                
                34.00
                %State
                    taxes (net of federal benefit)
                
                
                5.85
                %
                
                5.85
                %Change
                    in valuation allowance
                
                
                -39.85
                %
                
                -39.85
                %Provision
                    (benefit) for income tax
                
                $
                -
                
                $
                -
  State
        Franchise Taxes have been recorded as an expense. All returns due have been
        filed and the 2007 tax was paid when due. The Company made a provision of
        $2,318
        as of December 31, 2005, for the actual amount due for 2002 through 2004,
        which
        was paid in full on January 26, 2006.
 .
 **NOTE
        7 - 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 52.2% of the voting power of the
        Company’s outstanding common stock, into 13,054,628 shares of the Company’s
        restricted common stock at a conversion price of $.035 per share. Pursuant
        to
        the terms of the DSPA, these shares will be cancelled upon closing of the
        DSPA.
 
 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.
  F-20
 
 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
        were to at the rate of one thirty-sixth per month of employment. Mr. Turner
        resigned effective on December 15, 2007 and a total of 796,300 shares subject
        to
        his option had vested. Mr. Heinke was granted options to purchase 300,000
        shares
        of the Company’s common stock at the purchase price of $0.081 per share. Mr.
        Heinke’s options vest at the rate of one thirty-sixth per month of employment.
        The purchase price of $0.081 per share for Mr. Turner and Mr. Heinke’s options
        was the fair market value of the shares at the date of the grant.
 
 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 twelve months ended December 31,
        2007
        was $99,038 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 52.2% of the voting power 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.
 
 **NOTE
        8 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**
 
 Summarized
        unaudited financial information for the years ended December 31, 2007 and
        2006
        are noted below:
 **2007****Dec.
                    31**
                
                
                **Sept.
                    30**
                
                
                **June
                    30**
                
                
                **March
                    31**Net
                    Revenues
                
                $
                135
                
                $
                189
                
                $
                238
                
                $
                204Gross
                    Profit
                
                $
                118
                
                $
                167
                
                $
                210
                
                $
                169Net
                    (loss)
                
                $
                (224,288
                )
                $
                (356,985
                )
                $
                (398,347
                )
                $
                (186,368
                )Net
                    (loss) per share - basic and diluted
                
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.01
                )
  **2006****Dec.
                    31**
                
                
                **Sept.
                    30**
                
                
                **June
                    30**
                
                
                **March
                    31**Net
                    Revenues
                
                $
                239
                
                $
                363
                
                $
                273
                
                $
                -Gross
                    Profit
                
                $
                188
                
                $
                298
                
                $
                234
                
                $
                -Net
                    (loss)
                
                $
                (153,477
                )
                $
                (253,627
                )
                $
                (396,710
                )
                $
                (283,180
                )Net
                    (loss) per share - basic and diluted
                
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.01
                )
  F-21
  **NOTE
        9 - SUBSEQUENT EVENTS**
  The
        co-location agreement with Evocative, Inc., explained in Note 4, was cancelled
        effective January 31, 2008. The Company’s search engine, servers and related
        equipment remained at Evocative’s data center until they were moved to TDN’s
        headquarters on February 19, 2008. For the
        month of January 2008, Evocative charged the Company $3,473 for its services.
        For the period from February 1st through February 19th, the Company was charged
        $1,440 for storage of its equipment at Evocative’s data center.
 
 The
        Services Agreement with TDN, a related party, which is explained in Note
        3,
        expired on January 31, 2008. For the month of February 2008, TDN charged
        the
        Company $9,672, which included a charge of $5,000 for the shut down, packing,
        moving and storage of nine TDN managed servers and peripheral equipment.
        Although the Services Agreement expired on January 31, 2008, because the
        DSPA
        has not closed, TDN continues to provide the Company with its San Ramon office
        space, computer and office equipment, and certain supplies and services.
        TCI
        Holding signed an agreement with TDN on February 5, 2008 providing that it
        will
        pay all unpaid invoices of the monthly service fees associated with the Services
        Agreement. It is important that Two Dog Net continue to provide the services,
        facilities and equipment uninterrupted under the Services Agreement because
        the
        services being provided under the agreement are essential to TCI’s operations
        and San Ramon office space is the location of the Company’s headquarters.
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