**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, 2006





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





For
      the
      transition period from _______ to _______





Commission
      file number: 000-29611





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


(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.)5000
                Hopyard Rd, Suite 320 Pleasanton, CA
            
            94588(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer's
      telephone number: (925)
      737-0144





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, 2006, the Company’s revenue was
      $875.





As
      of
      March 31, 2007, 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 $2,149,899.





As
      of
      March 31, 2007, there were 26,873,738 post-split shares of the Company’s common
      stock outstanding.










**TABLE
      OF CONTENTS**


**Page****PART
                  I**ITEM
                  1
              DESCRIPTION
                  OF BUSINESS
              
              1ITEM
                  2
              DESCRIPTION
                  OF PROPERTY
              
              6ITEM
                  3
              LEGAL
                  PROCEEDINGS
              
              7ITEM
                  4
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              9**PART
                  II**ITEM
                  5
              MARKET
                  FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS
              
              9ITEM
                  6
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND PLAN OF OPERATIONS
              
              11ITEM
                  7
              FINANCIAL
                  STATEMENTS
              
              16ITEM
                  8
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE
              
              16ITEM
                  8A
              CONTROLS
                  AND PROCEDURES
              
              17**PART
                  III**ITEM
                  9
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS & CONTROL PERSONS; COMPLIANCE WITH
                  SECTION 16(A) OF THE EXCHANGE ACT
              
              18ITEM
                  10
              EXECUTIVE
                  COMPENSATION
              
              20ITEM
                  11
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              
              22ITEM
                  12
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              23**PART
                  IV**ITEM
                  13
              EXHIBITS
              
              24ITEM
                  14
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              25SIGNATURES
              
              26




ii




**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.**





**Forward-Looking
      Statements**





Certain
      portions of this Annual Report on Form 10-KSB contain “forward-looking
      statements”. Such forward-looking statements involve known and unknown risks,
      uncertainties and other factors, which may cause the actual results, performance
      or achievements of The Children’s Internet, Inc. (the Company) to be materially
      different from any future results, performance, or achievements expressed or
      implied by such forward-looking statements, including that the Company’s lack of
      revenue is not necessarily indicative of its future revenue levels or future
      financial performance. The Company’s future operating results are dependent upon
      many factors, including but not limited to: (i) whether the Company is able
      to
      obtain sufficient funding to fund its operations and business; (ii) whether
      the
      Company is able to build the management and human resources and infrastructure
      necessary to support the growth of its business; (iii) competitive factors
      and
      developments in the industry in which the Company competes; (iv) intellectual
      property protection; and (v) any economic conditions that would negatively
      affect the Company’s business and expansion plans.





**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.




On
      July
      3, 2002, Shadrack Films, Inc. (“Shadrack”) purchased 2,333,510 newly issued
      post-split shares of our common stock for $150,000, thereby obtaining a majority
      ownership interest in the company. Our Chief Executive Officer and one of our
      directors, Sholeh Hamedani, is the sole officer, director and shareholder of
      Shadrack.




On
      September 10, 2002, we entered into a Wholesale Sales & Marketing Agreement
      with Two Dog Net, Inc., a related party. This Wholesale Sales and Marketing
      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, Inc. 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 Wholesale
      Sales & Marketing Agreement has a term of five years and renews for
      additional five year terms automatically unless either we or Two Dog Net give
      written notice of termination of the agreement not less than one year before
      the
      end of any five year term. Two Dog Net 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.




1


In
      February 2005, we amended the Wholesale Sales & Marketing 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 Two Dog Net, or its
      designees an option (the “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 Option
      also provides for “piggy back’ registration rights for all shares underlying the
      Option on any registration statement filed by the Company for a period of one
      year following any exercise of the Option.




Our
      Chief
      Executive Officer, and one of our directors, Sholeh Hamedani, was President
      of
      Two Dog Net until she resigned on August 1, 2002. Ms. Hamedani, a co-founder,
      currently owns approximately 10% of the total outstanding shares of common
      stock
      of Two Dog Net. Ms. Hamedani’s father, Nasser Hamedani, is the current
      President, Chairman and majority shareholder of Two Dog Net. See Item 12,
“Certain Relationships and Related Transactions.”




**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 all within
        a
        protected online environment. We believe that the proprietary security software,
        SafeZone Technology®, offers security against Internet predators and Internet
        content that is inappropriate for children. The target market for The Children’s
        Internet Ò is the
        48 million children on-line in 2002 (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. (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.  (Report
        from Internet Commerce & Communications Division, Information Technology
        Association of America, February, 2002) A 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 percent of parents are concerned that their kids view
        only age-appropriate content when logging on from the classroom. (Consumer
        Internet Barometer study done in 3 rd quarter
        of 2005) Risk of exposure to pornography and online predators is a growing
        danger. The number of pornographic websites has increased by 140% to 372
        million
        web pages and continues to grow. Child pornography requests online have
        accumulated to 43 billion per year. (Pew Internet and American Life Project
        study 2005)




**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 gone out of 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.





2




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.). Inc). In addition, we
      compete with online services such as Yahoo! Kids (Yahoo!), an Internet navigator
      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
      currently offer one product, The
      Children’s Internet® service ,
      through
      our agreement with Two Dog Net .
      Because
      our plan is to initially focus on establishing a base of subscribers to the
      primary service, we currently do not have plans to offer dial-up Internet
      service as allowed by our agreement with Two Dog Net. A ny
      events
      adversely affecting Two Dog Net will also affect us as we are entirely dependent
      on our agreement with Two Dog Net for any 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.





We
      are
      also dependent upon private third party providers such as EmeryTech Data Center
      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.





3





**Dependence
      on one or a few major customers**





Since
      our
      recent product launch in March of 2006 we have acquired minimal retail
      customers, but do not have any major customers.





**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 a 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.




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**





Based
      on
      our agreement with Two Dog Net, we will continue to look to Two Dog Net for
      research and development and will continue to rely on Two Dog Net to keep The
      Children’s Internet Ò technology current. 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 feature functionality for The Children’s
      Internet Ò .
      In the
      future, in association with Two Dog Net, we will explore ways to leverage our
      current knowledge on compatible product enhancements. For example, some of
      the
      development may focus on interactive learning systems, a parent’s portal,
      multiple participant interactive games for children, 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 five individuals serving as our full-time staff: Sholeh Hamedani,
      Roaya Hamedani, Tyler Wheeler, John Heinke and Bill Arnold. On December 30,
      2005, we hired Bill Arnold as our president. Bill Arnold had served as our
      Investor Relations consultant during the last ten months of 2005, through
      Crosslink Financial Communications, Inc. as discussed in the following
      paragraph. Except for Sholeh Hamedani and Bill Arnold, the services of our
      staff
      have been provided to the Company through Shadrack or Two Dog Net, Inc. without
      charge. On September 1, 2006 Mr. Arnold took a voluntary unpaid leave of
      absence.





We
      hire
      independent contractors on an “as needed” basis only. We have no collective
      bargaining agreements.





On
      February 25, 2005 we entered into a Consulting Agreement with Crosslink
      Financial Communications, Inc., of which Bill Arnold is the principal
      shareholder. The agreement, which was originally for a 12-month term commencing
      February 25, 2005. The agreement was terminated at the end of December 2005
      after Bill 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 current and proposed activities, and in consulting with management.





5





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, 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.





On
      March
      29, 2007, the Company entered into an Executive Employment Agreement with Tim
      T.
      Turner, whereby by Mr. Turner will become the Director of Finance and Operations
      for the Company. Upon the Company obtaining Directors and Officers Insurance
      Mr.
      Turner will be appointed an officer of the Company and made a member of the
      Company’s Board of Directors. The agreement states that Mr. Turner shall
      receive a yearly salary of $157,500. He shall earn a monthly salary of $13,125
      of which $5,000 will be paid in cash and $8,125 shall be deferred and accrued
      for a maximum period of twelve months from the date of this Agreement. In the
      event that the Company raises, during this twelve-month period, additional
      capital, through loans, equity investment or both, in the aggregate sum of
      one
      million dollars, Mr. Turners monthly cash compensation shall be increased to
      $6,562.50. The balance of Mr. Turner’s monthly compensation of $6,562.50 shall
      be deferred and accrued.





At
      the
      end of the twelve month period, the total amount of the Mr. Turner’s deferred
      compensation shall be payable by the Company, and the cash compensation will
      be
      increased to $13,125 per month. In the event that the Company, acting in good
      faith, determines that it does not have the resources to pay Mr. Turner deferred
      compensation, Mr. Turner and the Company agree that the total amount of deferred
      compensation will be converted into a note payable to Mr. Turner by the Company.
      The Note shall have a term of one year and shall accrue interest at the annual
      rate of 7.75%, or 2.5 % above the Federal Funds Rate then in effect, whichever
      amount is higher, payable at the end of each calendar month.





At
      the
      end of the Note term, the principal amount and any unpaid earned interest shall
      be due and payable. The Note will have a Warrant attached to it that will enable
      the holder to purchase shares of the Company’s common stock. The number of
      shares of the Company’s common stock that will be purchasable under the terms of
      the Warrant will be equal to the principal amount of the Note multiplied by
      four
      and divided by the then current market price of the Company’s common stock. The
      Warrant Shares will be unregistered and subject to Rule 144. The Warrant Shares
      shall have piggyback registration rights. The term of the Warrant will be five
      years from the date of issue. Mr. Turner’s monthly salary will otherwise be
      payable pursuant to the Company’s normal payroll practices. The Note will
      continue to be due and payable with interest from the date issued. In addition
      to the Base Salary, Mr. Turner shall participate in a bonus program in which
      Mr.
      Turner will earn an annual bonus equal to 50% of Mr. Turner’s Base Salary
      subject to Mr. Turner meeting the performance objectives established by the
      Company.





**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      majority shareholder, Shadrack, has agreed to allow us to operate from its
      offices located at 5000 Hopyard Rd., Suite 320, Pleasanton, CA under a
      verbal lease revocable at any time without prior notice. These offices are
      2,059
      square feet and are leased by Shadrack from Principal Life Insurance Company,
      an
      Iowa corporation. From March 22, 2004 until April 30, 2004, we occupied the
      office space on a rent-free basis. From month two (May 2004) through 13 the
      basic rent per month was $3,603,
      for months 14 through 25 the
      basic
      rent per month was $3,706
      and for months 26 through 37 the
      basic
      rent per month is $3,809 under a lease agreement that expires on May 1,
      2007.





6




**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. ****





The
      Company filed a cross-complaint against O&Y alleging breach of contract,
      professional negligence, negligent representation, and breach of good faith
      and
      fiduciary duty. The Company is seeking damages in an unspecified amount for
      costs, legal fees and losses incurred. O&Y has vigorously disputed the
      claims set forth in the cross-complaint and has indicated its intention, should
      it prevail in its defense, to institute a malicious prosecution action against
      the Company, Nasser Hamedani, Sholeh Hamedani and Company counsel.





A
      cross-claim was filed in the Superior Court of California, County of Orange,
      Case No. 04CC11623 by the Company  against
      O&Y, and the principal allegation is that O&Y was retained to assist its
      predecessor company in the purchase and acquisition of D.W.C. Installations
      with
      the expectation that D.W.C. had available free-trading shares such that the
      Company  could
      immediately raise capital on the relevant markets and that in advising the
      Company  through
      the purchase, O&Y failed to properly advise the Company as to the status of
      D.W.C. Installations and its shares which in fact were not free-trading. As
      a
      result of this conduct, the Company  alleges
      damages in an unspecified amount but including purchase costs, extended
      operation costs, refiling costs, audit costs, legal fees, loan fees, lost market
      share, and costs for registration. Trial on the complaint and cross-complaint
      is
      set to proceed on December 17, 2007.





**Stock
      Purchase Agreement**




There
      is
      a contingent liability in connection with a Stock Purchase Agreement executed
      on
      October 11, 2002 between identified Shareholders and identified Purchasers.
      Under the terms of Stock Purchase Agreement, a payment of $150,000 is due to
      be
      paid into escrow in part consideration for purchase of the stock of D.W.C.
      Installations, Inc. The payment date is designated as 90 days from the date
      that
      the Company’s [D.W.C. Installations, Inc., a Nevada Corporation] shares of
      common stock become quoted on the over-the-counter bulletin board system. The
      shares became 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.




7




**Stonefield
      Josephson, Inc. Arbitration**




The
      Company was subject to a claim by Stonefield Josephson, Inc., the former
      accountants for the Company, seeking reimbursement costs for legal fees spent
      in
      connection with the Securities and Exchange Commission inquiry of the Company.
      Stonefield Josephson, Inc.’s claim seeks recovery of $29,412.74. The Company
      disputes any amounts owed because of a settlement agreement entered into between
      the respective parties in December 2004 effectively terminating their
      relationship. This matter was submitted to binding arbitration through AAA
      in
      January 2007. The arbitrator’s decision was issued on February 2, 2007, awarding
      Stonefield Josephson, Inc. the sum of $19,000 accruing at an interest rate
      of
      10% per annum. The decision also awarded costs and fees to Stonefield Josephson,
      Inc. in the amount of $1,425.00 both of which remain unpaid.





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




On
      August
      25, 2006, the Company filed a complaint against its former accountants
      Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
      Court
      of California, County of Alameda, Case No. VG06286054 alleging breach of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The matter was subsequently transferred to Los Angeles Superior
      Court and is presently pending there.





**SEC
      Complaint**




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





The
      Company is currently seeking resolution of the SEC complaint by virtue of
      settlement.  A potential settlement likely may include the Company and/or
      its principals consenting, without admitting or denying the allegations, to
      a
      judgment alleging negligent, reckless, and intentional violations of the
      federal securities laws, and other sanctions including substantial penalties.
      These penalties could range from current key members of management being barred
      from serving as either directors or officers of the Company to also including
      financial penalties and disgorgement of all profits derived by the Company
      and/or its principals who raised funds through the sale of Company stock to
      third parties.  Any
      proposed settlement will be subject to the Commission’s approval and the Company
      cannot predict the outcome of these settlement negotiations. Additionally,
      there
      is no assurance that the Company will receive a settlement offer. Moreover,
      there is no assurance that the settlement offer (if any) will be acceptable
      to
      the Company and the prospect of litigation could ensue which could
      seriously compromise the Company's ability to achieve its goals.





8




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




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





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





None.





**PART
      II**




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




The
      Company's common stock was approved for trading in 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:


Period
              
              High
                  Closing Bid
              
              Low
                  Closing Bid1st
                  Quarter 2005
              
              $
              6.35
              
              $
              1.752nd
                  Quarter 2005
              
              $
              8.40
              
              $
              1.373rd
                  Quarter 2005
              
              $
              1.61
              
              $
              0.584th
                  Quarter 2005
              
              $
              0.75
              
              $
              0.421st
                  Quarter 2006
              
              $
              1.15
              
              $
              0.432nd
                  Quarter 2006
              
              $
              0.71
              
              $
              0.213rd
                  Quarter 2006
              
              $
              0.35
              
              $
              0.1254th
                  Quarter 2006
              
              $
              0.17
              
              $
              0.061st
                  Quarter 2007
              
              $
              0.17
              
              $
              0.07




9




**Holders**




As
      of
      March 31, 2007, there were 283 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.




**Shares
      Issued During Fiscal 2005 and 2006**




The
      Company issued post-split 13,334,628 restricted common shares during the 2005
      fiscal year. 13,054,628 post-split shares were
      issued in the conversion of debt owed by the Company to Shadrack Films, Inc.
      (the majority shareholder) as explained in Item 6 under the heading “Plan of
      Operation”. 280,000
      shares were issued to Crosslink Financial Communications, Inc., as discussed
      previously in Item 1 under the heading “Staff and Consultants”.




During
      the year ended December 31, 2006, 15,600 post-split restricted common shares
      were issued to two principals of Brazer Communications under a public relations
      consulting agreement. No other new shares were issued by the Company during
      2006.




On
      April
      30, 2007, the Company and the Board of Directors adopted “The Children’s
      Internet, Inc. 2007 Equity Incentive Plan” (the “Plan”). The purpose of the Plan
      is to provide incentives to attract retain and motivate eligible persons whose
      present and potential contributions are important to the success of the Company
      by offering them an opportunity to participate in the Company's future
      performance through awards of Options, Restricted Stock and Stock
      Bonuses . Under
      the
      terms of the Plan the Company has made available six million (6,000,000) Shares
      of the Company’s stock to be issued to Officers, Directors, Employees,
      Consultants and Advisors to the Company with certain restrictions as set forth
      in the Plan, and can be found in Exhibit 10.14 to this 10-KSB. The plan will
      be
      administered by a Committee of the Board of Directors. The plan will terminate
      ten (10) years from the effective date of the plan unless terminated earlier
      under the terms of the Plan.




**Other
      Matters**




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” post-split shares of common stock to six individuals, two of
      whom are related to the Company’s Chief Executive Officer, Chief Financial
      Officer and 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 tradeable" based
      on
      the representations made by our attorney at the time, Oswald & Yap, who
      structured the agreement.  Subsequently the company determined that the
      shares were, in fact, not "freely tradeable" and those shares would have to
      be registered.  The said shares were then registered in a SB-2 Registration
      Statement 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” post-split shares, to
      issue four shares of restricted common stock to these shareholders or their
      designees, for every one “freely-tradable” share held.





10




At
      the
      time the shares were issued, the Company believed the shares were "freely
      tradeable" based on the representations made by our attorney at the time, Oswald
      & Yap, who structured the agreement.  Subsequently the company
      determined that the shares were, in fact, not "freely tradeable" and those
      shares would have to be registered.  The said shares were then registered
      in a SB-2 Registration Statement declared effective on May 5, 2004. Pursuant
      to
      this agreement, 8,948,000
      newly-issued restricted post-split 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 ongoing
      operations of the Company. TDN retained the remainder of the proceeds to help
      fund development costs of The Children’s Internet system and to make payments on
      TDN’s existing debts. The 8,948,000 newly-issued
      post-split 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 post-split 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 post-split 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, 2006 and 2005, the
      net amount loaned to the Company by Shadrack was $1,471,258 and $1,078,146,
      respectively.





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




**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.





**Selected
      Financial Data**




The
      following selected financial data for the period from September 25, 1996, the
      date of our inception, through December 31, 2006 and for the fiscal year ended
      December 31, 2006 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 "Plan of Operation",
      below, and our audited financial statements, including the related
      footnotes.




11




For
                the year
              ended
                December 31,
              2006
            
            For
                the period from September 25, 1996 (inception) through December 31,
                2006**Statement
                of Operations Data:**Net
                revenues
            
            $
            875
            
            $
            875Operating
                expenses
            
            $
            1,067,414
            
            $
            4,127,606Operating
                loss
            
            
            ($1,066,694
            )
            
            ($4,126,886
            )Net
                Loss
            
            
            ($1,086,994
            )
            
            ($4,150,386
            )





As
                of December 31, 2006**Balance
                Sheet Data:**Total
                assets
            
            $
            48,840Current
                liabilities
            
            $
            895,384Long-term
                Liabilities
            
            $
            1,014,346Total
                stockholders' deficit
            
            $
            1,860,890





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 is
      due
      primarily to the Oswald & Yap litigation and responding to the SEC
      investigation and complaint.





**Plan
      of Operation**





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





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





12




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




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




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




During
      2006 the technology on which the product is based was updated and the
      functionality of the service was improved. During 2006 the Company increased
      the
      number of approved websites within the search engine and portals data base
      by
      over 50%. 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 2006, where appropriate, the Company contracted with third party
      companies to outsource administrative support services and effectively put
      in
      place the infrastructure to support the marketing initiatives. These outsource
      providers handle telemarketing and the order taking process and media placement.




**The
      Business Model**




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




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





·
            Parents
                and Kids




·
            The
                School Market: School Administrators and
                Teachers




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




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




·
            ISP
                customers with an interest in protecting their families




13




With
      the
      product now launched and generating minimal revenues, we are affecting a broad
      based Sales and Marketing Plan. We will focus our sales and marketing programs
      on five distinct areas where we can produce revenue:





1.
            **Consumer
                Sales**-
                We are selling monthly subscriptions of the service directly to consumers
                via a nationwide Sales Agent program. We introduced a Sales Agent
                program
                on January 11, 2006 and began enrolling independent Sales Agents
                to sell
                subscriptions to The Children’s Internet® service on a commission only
                basis. A monthly commission of $2.00 per subscriber is paid to the
                sales
                agent and continues as long as the subscriber is enrolled with our
                service. These independent Sales Agents have already demonstrated
                the
                ability to introduce the product to some of the nations largest ISPs,
                retailers, merchandisers and fast food companies.Consumers
                may also acquire the product directly from the Company via our website
                at:
                www.thechildrensinternet.com.





2.
            **Wholesalers**-
                We 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
                will “partner” with non-profit organizations to have them market the
                product. Targets would include large religious organizations, various
                scout programs, Internet safety activists, law enforcement agencies,
                etc.
                Moreover, we offer any age-appropriate school, public or private,
                20 free
                licenses for a year. From there, we expect Parent Teacher Associations
                to
                use the product as a fund raiser, deepening our penetration into
                the homes
                of children.




4.
            **Infomercials-**Subject to securing financing, the cornerstone of our consumer marketing
                plan is a national television advertising campaign which includes
                a
                30-minute infomercial that was produced over a two-year period of
                time by
                Two Dog Net. This infomercial will be re-edited and updated. We then
                intend to utilize the infomercial to launch the advertising and consumer
                marketing program to build brand recognition and to generate revenues
                from
                customer monthly subscriptions. We plan to first conduct a limited
                media
                test to identify what television stations in various geographical
                markets
                generate the most response. From the media test we will be able to
                build
                the media plan to launch the advertising campaign on a national basis
                thereafter and will be the basis for the ongoing infomercial media
                schedule.





**Channels
      of Distribution:**





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





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





14




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 will have the opportunity to employ secondary resellers
      to
      work for them, but we will not market using a multi-level marketing plan.
      Through grassroots efforts during 2006 the Company entered into sales agent
      agreements with ten individuals. Through 2007 the company intends to continue
      to
      support these sales agents in their efforts to distribute the product on an
      individual basis, through organizations and through key strategic online service
      providers.





**Future
      products and services**




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




**Market
      Share, Cash Flow and Profitability**




Although
      market data is not exact, and varies depending on the source, our plan is based
      on the belief that in the United States alone there are an approximately 48
      million homes with internet access with children under the age of 16. Our model,
      with a mix of business generated from the respective channels of distribution,
      indicates we can be cash flow positive and profitable with less than 0.5% of
      the
      market.




As
      of
      December 31, 2006, we had net loss from inception of approximately $4,150,000.
      Of this amount, approximately $595,000 represents the estimated fair market
      value for the cost of wages, if paid, for the services rendered by our Chief
      Executive Officer and an outside consultant (we have recorded these amounts
      for
      the cost of wages, and since they did not charge the Company, as additional
      paid
      in capital), $1,598,000 represents professional fees such as legal and
      accounting expenses, $575,000 represents a debt financing fee, $315,000
      represents officers compensation for which an option to purchase common stock
      was issued, $449,000 represents accrued officers compensation, and the balance
      of $618,000 consists primarily of occupancy and telecommunications costs
      including internet costs. To date Shadrack, the majority shareholder, has funded
      all of our expended costs.




Currently,
      we are dependent on funding from Shadrack for our current operations and for
      providing office space and utilities that for the year ended December 31, 2006,
      averaged $14,200 per month in operating costs, exclusive of professional fees,
      time donated by our staff and officers’ time paid or accrued during the year
      2006. Through December 31, 2006, the amount funded by Shadrack totaled
      approximately $1,471,000. On December 31, 2006, the balance due to Shadrack
      was
      approximately $1,014,000. The difference of approximately $457,000 was converted
      to common stock on February 15, 2005, when the Company’s Board of Directors
      authorized the conversion of all debt owed to Shadrack into 13,054,628
      post-split shares of restricted common stock at a conversion price of $0.07
      per
      pre-split share. Shadrack is under no obligation to continue funding our
      operations and could stop at any time without notice.




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




15




On
      February 25, 2005, we entered into a Consulting Agreement with Crosslink
      Financial Communications, Inc., of which Bill Arnold is the principal
      shareholder. Crosslink represented the Company in stockholder communications
      and
      public relations with existing shareholders, brokers, dealers and other
      investment professionals as to the Company's current and proposed activities,
      and in consulting with management. For undertaking this engagement the Company
      agreed to issue a “Commencement Bonus” payable in the form of 200,000 restricted
      post-split shares of the Company's common stock. In addition, the Company agreed
      to a monthly stock compensation of 8,000 post-split shares of common stock
      every
      month on the contract anniversary date, and a cash fee of $5,000 per month
      for
      the term of the Agreement. Out of this fee, Crosslink paid for complementary
      services (e.g., other mailing services, email services, data base extensions)
      up
      to an average of $2,500 per month. The agreement, which was originally for
      a
      term commencing February 25, 2005 and ending twelve months thereafter, was
      terminated at the end of December 2005 because there was a mutual desire for
      Mr.
      Arnold to be involved on a daily basis. Hence on December 30, 2005, Bill Arnold
      was hired as the Company’s President. Beginning on September 1, 2006 Mr. Arnold
      took a voluntary unpaid leave of absence.




**Going
      Concern Uncertainty**





Since
      our
      anticipated offering of new shares to the public was terminated, we have relied
      exclusively on loans from Shadrack to fund all of our expenses. There is no
      assurance that Shadrack 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. 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.




**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.**





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





16




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





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




**ITEM
      8A. CONTROLS AND PROCEDURES**




(a)
            Restatement.





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





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




17




(b)
            Evaluation
                of Disclosure Controls and Procedures and
                Remediation




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





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





**ITEM
      8B. OTHER INFORMATION**





None.


**PART
      III**




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




Our
      directors and executive officers are as follows:





Name
            
            Age
            
            PositionSholeh
                Hamedani
            
            39
            
            Chief
                Executive Officer, Chief Financial Officer, Chairman of the Board
                of
                DirectorsJamshid
                Ghosseiri
            
            67
            
            Secretary,
                DirectorTyler
                Wheeler
            
            36
            
            DirectorRoger
                Campos, Esq.
            
            60
            
            DirectorWilliam
                L. Arnold
            
            60
            
            President





**Ms.
      Sholeh Hamedani** has
      been
      our Chief Executive Officer, Chief Financial Officer and Chairman of the Board
      since August 23, 2002. From May 2002 through the present, she has served as
      the
      President, CEO and founder of Shadrack Films, Inc.,  the
      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 their
      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 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.
      William L. Arnold** was
      appointed President of the Company on December 30, 2005. Mr. Arnold has nearly
      30 years of senior management experience in companies ranging from startups
      to
      Fortune 500 companies. After serving in senior level general management
      positions, including President of its second largest subsidiary, at Fortune
      500
      U. S. Leasing International. Subsequently he was President of LeasePartners,
      Inc. and later President of MicroResources, Inc. Prior to joining The Children's
      Internet, he co-founded Crosslink Financial Communications, Inc., specializing
      in consulting with microcap companies with respect to issues ranging from
      product positioning and sales management to conveying their value proposition
      to
      Wall Street. He has a history of successful implementation of leveraged business
      relationships with companies such as IBM, Hewlett-Packard, Merrill Lynch and
      Discovercard, making him highly qualified to both develop a field sales presence
      and negotiate and close the large-scale relationships the company will pursue.
      Mr. Arnold has an MBA from Auburn University.





18




**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.





**Mr.
      Dale Boehm** was
      appointed a director on August 23, 2002. From September 2002 through the
      present, Mr. Boehm is the Founder and President of Caspian Technology Concepts,
      a consulting firm specializing in network management services. Previous to
      this,
      Mr. Boehm served as Director of Sales at Qwest Telecommunications, Inc from
      July
      2001 continuing until August 2002 where he was responsible for 90+ direct
      reports and all of the revenue in the National Accounts division in Illinois
      and
      Wisconsin. From December 2000 to July 2001, Mr. Boehm was the Regional Vice
      President of Central Region Sales at One Secure Inc., a managed security
      services provider enabling clients to co-manage firewalls. Mr. Boehm received
      his Certificate of Telecommunications Analysis from the University of
      Wisconsin-Milwaukee in 1994. Mr. Boehm resigned as a director on May 11, 2006
      and his seat has not been replaced.




**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.




19





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 it continues as composed unless shareholders demand a meeting.




**Meetings
      of The Board of Directors and Information Regarding
      Committees**





There
      currently are no committees of the Board of Directors. The Board of Directors
      met twice during the year 2005, on February 22, 2005 and on April 20, 2005,
      to
      manage various company issues. There were no Board meetings in
      2006.





**Compliance
      with Section 16(a) of the Exchange Act**




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.




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




**General
      Compensation Discussion**




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.




20




**Summary
      Compensation Table**





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




ANNUAL
                COMPENSATION
            
            LONG
                TERM COMPENSATIONAwards
            
            PayoutsName
                and Principal Position
            
            Year
            
            Salary
              ($)
            
            Bonus
                ($)
            
            Other
                Annual Compensation
              ($)
            
            Restricted
                Stock Awards ($)
            
            Securities
                Underlying Options/
              SARs
              (#)
            
            LTIP
              Payouts
              ($)
            
            All
                Other Compensation ($)Sholeh
              Hamedani,
              CEO,
                CFO
            
            
            2004
              2005
              2006
            
            $
              $
              $
            180,0001
              180,0002
              180,0002
            
            $
              $
              $
            0
              0
              0
            
            $
              $
              $
            0
              0
              0
            
            $
              $
              $
            0
              0
              0
            
            
            -0-
              -0-
              -0-
            
            $
              $
              $
            0
              0
              0
            
            $
              $
              $
            0
              0
              0Bill
                Arnold, President
            
            
            2006
            
            $
            77,0963
            
            $
            40,0003
            
            $
            0
            
            $
            0
            
            $
            52,223
            
            $
            0
            
            $
            0




On
      February 15, 2005, the Company’s Board of Directors granted Tyler Wheeler, the
      Company’s Chief Software Architect Consultant and a director, an option to
      purchase up to 1,000,000 post-split shares of the Company’s restricted common
      stock at an exercise price of $0.07, and a fair value of $315,000 if all the
      options were to be converted. The option is exercisable, in whole or in part
      at
      any time and from time to time, for a period of five years from the date of
      grant.  The
      option 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 all of the acquirable shares are restricted.




No
      other
      options or SARs (Stock Appreciation Rights) were granted to any directors or
      executive officers during 2005 and 2006.




**Employment
      and Related Agreements**





William
      L. Arnold was appointed by the Chairman to act as the President of the Company
      beginning December 30, 2005, under an Executive Employment Agreement executed
      on
      the same date. Compensation includes a monthly salary of $10,000, of which
      $2,500 per month is deferred with 9% accrued interest until January 2007. The
      agreement also includes a performance bonus of up to 50% of the annual salary
      and a combination of nonqualified and qualified stock options (the Stock
      Option). The Stock Option is for the purchase of up to 1,000,000 post-split
      shares at an option price of $0.55 per share, which was more than the closing
      market price of $0.48 on the date of the agreement. One half of the Stock Option
      vests immediately and the remaining 500,000 option shares will vest at the
      rate
      of 1/36 th each
      month until fully vested. Of the 500,000 option shares which vest immediately,
      360,000 are Incentive Stock Options (ISO’s). The remaining 640,000 option shares
      are non-qualified. Beginning 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 were suspended.




1 The
        officer did not charge the Company for her services - this amount was the
        estimated fair market value for comparable services and was recorded as
        additional paid in capital as of December 31, 2004.
  2 The
        officer’s salary was accrued but has not been paid through the date of this
        report.
 
 3 Salary
        of $27,822 has been paid. The balance of $49,274 was accrued. The bonus of
        $40,000 has been accrued.




21




**Compensation
      of Directors**





Directors
      of the Company do not receive any cash compensation, but are entitled to
      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 our
      executive officers, (iii) all executive officers and directors as a group,
      and
      (iv) each shareholder known by us to be a beneficial owner of more than 5%
      of
      any class of our voting securities as of March 31, 2007.





Name
            
            Number
                of Post-Split Shares
            
            Percentage
                Beneficially OwnedSholeh
                Hamedani, CEO, CFO, Director3,5
            
            
            14,040,988
            
            
            52.2
            %William
                L. Arnold, President7
            
            
            891,112
            
            
            3.2
            %Jamshid
                Ghosseiri, Ph.D., Secretary, Director
            
            
            -0-
            
            
            -0-Tyler
                Wheeler, CTO, Director4
            
            
            1,000,000
            
            
            3.6
            %Roger
                Campos, Esq., Director
            
            
            -0-
            
            
            -0-Dale
                Boehm, Director6
            
            
            -0-
            
            
            -0-All
                Officers and Directors as a group (5 people)
            
            
            15,040,988
            
            
            54.0
            %Shadrack
                Films, Inc.3,
                5
            
            
            14,040,988
            
            
            52.2
            %Two
                Dog Net, Inc.
            
            
            18,000,000
            4
            
            39.3
            %




3 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.
  4 Shares
        of common stock subject to options granted and currently exercisable, but
        not
        exercised as of March 31, 2007.
  5 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.
  6 Mr.
        Boehm resigned as a Director on May 11, 2006.
  7 Consists
        of 280,000 post-split shares of common stock issued and 611,112 post -split
        shares of common stock subject to options granted and currently exercisable,
        but
        not exercised as of the date of this report.
  22





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




Our
      Chief
      Executive Officer, and our Chairman, Sholeh Hamedani, is the sole officer,
      director and shareholder of Shadrack, the majority shareholder. Ms. Hamedani
      was
      also President of Two Dog Net, the owner of The Children’s Internet® technology
      until she resigned on August 1, 2002. Ms. Hamedani also owns approximately
      10%
      of the total outstanding shares of common stock of Two Dog Net.




Ms.
      Hamedani’s father, Nasser Hamedani, is the current President, Chairman and
      majority shareholder of Two Dog Net.




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. Sholeh Hamedani is the
      sole officer, director and shareholder of Shadrack.




On
      September 10, 2002, we entered into a License Agreement with Two Dog Net to
      license Children’s Internet® technology and intellectual property. This
      agreement was subsequently cancelled and on March 3, 2003, we entered into
      a new
      Wholesale Sales & Marketing Agreement with Two Dog Net. Under the terms of
      this agreement, we were to pay Two Dog Net $3.00 per month for each user
      accessing The Children’s Internet® service. On February 15, 2005 the Company’s
      Board of Directors granted Two Dog Net an option to purchase 18,000,000
      post-split shares of restricted common stock at an exercise price of $.07 per
      share exercisable for five years. The option was granted in consideration of
      amending the Wholesale Sales & Marketing Agreement reducing the per user
      charge from $3.00 to $1.00.





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 our management, 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, our President, Chief Financial Officer, and Director. 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.” The
      original shareholders received their shares from us in reliance on the exemption
      from registration pursuant to Section 4(2) of the Securities Act of 1933.





On
      February 15, 2005, the Company’s Board of Directors agreed to convert the debt
      owed to Shadrack of $456,912 into 13,054,628 post-split shares of restricted
      common stock at a conversion price of $0.07 per pre-split share based upon
      the
      only sale by the Company of shares of its common stock on July 3,
      2002.





23




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





**Exhibits**





3.1
            Articles
                of Incorporation, dated September 25, 19966


3.2
            Certificate
                of Amendment of Articles of Incorporation, dated February 10,
                20006


3.3
            Certificate
                of Amendment of Articles of Incorporation, dated December 27,
                20026


3.4
            Certificate
                of Designation of Series A Preferred Stock, dated November 8,
                20026


3.5
            Bylaws6


10.1
            Plan
                of Reorganization and Acquisition, July 3, 20026


10.2
            Consulting
                Agreement with Alan Schram, dated June 28, 20026


10.3
            License
                Agreement dated September 10, 20026


10.4
            Amendment
                to License Agreement, dated November 5, 20026


10.5
            Wholesale
                Sales & Marketing Agreement, dated March 3, 20037


10.6
            Stock
                Purchase Agreement, dated October 11, 20028


10.7
            Co-Location
                Agreement, dated July 11, 20039


10.8
            Independent
                Sales Agreement with Infolink, dated August 14, 20038


10.9
            Licensing
                Agreement with Infolink, dated August 14, 20038


10.10
            Co-Location
                Agreement, dated September 26, 200310


10.11
            Exhibit
                number 10.11 not used


10.12
            Agreement
                between the Company and Crosslink Financial Communications dated
                February
                25, 200511


10.13
            Loan
                Agreement, dated October 11, 200212


10.14
            TCI
                2007 Equity Incentive Plan dated April 30,
                2007


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 2002


31.2
            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 2002


32
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002


6 Incorporated by reference from the Company's Registration Statement on Form
        SB-2, filed on February 10, 2003, as amended (Registration No.
        333-103072).
  7 Incorporated by reference from 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).
  10 Incorporated by reference from the Company's Registration Statement on Form
        SB-2, filed on February 2, 2004, as amended (Registration No.
        333-103072).
  8 Incorporated by reference from Amendment 2 to the Company's Registration
        Statement on Form SB-2, filed on September 11, 2003, as amended (Registration
        No. 333-103072).
  9 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 EDGAR August
        14,
        2003.
  10 Incorporated by reference from the Company's Registration Statement on Form
        SB-2, filed on February 2, 2004, as amended (Registration No.
        333-103072).
  11 Incorporated by reference from 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).
  12 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 EDGAR August
        15,
        2005.
  24





**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. The third quarter
      review of 2006 was performed by DeJoya Griffith & Company, LLC. The
      independent accountant for the year 2006 and 2005 is Hunter, Flemmer, Renfro
      & Whitaker, LLC.




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. Marc Lumer & Co., after
      resigning billed additional fees of approximately $6,000 with which the Company
      does not agree with 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 Reports
      on Form 10-QSB through the third quarter of 2006. The current accountants, Hunter,
      Flemmer, Renfro & Whitaker, LLC have billed fees of $26,494.50 through April
      30, 2007 for the audit of the financial statements for the year ended December
      31, 2006 and the year ended December 31, 2005.




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, Flemmer, Renfro & Whitaker, LLC provided or billed for any
      professional services during the two years ended December 31, 2006 in connection
      with tax advise, tax compliance or tax planning.




**All
      Other Fees**





Neither
      Marc Lumer & Company DeJoya
      Griffith & Company, LLC ,
      nor
      Hunter, Flemmer, Renfro & Whitaker, LLC provided any other professional
      services for the Company during the years ended December 2006 and
      2005.





25





**SIGNATURES**




Pursuant
      to the requirements of 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:
              May 18, 2007
            By:
            /s/
              Sholeh HamedaniSholeh
              HamedaniChief
                Executive Officer, Director
              (Principal Executive
                Officer)




DATED:
              May 18, 2007
            By:
            /s/
              Sholeh HamedaniSholeh
              HamedaniChief
              Financial Officer, Director




(Principal
      Financial Officer and Principal Accounting 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/
                  Jamshid Ghosseiri
              
              Secretary,
                  Director
              
              May
                  18, 2007Jamshid
                  Ghosseiri/s/
                  Tyler Wheeler
              
              Director
              
              May
                  18, 2007Tyler
                  Wheeler/s/
                  Roger Campos
              
              Director
              
              May
                  18, 2007Roger
                  Campos
  26




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,
      2006 and as of December 31, 2005, and the related statements of operations,
      stockholders’ deficit, and cash flows for each of the two years ended December
      31, 2006 and 2005 and the period from September 25, 1996 (inception) to December
      31, 2006. 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,
      2006 and December 31, 2005, and the results of its operations and its cash
      flows
      for each of the two years in the period ended December 31, 2006 and December
      31,
      2005, and the period from September 25, 1996 (inception) to December 31, 2006
      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 $1,086,944 and had negative
      cash flow from operations of $495,081. In addition, the Company had an
      accumulated deficit of $4,150,386 and a stockholders’ deficit of $1,860,890 at
      December 31, 2006. 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,
      FLEMMER, RENFRO & WHITAKER, LLP





Sacramento,
      California


May
      18,
      2007




F-1


THE
        CHILDREN'S INTERNET, INC.
 (A
        Development Stage Company)
 BALANCE
          SHEETS
 December
                  31,2006
              
              2005ASSETSCurrent
                  Assets:Cash
              
              $
              1,106
              
              $
              103,849Deposit
                  held in escrow, offsets $37,378 accountpayable
                  to Oswald & Yap (Note 4)
              
              
              37,378
              
              
              37,378Prepaid
                  marketing expenses
              
              
              1,260
              
              
              -Total
                  Current Assets
              
              
              39,744
              
              
              141,227Equipment:Equipment
                  at cost
              
              
              12,196
              
              
              11,422Accumulated
                  depreciation
              
              
              (5,100
              )
              
              (1,077
              )Equipment,
                  net
              
              
              7,096
              
              
              10,345Other
                  Assets:Deposit
                  - State Board of Equalization
              
              
              2,000
              
              
              -Deferred
                  tax asset, net of valuation allowance of$980,141
                  (2006) and $547,281 (2005)
              
              
              -
              
              
              -TOTAL
                  ASSETS
              
              $
              48,840
              
              $
              151,572LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              422,369
              
              $
              181,939Accrued
                  officers' compensation
              
              
              449,274
              
              
              180,000Payroll
                  taxes on accrued officers' compensation
              
              
              21,184
              
              
              -Taxes
                  payable
              
              
              2,557
              
              
              2,318Total
                  Current Liabilities
              
              
              895,384
              
              
              364,257Long-Term
                  Liabilities:Due
                  to related party
              
              
              1,014,346
              
              
              621,234TOTAL
                  LIABILITIES
              
              
              1,909,730
              
              
              985,491COMMITMENTS
                  AND CONTINGENCIES (NOTES 3 & 4)
              
              
              -
              
              
              -STOCKHOLDERS'
                  EQUITYPreferred
                  stock, $0.001 par value; 10,000,000 sharesauthorized;
                  zero shares issued and outstanding.
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 75,000,000 sharesauthorized;
                  26,873,738 shares (2006) and26,858,138
                  shares (2005), issued and outstanding
              
              
              26,874
              
              
              26,858Additional
                  paid-in capital
              
              
              2,262,622
              
              
              2,202,615Deficit
                  accumulated during the development stage
              
              
              (4,150,386
              )
              
              (3,063,392
              )TOTAL
                  STOCKHOLDERS' DEFICIT
              
              
              (1,860,890
              )
              
              (833,919
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              48,840
              
              $
              151,572
  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 from Inception throughEnded
                  December 31,
              
              December
                  31,2006
              
              2005
              
              2006NET
                  REVENUES
              
              $
              875
              
              $
              -
              
              $
              875COSTS
                  OF REVENUES
              
              
              155
              
              
              -
              
              
              155Gross
                  margin
              
              
              720
              
              
              -
              
              
              720OPERATING
                  EXPENSESSales
                  and marketing
              
              
              31,244
              
              
              2,651
              
              
              33,895General
                  and administrative
              
              
              682,828
              
              
              761,430
              
              
              2,649,292Officers'
                  compensation
              
              
              349,319
              
              
              495,000
              
              
              1,439,319Depreciation
                  expense
              
              
              4,023
              
              
              1,077
              
              
              5,100Total
                  operating expenses
              
              
              1,067,414
              
              
              1,260,158
              
              
              4,127,606Loss
                  from operations
              
              
              (1,066,694
              )
              
              (1,260,158
              )
              
              (4,126,886
              )Interest
                  expense
              
              
              19,500
              
              
              -
              
              
              19,500Loss
                  before income taxes
              
              
              (1,086,194
              )
              
              (1,260,158
              )
              
              (4,146,386
              )Provision
                  for income taxes
              
              
              800
              
              
              800
              
              
              4,000NET
                  LOSS
              
              $
              (1,086,994
              )
              $
              (1,260,958
              )
              $
              (4,150,386
              )Net
                  loss per common share, after giving retroactive effect to 2 for 1
                  stock split on March 11, 2005-
                  basic and diluted
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.44
              )Shares
                    used in computing basic and diluted net loss per
                    share
              
              
              26,866,942
              
              
              25,170,154
              
              
              9,380,463
 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
                      effectto 2 for 1
                  
                  Additional
                  
                  DeferredCharges
                  
                  
                  
                  Accumulatedduring
                      thestock
                      split on March 11, 2005
                  
                  Paid-In
                      Capital
                  
                  -
                      Related Company
                  
                  PrepaidExpenses
                  
                  DevelopmentStage
                  
                  Stockholders'
                      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 exchange for debt to parent company on 2/15/05 at
                            $0.035 per post-split share
                  
                  
                  13,054,628
                  
                  
                  13,054
                  
                  
                  443,858
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  456,912Option
                            to purchase 18,000,000 post-split shares at an exercise price of
                            $0.07 per share granted to Two Dog Net, Inc. on 2/15/05,
                            valued at option
                            price
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
  F-4
 
 THE
                CHILDREN'S INTERNET, INC.
 (A
                  Development Stage Company)
 STATEMENTS
                    OF STOCKHOLDERS' DEFICIT (Continued)
 Common
                        Stock, after giving
                    
                    
                    
                    
                    
                    
                    
                    Deficitretroactive
                        effect to 2 for 1
                    
                    Additional
                    
                    DeferredCharges
                    
                    
                    
                    Accumulatedduring thestock
                        split on March 11, 2005
                    
                    Paid-In
                        Capital
                    
                    -
                        Related Company
                    
                    PrepaidExpenses
                    
                    DevelopmentStage
                    
                    Stockholders'
                        DeficitShares
                    
                    AmountOption
                                to purchase 1,000,000 post-split shares at an exercise
                                price of $0.07 per
                                share granted to Tyler Wheeler on 2/15/05, valued
                                at $0.315 per
                                share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    315,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    315,000Issuance
                                of common stock for consulting services by Crosslink
                                Financial
                                Communications, Inc. on 2/25/05 at $0.33 per post-split
                                share
                    
                    
                    200,000
                    
                    
                    200
                    
                    
                    65,800
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    66,000Issuance
                                  of common stock for consulting services by Crosslink
                                  Financial
                                  Communications, Inc. - 8,000 shares on the 25th
                                  of each month from March
                                  through December 2005 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
                    )Option
                                to purchase 111,112 post-split shares at an exercise
                                price of $0.55 per
                                share granted to William L. Arnold, valued at $0.47
                                per
                                share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    52,223
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    52,223Issuance
                                of common stock for prepaid public relations consulting
                                services under
                                agreement with Brazer Communications dated 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
                    )
 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 from Inception throughEnded
                        December 31,
                    
                    December
                        31,2006
                    
                    2005
                    
                    2006CASH
                        FLOWS USED IN OPERATING ACTIVITIESNet
                        Loss
                    
                    $
                    (1,086,994
                    )
                    $
                    (1,260,958
                    )
                    $
                    (4,150,386
                    )Adjustments
                        to reconcile net loss to net cashused
                        in operating activities:Depreciation
                        on equipment
                    
                    
                    4,023
                    
                    
                    1,077
                    
                    
                    5,100Stock
                        compensation to director
                    
                    
                    -
                    
                    
                    315,000
                    
                    
                    315,000Stock
                        compensation to President
                    
                    
                    52,223
                    
                    
                    -
                    
                    
                    52,223Shares
                        issued for services
                    
                    
                    7,800
                    
                    
                    126,600
                    
                    
                    709,756Services
                        performed as capital contribution
                    
                    
                    -
                    
                    
                    -
                    
                    
                    595,000Expenses
                        paid by former officer on behalf of company
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,000Deposit
                        - State Board of Equalization
                    
                    
                    (2,000
                    )
                    
                    -
                    
                    
                    (2,000
                    )Increase
                        in current assets -Deposit
                        held in escrow
                    
                    
                    -
                    
                    
                    (37,378
                    )
                    
                    (37,378
                    )Prepaid
                        marketing expenses
                    
                    
                    (1,260
                    )
                    
                    
                    
                    
                    (1,260
                    )Increase
                        in current liabilities -Accounts
                        payable and accrued expenses
                    
                    
                    261,853
                    
                    
                    105,374
                    
                    
                    446,110Accrued
                        officers' compensation
                    
                    
                    269,274
                    
                    
                    180,000
                    
                    
                    449,274Net
                        cash used in operating activities
                    
                    
                    (495,081
                    )
                    
                    (570,285
                    )
                    
                    (1,613,561
                    )CASH
                        USED IN INVESTING ACTIVITIESAcquisition
                        of equipment
                    
                    
                    (774
                    )
                    
                    (11,422
                    )
                    
                    (12,196
                    )Net
                        cash used in investing activities
                    
                    
                    (774
                    )
                    
                    (11,422
                    )
                    
                    (12,196
                    )CASH
                        PROVIDED BY FINANCING ACTIVITIESIssuance
                        of common stock
                    
                    
                    -
                    
                    
                    456,912
                    
                    
                    612,517Advances
                        from majority shareholder
                    
                    
                    393,112
                    
                    
                    685,556
                    
                    
                    1,471,258Majority
                        Shareholder advances converted to stock
                    
                    
                    -
                    
                    
                    (456,912
                    )
                    
                    (456,912
                    )Net
                        cash provided by financing activities
                    
                    
                    393,112
                    
                    
                    685,556
                    
                    
                    1,626,863Net
                        change in cash and cash equivalents
                    
                    
                    (102,743
                    )
                    
                    103,849
                    
                    
                    1,106Cash
                        and cash equivalents - Beginning of period
                    
                    
                    103,849
                    
                    
                    -
                    
                    
                    -Cash
                        and cash equivalents - End of period
                    
                    $
                    1,106
                    
                    $
                    103,849
                    
                    $
                    1,106SUPPLEMENTAL
                        DISCLOSURE OF CASH FLOW INFORMATIONCash
                        paid for interest
                    
                    $
                    3,122
                    
                    $
                    -
                    
                    $
                    3,122Cash
                        paid for taxes
                    
                    $
                    800
                    
                    $
                    800
                    
                    $
                    4,000
  The
          accompanying notes are an integral part of the financial
          statements.
  F-6




THE
      CHILDREN'S INTERNET, INC.


(A
      Development Stage Company)


NOTES
      TO
      FINANCIAL STATEMENTS


December
      31, 2006





**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 post-split shares were issued to a small group of founders.
      The Company was primarily inactive until July 2002.





The
      Company is currently authorized to conduct business in California and is
      headquartered in Pleasanton, California. The Company’s primary operations
      consist of marketing, selling, and administering a computer software system
      for
      internet usage by children. The system, known as The Children’s Internet, is not
      owned by the Company, but is owned by a related party, Two Dog Net, Inc.
      (“TDN”). The Company’s marketing, selling and administration rights derive from
      a Wholesale Sales & Marketing Agreement with TDN, through the year 2013
      which includes the ability to obtain five year extensions.





On
      July
      3, 2002, Shadrack Films, Inc. (Shadrack) purchased 2,333,510 newly issued
      post-split shares of the Company’s common stock for $150,000, thereby obtaining
      a majority ownership interest. The total issued and outstanding shares of the
      Company were increased to 4,575,510 post-split 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.





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” post-split shares of common stock to six individuals, two of
      whom are related to the Company’s Chief Executive Officer, Chief Financial
      Officer and 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 tradeable" based
      on
      the representations made by our attorney at the time, Oswald & Yap, who
      structured the agreement.  Subsequently the company determined that the
      shares were, in fact, not "freely tradeable" and those shares would have to
      be registered.  The said shares were then registered in a SB-2 Registration
      Statement 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 post-split shares, to
      issue four shares of restricted common stock to these shareholders or their
      designees, for every one “freely-tradable” share held. At the time the shares
      were issued, the Company believed the shares were "freely tradeable" based
      on
      the representations made by our attorney at the time, Oswald & Yap, who
      structured the agreement.  Subsequently the company determined that the
      shares were, in fact, not "freely tradeable" and those shares would have to
      be registered.  The said shares were then registered in a SB-2 Registration
      Statement declared effective on May 5, 2004. Pursuant to this agreement, 8,948,000
      newly-issued restricted post-split 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 ongoing
      operations of the Company. TDN retained the remainder of the proceeds to help
      fund development costs of The Children’s Internet system and to make payments on
      TDN’s existing debts. The 8,948,000 newly-issued
      post-split 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 post-split 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 post-split 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, 2006 and 2005, the
      net amount loaned to the Company by Shadrack was $1,471,258 and $1,078,146,
      respectively.





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 as of March 7, 2005, in the form of a 100% stock dividend. The effective
      date of the forward split on the OTC:BB was March 11, 2005.





F-7




During
      the year ended December 31, 2005, an additional 13,334,628 restricted post-split
      shares of common stock were issued . Of
      these
      shares, 13,054,628 were issued to Shadrack, a related party and majority
      shareholder, for conversion of existing debt and 280,000 shares were issued
      to
      Crosslink Financial Communications, a non related party 1  in
      payment of investor relation services, as explained in Notes 3, 4 and
      7 .





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 5, bringing
      the total of
      the
      Company's issued and outstanding post-split shares to 26,873,738 at December
      31,
      2006.








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.




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, 2006 and 2005.
  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, 2006.




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.







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




F-8




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:




2006
            
            2005Net
                loss
            
            $
            1,086,994
            
            $
            1,260,958Cash
                flow from operations
            
            $
            (495,081
            )
            $
            (567,385
            )





The
      Company has been sued by the Securities and Exchange Commission as explained
      in
      Note 4. This action 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 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 continue to
      provide for its capital needs during the year ended December 31, 2007 by
      incurring additional debt financing from related parties and intends to seek
      debt or equity financing from unrelated parties, with the proceeds to be used
      to
      fund continuing operations. Management may also seek to find a buyer for the
      Company. The financial statements do not include any adjustments that might
      be
      necessary if the Company is unable to continue as a going concern.





Advertising





The
      Company expenses advertising expenses as they are incurred. Advertising expenses
      for the years ended December 31, 2006 and 2005 were $6,008 and $2,417,
      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, 2006 and 2005, 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, 2006, the
      Company had 19,611,112 potentially dilutive post-split common shares
      outstanding, 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.




F-9




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, 2006, 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.





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, 2006 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
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets”,
        an amendment of APB Opinion No. 29. SFAS No 153 eliminates the exception
        from
        fair value measurement for nonmonetary exchanges of similar productive assets
        in
        paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary
        Transactions,” and replaces it with an exception for exchanges that do not have
        commercial substance. This Statement specifies that a nonmonetary exchange
        has
        commercial substance if future cash flows of the entity are expected to change
        significantly as a result of the exchange, and is effective for nonmonetary
        asset exchanges occurring in fiscal periods beginning after June 15,
        2005.  The
        Company does not expect the adoption of SFAS No. 153to have a material impact
        on
        the Company’s future financial position, cash flows or results of
        operations.
  In
        December  2004, the FASB issued SFAS No. 123R, “Share-Based
        Payment *.* ”
        SFAS No. 123R addresses the accounting for share-based payment
        transactions in which an enterprise receives employee services in exchange
        for
        (a) equity instruments of the enterprise or (b) liabilities that are
        based on the fair value of the enterprise’s equity instruments or that may be
        settled by the issuance of such equity instruments. SFAS No. 123R
        eliminates the ability to account for share-based compensation transactions
        using Accounting Principles Board Opinion No. 25 and generally requires
        that such transactions be accounted for using a fair-value-based method. 
The Company is required to adopt SFAS No. 123(R) in the third quarter of
        fiscal 2005, beginning July 1, 2005.  The Company has implemented this
        pronouncement, which included its application in fair valuing options granted
        in
        February 2005.
  F-10
  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 will become 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 provided to the Company without
      fee.




2006
              
              2005Computer
                  Hardware
              
              $
              6,281
              
              $
              6,281Computer
                  Software
              
              
              5,915
              
              
              5,14112,196
              
              
              11,422Less:
                  Accumulated Depreciation
              
              
              (5,100
              )
              
              (1,077
              )Total
              
              $
              7,096
              
              $
              10,345




**NOTE
      3 - RELATED PARTY TRANSACTIONS**





Leases




Shadrack,
      the majority shareholder and a related party, leases the office space utilized
      by the Company from Principal Life Insurance Company, an Iowa Corporation.
      Shadrack allows the Company use of the space under a verbal lease agreement
      at
      the same rental rate charged to Shadrack. The basic rent includes utilities
      and
      janitorial services, and under Shadrack’s current lease agreement is $3,603 per
      month through April 2005, $3,706 per month from May 2005 through April 2006,
      and
      $3,809 per month from May 2006 through April 2007. The Company is under no
      obligation to reimburse the majority shareholder for the rent payments but
      the
      majority shareholder is under no obligation to continue to allow the Company
      use
      of the space and may terminate the lease agreement and evict the Company upon
      demand. Annual rent expense was as follows:




Year
              
              
              Amount2006
              
              $
              45,0722005
              
              $
              44,629




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 Chief Executive
      Officer, Chief Financial Officer, and Director, Sholeh Hamedani, would be
      accrued when earned. The decision will be made at the end of each year whether
      to make the payment in cash, shares of the Company’s restricted common stock, or
      a combination of both. Accordingly, for each of the years ended December 31,
      2006 and 2005, $180,000 has been accrued and charged to General and
      Administrative Expense. Prior to the year ended December 31, 2005, 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. Also, the salary of the Company’s 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 a voluntary unpaid leave of
      absence.




F-11


Advances
  As
        of the
        date of this report, all of the Company’s funding has been provided by Shadrack
        Films, Inc., its majority stockholder and a related party. The total amount
        advanced through December 31, 2006 and 2005 was $1,471,258 and $1,078,146,
        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
        post-split shares of the Registrant's restricted common stock at a conversion
        price of $.035 per post-split share.
  Shadrack
        Films, Inc. is an entity owned and controlled by the Company's Chief Executive
        Officer, Chief Financial Officer and Chairman of the Board, Sholeh Hamedani,
        who
        is the sole officer, director and shareholder of Shadrack. Shadrack also
        owned
        2,333,510 post-split shares of the Company's common stock, of which it sold
        1,277,150 of its restricted shares  in
        reliance on an exemption from registration pursuant to Section 4 (1-1/2)
        of the
        Securities Act of 1933, to approximately 130 investors between July 2004
        and
        June 2005. In addition, Shadrack paid for services, on behalf of the Company,
        valued at $35,000 with 70,000 restricted shares of the Company’s common stock.
        Together with the 13,054,628 post-split shares issued upon conversion of
        the
        debt, Shadrack owns an aggregate of 14,040,988 post-split shares of the
        Company's common stock or 52.2% without giving effect to any presently
        exercisable options.
  Beneficial
        Ownership
  The
        Company, Shadrack and Two
        Dog
        Net, Inc. (TDN), are
        related parties, in that, the Company's Chief Executive Officer, Chief Financial
        Officer, and Director, Sholeh Hamedani, is the sole shareholder of Shadrack
        which as of December 31, 2006 owns 52.2% of the Company's common stock and
        as of
        December 31, 2005 owned 52.3% of the Company’s common stock. Ms. Hamedani was
        President of TDN until she resigned on August 1, 2002 and is a 10% shareholder
        of TDN. In addition, the current President, Chairman and Founder of TDN,
        Nasser
        Hamedani, is the father of the Company’s Chief Executive Officer, Chief
        Financial Officer, and Director, Sholeh Hamedani.
  Licensing
        Agreement
  The
        Wholesale Sales and Marketing Agreement between the Company and Two Dog Net,
        Inc., dated March 3, 2003, is an exclusive and renewable five-year agreement
        for
        the Company to be the exclusive marketers of TDN’s proprietary secured internet
        service for children pre-school to junior high called The Children's Internet®.
        Under the terms of the agreement, it 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 could 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 between the Company
        and
        Two Dog Net, Inc., dated March 3, 2003. The amended license agreement reduces
        the license fee for The Children's Internet® technology payable to TDN from
        $3.00 to $1.00 per 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.
  Stock
        Options Granted
  As
        noted
        above, on February 15, 2005, because TDN agreed to reduce their licensing
        fee,
        the Company issued an option to purchase up to 18,000,000 post-split shares
        of
        the Company's
        restricted common stock at
        an
        exercise price of $0.07 per
        share ,
        and a
        fair value of $0. The
        Option is exercisable, in whole or in part at any time and from time to time,
        for a period of five years from the date of grant. The Option also provides
        TDN
        with "piggyback" registration rights for all shares underlying the Option
        on any
        registration statement filed by the Company for a period of one year following
        any exercise of the Option.  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 issuance was
        granted primarily to induce TDN to reduce its future right to a royalty from
        sales of the product.




F-12


**NOTE
      4 - COMMITMENTS AND CONTINGENCIES**





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





The
      Company filed a cross-complaint against O&Y alleging breach of contract,
      professional negligence, negligent representation, and breach of good faith
      and
      fiduciary duty. The Company is seeking damages in an unspecified amount for
      costs, legal fees and losses incurred. O&Y has vigorously disputed the
      claims set forth in the cross-complaint and has indicated its intention, should
      it prevail in its defense, to institute a malicious prosecution action against
      the Company, Nasser Hamedani, Sholeh Hamedani and Company counsel.





A
      cross-claim was filed in the Superior Court of California, County of Orange,
      Case No. 04CC11623 by the Comapny against O&Y, and the principal allegation
      is that O&Y was retained to assist its predecessor company in the purchase
      and acquisition of D.W.C. Installations with the expectation that D.W.C. had
      available free-trading shares such that the Comapny could immediately raise
      capital on the relevant markets and that in advising  the
      Company through the purchase, O&Y failed to properly advise the Comapny as
      to the status of D.W.C. Installations and its shares which in fact were not
      free-trading. As a result of this conduct, the Comapny 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. Trial on the complaint and cross-complaint is set to proceed
      on December 17, 2007.





There
      is
      a contingent liability in connection with a Stock Purchase Agreement executed
      on
      October 11, 2002 between identified Shareholders and identified Purchasers.
      Under the terms of Stock Purchase Agreement, a payment of $150,000 is due to
      be
      paid into escrow in part consideration for purchase of the stock of D.W.C.
      Installations, Inc. The payment date is designated as 90 days from the date
      that
      the Company’s [D.W.C. Installations, Inc., a Nevada Corporation] shares of
      common stock become quoted on the over-the-counter bulletin board system. The
      shares became 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.





The
      Company was subject to a claim by Stonefield Josephson, Inc., the former
      accountants for the Company, seeking reimbursement costs for legal fees spent
      in
      connection with the Securities and Exchange Commission inquiry of the Company.
      Stonefield Josephson, Inc.’s claim seeks recovery of $29,412.74. The Company
      disputes any amounts owed because of a settlement agreement entered into between
      the respective parties in December 2004 effectively terminating their
      relationship. This matter was submitted to binding arbitration through AAA
      in
      January 2007. The arbitrator’s decision was issued on February 2, 2007, awarding
      Stonefield Josephson, Inc. the sum of $19,000 accruing at an interest rate
      of
      10% per annum. The decision also awarded costs and fees to Stonefield
      Josepheson, Inc. in the amount of $1,425.00 both of which remain unpaid.





On
      August
      25, 2006, the Company filed a complaint against its former accountants
      Stonefield Josephson, Inc., and its principal Dean Skupen, in the Superior
      Court
      of California, County of Alameda, Case No. VG06286054 alleging breach of
      contract, promissory estoppel, breach of implied covenant of good faith and
      fair
      dealing, negligent misrepresentation, fraud, and unfair business practices
      arising out of defendants’ alleged failure to properly perform contractual
      obligations. The matter was subsequently transferred to Los Angeles Superior
      Court and is presently pending there.





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





F-13


The
      Company is currently seeking resolution of the SEC complaint by virtue of
      settlement.  A potential settlement likely may include the Company and/or
      its principals consenting, without admitting or denying the allegations, to
      a
      judgment alleging negligent, reckless, and intentional violations of the
      federal securities laws, and other sanctions including substantial penalties.
      These penalties could range from current key members of management being barred
      from serving as either directors or officers of the Company to also including
      financial penalties and disgorgement of all profits derived by the Company
      and/or its principals who raised funds through the sale of Company stock to
      third parties. Any proposed settlement will be subject to the Commission’s
      approval and the Company cannot predict the outcome of these settlement
      negotiations. Additionally, there is no assurance that the Company will receive
      a settlement offer. Moreover, there is no assurance that the settlement offer
      (if any) will be acceptable to the Company and the prospect of litigation
      could ensue which could seriously compromise the Company's ability to achieve
      its goals.




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.




We
      are
      not aware of any other pending or threatened litigation that could have a
      material adverse effect on our business. From inception, Shadrack, the majority
      shareholder of the company, has advanced to the Company approximately $1.5
      million for operations. While the exact amount of the disgorgement of profits
      and/or penalties cannot be determined at this time, the ability to pay them
      by
      the Company or the Chief Executive Officer is a serious question. Any proposed
      settlement will be subject to the Commission’s approval.  The Company
      cannot predict the outcome of any settlement negotiations, the staff’s
      investigation, or the ultimate Commission action should these settlement
      negotiations fail. The Company does not yet have a settlement offer. Management
      and counsel to the Company are currently waiting to see if they will receive
      one
      from the Commission's staff. Additionally, there is no assurance that the
      Company will receive a settlement offer. Moreover, there is no assurance that
      their settlement offer (if any) will be acceptable to the Company and
      the prospect of litigation could ensue which could seriously compromise the
      Company's ability to achieve its goals.





On
      September 27, 2006, the Securities and Exchange Commission (“SEC”) filed a
      complaint in the United States District Court Northern District of California
      Case No. C066003CW, against among others the Company, and certain of its
      officers alleging against one or more defendants violations of Section 10(b)
      of
      the Exchange Act and Rule 10b-5, violations of Section 13(a) of the Exchange
      Act
      and Rules 12b-20, 13a-1, 13a-11, 13a-13, violations of Section 13(b)(2)(A)
      of
      the Exchange Act by the Company, Violations of Section 13(b)(2)(B) of the
      Exchange Act by the Company, Violations of Section 13(b)(5) of the Exchange
      Act
      and Rule 13b2-1, 13b2-2, 13a-14, 16(a). The complaint generally alleges that
      the
      Company and the individual defendants made false or misleading public statements
      regarding the Company’s business and operations, made false statements in
      various filings with the Commission and in particular the June 2005 Annual
      Report and Restatement and 2005 Current and Quarterly Reports, and that
      defendants or some of them induced investment in the Company through
      misrepresentation and omissions. The complaint seeks disgorgement, unspecified
      monetary damages, injunctive relief and other relief against the defendants.
      The
      Company has not yet filed its formal response.




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




F-14




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





On
      December 30, 2005, William L. Arnold, the principal shareholder of Crosslink
      was
      appointed by the Chairman to act as President of the Company under an Executive
      Employment Agreement with the same date. Compensation includes a monthly salary
      of $10,000, of which $2,500 per month is deferred with 9% accrued interest
      until
      January 2007. The
      agreement also includes a
      combination of nonqualified and qualified stock options (the Stock Option).
      The
      Stock Option is for the purchase of up to 1,000,000 post-split shares at an
      option price of $0.55 per share, and expires on December 31, 2010. The closing
      market price was $0.48 per share on the date of the agreement. One half of
      the
      Stock Option vested immediately and the remaining 500,000 option shares will
      vest at the rate of 1/36 th each
      month until fully vested. 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 were suspended. Of the 500,000 option shares which vest
      immediately, 360,000 are Incentive Stock Options (ISO’s). The remaining 640,000
      option shares are non-qualified. Additionally the agreement includes a performance bonus of up to 50% of the
      annual salary to be paid on or before the sixtieth day following the
      close of the Company's fiscal year, provided that the Employee meets the
      performance standards as established by Board of Directors. 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 Stock
      Option would have been recorded at $235,000 .





On
      February 15, 2005, the Company’s Board of Directors granted Tyler Wheeler, the
      Company’s Chief Software Architect Consultant and a director, an option to
      purchase up to 1,000,000 post-split shares of the Company’s restricted common
      stock at an exercise price of $0.07, and a fair value of $315,000. The option
      is
      exercisable, in whole or in part at any time and from time to time, for a period
      of five years from the date of grant. This option to purchase Company shares
      was
      based on a fair market value of $0.315 per post-split 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.





On
      April
      7, 2005, the Company entered into an agreement with Convergys Customer
      Management Group Inc. of Cincinnati, Ohio to provide subscriber management
      services, including inbound telephone coverage 24/7, capturing caller
      information, providing toll-free numbers and daily reporting of orders and
      leads. The term of the agreement begins on April 7, 2005 and continues until
      the
      expiration of 30 days after either party gives the other party written notice
      of
      its intent to terminate. Under this agreement, inbound live phone services
      are
      billed at $0.75 per minute for the first million minutes annually, $0.732 for
      the second million minutes and $0.714 per minute thereafter. The minimum
      purchase commitment is $2,500 per month, which is waived for the first year
      of
      service. The Convergys relationship is established, but their telemarketing
      services will not commence until the Infomercial marketing begins. On February
      12, 2007, this agreement was replaced by a new agreement as explained in Note
      9
      - Subsequent Events.





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





On
      June
      9, 2006, the Company entered into a public relations consulting agreement with
      Brazer Communications of Mill Valley, CA to launch a media relations campaign
      to
      increase public awareness of the Company and its product. Under this agreement,
      overall fees were set at $4,700 per month for the contract period of six months
      ended on December 8, 2006. In addition to the monthly fees, on the date of
      the
      agreement 15,600 restricted post-split shares 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.





F-15


**NOTE
      5 - COMMON STOCK**





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





During
      the year ended December 31, 2006, 15,600 common shares were issued to Brazer
      Communications under a public relations consulting agreement, as explained
      in
      Note 4. No other new shares were issued by the Company during 2006.





**NOTE
      6 - INCOME TAX** ES





As
      of
      December 31, 2006, the Company had a net operating loss carryforward for federal
      income tax purposes of $2,459,577. This net operating loss carryforward, if
      not
      used, will begin to expire in 2022. Deferred tax assets (liabilities) are
      comprised of the following as of December 31, 2006:




December
                  31,2006
              
              2005Deferred
                  tax assets:Net
                  operating loss carryforwards
              
              $
              980,141
              
              $
              547,281Less
                  -Valuation allowance
              
              
              (980,141
              )
              
              (547,281
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              -




For
      the
      year ended December 31, 2006, the valuation allowance was increased by $432,860
      due to uncertainties surrounding the realization of the deferred tax assets,
      resulting from the Company’s net book loss of $1,086,994 for the year and an
      accumulated deficit of $4,150,386 at December 31, 2006.  The
      valuation allowance has been estimated in an amount equal to the projected
      future benefit of the loss carryforward 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:


2006
              
              2005Statutory
                  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 2006 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, the Company’s Board of Directors granted an option to Two
      Dog Net, Inc. to purchase currently restricted common shares. This option was
      valued at $0





Conversion
      of Debt to Common Stock





As
      explained in Note 3, on
      February 15, 2005, the Company's Board of Directors authorized and approved
      the
      conversion of debt totaling $456,912 owed to Shadrack Films, Inc., the majority
      shareholder, into 13,054,628 post-split shares of the Company’s restricted
      common stock at a conversion price of $.035 per post-split share




Stock-based
      Compensation





On
      February 15, 2005, the Company’s Board of Directors granted Tyler Wheeler, the
      Company’s Chief Software Architect Consultant and a director, an option to
      purchase up to 1,000,000 post-split shares of the Company’s restricted common
      stock at an exercise price of $0.07, and a fair value of $315,000. The option
      is
      exercisable, in whole or in part at any time and from time to time, for a period
      of five years from the date of grant. This option to purchase Company shares
      was
      based on a fair market value of $0.315 per post-split 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 and is included with officers’ compensation in the
      Company’s Statement of Operations for the year ended December 31,
      2005.




F-16




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





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





**NOTE
      8 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**





Summarized
      unaudited financial information for the years ended December 31, 2006 and 2005
      are noted below:




**2006****Dec.
                  31**
              
              **Sept.
                  30**
              
              **June
                  30**
              
              **March
                  31**Net
                  Revenues
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Gross
                  Profit
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -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
              )
  **2005****Dec.
                  31**
              
              **Sept.
                  30**
              
              **June
                  30**
              
              **March
                  31**Net
                  Revenues
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Gross
                  Profit
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Net
                  (loss)
              
              $
              (271,033
              )
              $
              (207,345
              )
              $
              (297,458
              )
              $
              (485,122
              )Net
                  (loss) per share - basic and diluted
              
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.02
              )





**NOTE
      9 - SUBSEQUENT EVENTS**





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





On
      February 12, 2007, a new agreement was executed with Convergys Customer
      Management Group Inc to replace the existing agreement for subscriber management
      services described in Note 4. The term of the agreement continues until the
      expiration of 30 days after either party gives the other party written notice
      of
      its intent to terminate. Under this agreement, inbound live phone services
      are
      billed at $0.738 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.





On
      March
      29, 2007, the Company entered into an Executive Employment Agreement with Tim
      T.
      Turner, whereby Mr. Turner will become the Director of Finance and Operations
      for the Company upon the Company obtaining Directors and Officers Insurance
      Mr.
      Turner will be appointed an officer of the Company and made a member of the
      Company’s Board of Directors. The agreement states that Mr. Turner
      shall receive
      a yearly salary of $157,500. He shall earn a monthly salary of $13,125 of which
      $5,000 will be paid in cash and $8,125 shall be deferred and accrued for a
      maximum period of twelve months from the date of this Agreement. In the event
      that the Company raises, during this twelve-month period, additional capital,
      through loans, equity investment or both, in the aggregate sum of one million
      dollars, Mr. Turners monthly cash compensation shall be increased to $6,562.50.
      The balance of Mr. Turner’s monthly compensation of $6,562.50 shall be deferred
      and accrued.  At
      the
      end of the twelve month period, the total amount of Mr. Turner’s deferred
      compensation shall be payable by the Company, and the cash compensation will
      be
      increased to $13,125 per month.




F-17







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




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





On
      April
      30, 2007, the Company and the Board of Directors adopted “The Children’s
      Internet, Inc. 2007 Equity Incentive Plan” (the “Plan”). The purpose of the Plan
      is to provide incentives to attract retain and motivate eligible persons whose
      present and potential contributions are important to the success of the Company
      by offering them an opportunity to participate in the Company's future
      performance through awards of Options, Restricted Stock and Stock Bonuses.
      Under
      the terms of the Plan the Company has made available six million (6,000,000)
      Shares of the Company’s stock to be issued to Officers, Directors, Employees,
      Consultants and Advisors to the Company with certain restrictions as set forth
      in the Plan, and can be found in Exhibit 10.14 to this 10-KSB. The plan will
      be
      administered by a Committee of the Board of Directors. The plan will terminate
      ten (10) years from the effective date of the plan unless terminated earlier
      under the terms of the Plan.




F-18