10QSB 1 j10qsbchildren.txt 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 000-29611 THE CHILDREN'S INTERNET, INC. (Exact name of small business issuer as specified in its charter) Nevada 88-0370247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2401 Crow Canyon Rd., Suite 201, San Ramon, CA 94583 (Address of principal executive offices) (925) 406-2364 (Issuer's telephone number) N/A (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 13, 2003, the number of shares of Common Stock issued and outstanding was 2,287,755. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] THE CHILDREN'S INTERNET, INC INDEX Page Number PART I - FINANCIAL INFORMATION 1 Item 1. Financial Statements (Unaudited) 1 Condensed Balance Sheet - September 30, 2003 1 Condensed Statements of Operations - For the nine months and three months ended September 30, 2003 and 2002, and the period from inception to September 30, 2003 2 Condensed Statements of Stockholders' Deficit - For the nine months ended September 30, 2003 and the period from inception to September 30, 2003 3 Condensed Statements of Cash Flows - For the nine months and three months ended September 30, 2003 and 2002, and the period from inception to September 30, 2003 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations 9 Item 3. Controls and Procedures 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities and Use of Proceeds 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

THE CHILDREN'S INTERNET, INC. (A Development Stage Company) UNAUDITED CONDENSED BALANCE SHEET September 30, 2003 --------- ASSETS TOTAL ASSETS $ - ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Accounts payable and accrued expenses 87,557 Due to parent company 176,678 --------- Total current liabilities 264,235 --------- STOCKHOLDERS' DEFICIT Preferred stock, $0.001 par value; 10,000,000 shares authorized; zero shares issued and outstanding. - Common stock, $0.001 par value; 75,000,000 shares authorized; 2,287,755 shares issued and outstanding 2,288 Additional paid-in capital 508,317 Deficit accumulated during the development stage (774,840) --------- TOTAL STOCKHOLDERS' DEFICIT (264,235) --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - ========= The accompanying notes are an integral part of the financial statements.

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THE CHILDREN'S INTERNET, INC. (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF OPERATIONS For the Period For The Three For The Nine September 25, 1996 Months Ended Months Ended, (inception) to 2003 2002 2003 2002 September 30, 2003 (Restated) REVENUE $- $- $- $- $- General selling and 137,814 247,776 373,846 262,728 774,840 administrative expenses ------- ------- -------- -------- --------- Operating loss before (137,814) (247,776) (373,846) (262,728) (774,840) provision for income taxes Provision for income taxes - - - - - ------- ------- -------- -------- --------- NET LOSS $(137,814) $(247,776) $(373,846) $(262,728) $(774,840) ======= ======= ======== ======== ========= Net loss per common share - - basic and diluted $(0.06) $(0.11) $(0.16) $(0.17) $(0.58) ======= ======= ======== ======== ========= Weighted average number of common shares outstanding - - basic and diluted 2,287,755 2,249,709 2,287,755 1,501,371 1,334,056 ======= ======= ======== ======== ========= The accompanying notes are an integral part of the financial statements.

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THE CHILDREN'S INTERNET, INC. (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT Deficit Accumulated During the Development Stage Common Additional Stockholders' Stock Paid-In Deficit Capital Shares Amount Balance, September 25, 1996 - $ - $ - - $ - ---------- ------ ------ -------- ------- Issuance of common stock for cash on September 24, 1996 at $0.005 per share 1,121,000 1,121 4,484 - 5,605 Net Loss (5,605) (5,605) ---------- ------ ------ -------- ------- Balance, December 31, 1996 1,121,000 1,121 4,484 (5,605) - ---------- ------ ------ Net Loss - - - - - ---------- ------ ------ -------- ------- Balance, December 31, 1997 1,121,000 1,121 4,484 (5,605) - ---------- ------ ------ Net Loss - - - - - ---------- ------ ------ -------- ------- Balance, December 31, 1998 1,121,000 1,121 4,484 (5,605) - ---------- ------ ------ Net Loss - - - - - ---------- ------ ------ -------- ------- Balance, December 31, 1999 1,121,000 1,121 4,484 (5,605) - ---------- ------ ------ Net Loss - - - (3,000) (3,000) Expenses paid by former officer on behalf of 3,000 3,000 company ---------- ------ ------ -------- ------- Balance, December 31, 2000 1,121,000 1,121 7,484 (8,605) - ---------- ------ ------ Net Loss - - - - - ---------- ------ ------ -------- ------- Balance, December 31, 2001 1,121,000 1,121 7,484 (8,605) - ---------- ------ ------ Issuance of common stock for cash on July 3, 2002 at $0.1286 per share 1,166,755 1,167 148,833 - 150,000 ---------- ------ ------ -------- ------- Expenses paid by former officer on behalf of 2,000 2,000 company- - - - - - ---------- ------ ------ -------- ------- Services performed as capital contribution 125,000 125,000 Net Loss - - - (392,389) (392,389) ---------- ------ ------ -------- ------- Balance, December 31, 2002 2,287,755 2,288 283,317 (400,994) (115,389) ---------- ------ ------ -------- ------- Services performed as capital contribution 225,000 225,000 (unaudited) Net Loss (unaudited) (373,846) (373,846) ---------- ------ ------ -------- ------- Balance, September 30, 2003 (unaudited) 2,287,755 2,288 508,317 (774,840) (264,235) ---------- ------ ------ -------- ------- The accompanying notes are an integral part of the financial statements.

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THE CHILDREN'S INTERNET, INC. (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS For the Period For The Nine Months September 25, 1996 Ended September 30, (inception) 2003 2002 September 30, 2003 CASH FLOWS USED IN OPERATING ACTIVITIES: Net Loss $(373,846) $(262,728) $(774,840) Adjustments to reconcile net loss to net cash used in operating activities: Services performed as capital contribution 225,000 - 350,000 Expense paid by former officer on behalf of company - - 5,000 Increase (decrease) in liabilities Accounts payable and accrued expenses 24,922 82,896 87,557 Due to parent company 123,924 27,832 176,678 -------- ------- -------- Net cash used in operating activities - (152,000) (155,605) CASH PROVIDED BY FINANCING ACTIVITIES: Contribution by officer - 2,000 - Issuance of common stock - 150,000 155,605 -------- ------- -------- Net cash provided by financing activities - 2,000 155,605 -------- ------- -------- CASH USED FOR INVESTMENT ACTIVITIES: Net change in cash and cash equivalents - - - Cash and cash equivalents - beginning of period - - - -------- ------ ------- Cash and cash equivalents - end of period $ - $ - $ - ======== ====== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year - Interest paid $ - $ - $ - ======== ====== ======= Income taxes paid $ - $ - $ - ======== ====== ======= The accompanying notes are an integral part of the financial statements.

4 THE CHILDREN'S INTERNET, INC. (A Development Stage Company) NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) September 30, 2003 NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Children's Internet, Inc. ("Company") is currently a development stage company under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 7. The Company was incorporated under the laws of the State of Nevada on September 25, 1996. On July 3, 2002, Shadrack Films, Inc. purchased 1,166,755 newly issued shares of the Company's common stock for $150,000, thereby obtaining a majority ownership interest and becoming the Company's parent company (the "Parent Company"). Total issued and outstanding shares were increased to 2,287,755 as a result of this sale. Basis of Presentation These financial statements have been prepared by the Company without audit. In the opinion of management, the condensed financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of The Children's Internet, Inc. as of September 30, 2003, the results of its operations, changes in equity and cash flows for the three and nine months ended September 30, 2003 and 2002 and for the period from inception to September 30, 2003. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10 - KSB for the year ended December 31, 2002. These financial statements have been prepared on the going concern basis. At present, although the Company has signed contracts establishing revenue sources, the Company has no established sources of revenue. This factor raises substantial doubt about the Company's ability to continue as a going concern. Without 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 amount, or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. It is management's objective to seek additional capital. 5 Recent Accounting Pronouncements During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The Company does not participate in such transactions, however, is evaluating the effect of this new pronouncement, if any, and will adopt FASB 149 within the prescribed time. During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The Company is evaluating the effect of this new pronouncement and will adopt FASB 150 within the prescribed time. During October 2003, the FASB issued Staff Position No. FIN 46 deferring the effective date for applying the provisions of FIN 46 until the end of the first interim or annual period ending after December 31, 2003 if the variable interest was created prior to February 1, 2003 and the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46. The FASB also indicated it would be issuing a modification to FIN 46 prior to the end of 2003. Accordingly, the Company has deferred the adoption of FIN 46 with respect to VIEs created prior to February 1, 2003. Management is currently assessing the impact, if any, FIN 46 may have on the Company; however, management does not believe there will be any material impact on its consolidated financial statements, results of operations or liquidity resulting from the adoption of this interpretation. NOTE 2 - RESTATEMENT The financial statements for the period ending September 30, 2002 were restated to reflect the replacement of the license and technology agreement with Two Dog Net, Inc. with a wholesales sales and marketing agreement. The financial statements for the three and nine months ended September 30, 2002 have been restated to properly reflect the replacement agreement. This restatement resulted in the following changes: Three months Nine months Ended Ended September 30, 2002 Net Loss, as previously reported $(300,894) $(315,846) Restatement 53,118 53,118 ---------- ---------- Net Loss, as restated $(247,776) $(262,728) ========== ========== Net Loss per share, as previously reported $(0.13) $(0.21) Restatement 0.02 0.04 ---------- ---------- Net Loss per share, as restated $(0.11) $(0.17) ========== ========== 6 NOTE 3 - SALES AND MARKETING AGREEMENT On September 10, 2002, the Company entered into a renewable five year royalty and licensing agreement with Two Dog Net, Inc. ("TDN"). Under the terms of that license agreement with TDN, in addition to the monthly royalty payment due, the Company was required to pay an additional $2,000,000 no later than September 10, 2004. The Company capitalized this amount for the technology license and established an amortization period of three years, the expected useful life of the license. On November 5, 2002, the Company exchanged two million shares of its Series A Convertible Preferred Stock for the long term debt owed. The original agreement did not reflect the true intent of the parties and on March 3, 2003, the Company replaced the royalty and license agreement with a wholesale sales & marketing agreement with the same effective date of September 10, 2002. The new agreement was for an exclusive and renewable five year wholesale sales and marketing agreement with Two Dog Net, Inc. ("TDN") to be the exclusive marketers of their proprietary and patent pending secured internet service for children pre-school to junior high called The Children's Internet (TM) and an internet dial-up service. Under the terms of the agreement, the Company can continue the agreement for an additional five years 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. Under the terms of the sales and marketing agreement with TDN, the Company will pay TDN a fee per month per subscriber for the services subscribed. The effect of the change was to remove long term debt and an intangible asset net of accumulated amortization from the balance sheet and to reduce the net loss for the three months ended September 30, 2002 by the amount of the amortization ($55,556) and to reduce stockholders' deficit at September 30, 2002 by a like amount. All financial statements for the period ended and ending September 30, 2002 were restated (Note 2.) NOTE 4 - RELATED PARTY TRANSACTIONS The Parent Company provides for the office space utilized and pays for the utilities. The Company has accrued a payable due to the Parent Company for reimbursement of such costs. The Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani and an outside financial consultant have provided services to the Company at a fair market value of $75,000 and $225,000 during the three and nine months ended September 30, 2003 respectively, and will not seek payment for the services provided. The Company, Shadrack and TDN are related parties, in that, the Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani, is the sole shareholder of Shadrack which owns 51% of the Company's common stock. Ms. Hamedani was President of TDN until August 1, 2002. In addition, the current President, Chairman and Founder of TDN, Nasser Hamedani, is the father of the Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani. On June 28, 2002, the Company entered into a Consulting Agreement with Alan Schram. This agreement provides for Alan Schram to provide consulting services to the Company. In return for his services, the agreement entitles Alan Schram to receive 25,000 shares of the Company's common stock at the completion of the agreement's four month term. The consulting services have been accrued in other expenses. The Company is currently in negotiations with Mr. Schram to settle its obligations under the terms of this agreement. As of the date hereof, these shares have not been issued. Alan Schram is the Company's former President, Secretary, Chief Financial Officer and Director. 7 NOTE 5 - SB-2 REGISTRATION STATEMENT On February 6, 2003, the Company filed a Form SB-2 registration statement offering for sale of up to a maximum of 4,000,000 shares of the Company's common stock directly to the public. There is no underwriter involved in this offering. The shares are being offered without any underwriting discounts or commissions. The purchase price is $2.00 per share. If all of the shares offered by the Company are sold, the proceeds will be $8,000,000. The Company has received comments from the SEC on their filing and has responded to those comments and filed amendments to the registration statement in July and November, 2003. NOTE 6 - COMMITMENT On September 30, 2003, the Company signed a 13-month colocation to house the Company's search engine, servers and related equipment. As of September 30, 2003, future minimum rental payments required under this contract are $34,800. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report. FORWARD-LOOKING STATEMENTS This quarterly report on Form 10-QSB contains statements relating to future results of the Company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in political and economic conditions; demand for and market acceptance of new and existing products, as well as other risks and uncertainties detailed from time to time in the filings of the Company with the Securities and Exchange Commission. CRITICAL ACCOUNTING POLICIES AND ESTIMATES There have been no changes to the accounting policies adopted by the Company as reported in the Company's annual report on Form 10-KSB for the year ended December 31, 2002. There were new accounting pronouncements but they had no effect on the financial statements or results of operations. There are no significant accounting estimates made by the Company in the preparation of the financial statements for the quarterly period ended September 30, 2003. SELECTED FINANCIAL DATA The following selected statement of operations and balance sheet data for the period from September 25, 1996, the date of our inception, through September 30, 2003 and for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002 (Restated) were derived from our financial statements and notes thereto included in this report which are unaudited. Historical results are not necessarily indicative of results that may be expected for any future period. The following data should be read in conjunction with "Plan of Operation" and our unaudited financial statements, including the related footnotes.

For the For the For the period from 3 months 3 months September 25, 1996 ended ended (inception) through September 30, 2003 September 30, 2002 September 30, 2003 STATEMENT OF OPERATIONS DATA Net sales - - - Operating expenses: $137,814 $247,776 $774,840 --------- --------- --------- Operating loss ($137,814) ($247,776) ($774,840) --------- --------- --------- Net Loss ($137,814) ($247,776) ($774,840) ========= ========= ========= As of September 30, 2003 BALANCE SHEET DATA: Total assets - Current liabilities 264,235 Total stockholders' deficit ($264,235)

Plan of Operations You should read the following plan of operations together with our financial statements and related notes appearing elsewhere in this quarterly report. This plan of operations contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors appearing elsewhere in this quarterly report. On March 3, 2003, we entered into an agreement with Two Dog Net, Inc. to be the exclusive marketers of their proprietary and secured internet service for pre- school to junior high school aged children called The Children's Internet (TM). We plan to introduce a comprehensive Internet service designed specifically for children that allows them to have safe, unrestricted live access to the Internet. During the first quarter of 2004, if finances allow, we plan to conduct a media test to introduce The Children's Internet (TM) service to the public at large via a 30-minute infomercial infomercial. The infomercial was produced by Two Dog Net over a two-year period and is ready to air. The results from the media test will serve as a basis for the ongoing media plan to launch the infomercial on a national basis thereafter. We plan to outsource all non-strategic core competencies. By following this strategy, we intend to minimize the number of employees required to manage our intended growth through 2003. In connection with this strategy, on August 14, 2003 the Company entered into an Independent Sales Agreement and a Licensing Agreement with Infolink Communications, Ltd, ("Infolink") a sales organization in the Internet Infrastructure industry. These agreements provide for Infolink to market and sell the product and services of the Company to the U.S. Government and related agencies, to selected corporate sponsors and to Infolink's ISP customers. We have applied for registration of 4,000,000 shares of our common stock to be sold by us at a price of $2.00 per share in a direct public offering. If we raise the maximum offering of $8,000,000, our working capital needs will be met for approximately 24 months. This registration statement has not yet been declared effective by the Securities and Exchange Commission ("SEC"). The Company has received comments from the SEC on their filing and is in the process of responding to those comments. Additional funds may also be required in order to proceed with our marketing. These funds would be raised through additional private placements or other financial arrangements including debt or equity. There is no assurance that such additional financing will be available when required in order to proceed with the business plan or that our ability to respond to competition or changes in the market place or to exploit opportunities will not be 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. OFF-BALANCE SHEET ARRANGEMENTS None. ITEM 3. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures and internal controls and procedures for financial reporting for the Company. The Certifying Officers have designed such disclosure controls and procedures and internal controls and procedures for financial reporting to ensure that material information is made known to them, particularly during the period in which this report was prepared. The Certifying Officers have evaluated the effectiveness of the Company's disclosure controls and procedures and internal controls and procedures for financial reporting as of the end of the period covered by this report and believe that the Company's disclosure controls and procedures and internal controls and procedures for financial reporting are effective based on the required evaluation. During the period covered by this report, there were no changes in internal controls and procedures that materially affected, or are reasonably likely to materially affect, the Company's internal control and procedures over financial reporting. 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS To the best knowledge of management, there are no legal proceedings pending or threatened against the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following documents are filed as part of this report: 1. The following Exhibits are filed herein: No. Title 10.1 Independent Sales Agreement with Infolink, dated August 14, 2003* 10.2 Licensing Agreement with Infolink, dated August 14, 2003* 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 *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). 2. Reports on Form 8-K filed: None. 12 SIGNATURES In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, duly authorized. DATED: November 13, 2003 The Children's Internet, Inc. /S/ SHOLEH HAMEDANI --------------------------- By: Sholeh Hamedani Its: President, Chief Executive Officer, and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) 13