10KSB/A 1 j10k123102a.txt 10KSB/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 or [ ] 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. (Name of Small Business Issuer as specific in its Charter) Nevada 88-0370247 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2401 Crow Canyon Rd., Suite 201, San Ramon, CA 94583 (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number, including area code: (925) 406-2364 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, 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. Yes X No __ For the fiscal year ended December 31, 2002, the Company's revenue was $0.00. As of March 28, 2003, the number of shares of Common Stock outstanding was 2,287,755. The aggregate market value of the Company's Common Stock held by non-affiliates as of March 28, 2003 was $-0- as the Company's Common Stock is not presently quoted or trading on any quotation system or exchange. THIS ANNUAL REPORT ON FORM 10-KSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING PARTS OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 TO REFLECT THE REPLACEMENT OF THE LICENSE AND TECHNOLOGY AGREEMENT BETWEEN THE CHILDREN'S INTERNET AND TWO DOG NET, INC. WITH A WHOLESALE SALES AND MARKETING AGREEMENT. THERE WAS NO RESTATEMENT OF FINANCIAL INFORMATION IN THE ANNUAL REPORT ON FROM 10-KSB REQUIRED FOR THIS CHANGE. ALL INFORMATION IN THIS 10-KSB IS AS OF THE DATE OF OUR ANNUAL REPORT ON FORM 10-KSB, MARCH 28, 2003, AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE REPLACEMENT OF THE AGREEMENT. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated herein by reference: Registration Statement on Form SB-2, filed on February 10, 2003, as amended (Registration No. 333-103072) is incorporated in Part IV, Item 13(a). TABLE OF CONTENTS PAGE ITEM 1 DESCRIPTION OF BUSINESS..............................................1 ITEM 2 DESCRIPTION OF PROPERTY..............................................5 ITEM 3 LEGAL PROCEEDINGS....................................................6 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................6 ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTTERS.................................................6 ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS.....................................6 ITEM 7 FINANCIAL STATEMENTS.................................................8 ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................9 ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...........9 ITEM 10 EXECUTIVE COMPENSATION..............................................11 ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12 ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................13 ITEM 13 EXHIBITS AND REPORTS ON FORM 8K.....................................14 ITEM 14 CONTROLS AND PROCEDURES.............................................15 SIGNATURES...................................................................15 PART I ITEM 1. DESCRIPTION OF BUSINESS. THIS ANNUAL REPORT ON FORM 10-KSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING PARTS OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 TO REFLECT THE REPLACEMENT OF THE LICENSE AND TECHNOLOGY AGREEMENT BETWEEN THE CHILDREN'S INTERNET AND TWO DOG NET, INC. WITH A WHOLESALE SALES AND MARKETING AGREEMENT. THERE WAS NO RESTATEMENT OF FINANCIAL INFORMATION IN THE ANNUAL REPORT ON FROM 10-KSB REQUIRED FOR THIS CHANGE. ALL INFORMATION IN THIS 10-KSB IS AS OF THE DATE OF OUR ANNUAL REPORT ON FORM 10-KSB, MARCH 28, 2003, AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE REPLACEMENT OF THE AGREEMENT. BUSINESS DEVELOPMENT We were incorporated in the State of Nevada on September 25, 1996 as D.W.C. Installations. We changed our name to The Children's Internet, Inc. on December 27, 2002. We are a development stage company and currently have no revenues, only minimal assets, and have incurred losses since our inception. On July 3, 2002, Shadrack Films, Inc. purchased 1,166,755 newly issued shares of our common stock for $150,000, thereby obtaining a majority ownership interest and becoming our parent company. On September 10, 2002, we entered into a License Agreement with Two Dog Net, Inc. for an exclusive worldwide license to market and sell The Children's Internet(TM) service. We were required to pay Two Dog Net a monthly royalty payment of 7% of net sales of The Children's Internet(TM) product. We acquired the license for $2,000,000 required to be paid no later than September 10, 2004. We paid $15,500 of this amount during the quarter ended September 30, 2002. On March 3, 2003, we replaced the License Agreement with a Wholesale Sales & Marketing Agreement with the same effective date of September 10, 2002. This Wholesale Sales and Marketing Agreement gives us the exclusive worldwide right to market, sell, and distribute The Children's Internet(TM) service and wholesale dial-up Internet service of Two Dog Net. We will pay Two Dog Net a per user charge of $3.00 per month for each user accessing The Children's Internet(TM) 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. PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS The Children's Internet(TM) offers secure,real time access to approximately one million 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 virtually limitless educational resources all within its safe, protected online environment. We believe that the proprietary, patent-pending security software, Safe Zone Technology(TM) offers unprecedented security against Internet predators and Internet content that is inappropriate for children. The target market for The Children's Internet(TM) is the 48 million children on-line in 2002, (1) as well as America's schools which are connected to the Internet. The astronomical rate of general Internet use in the United States is expected to grow by 2 million new users per month.. (2) 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. (3) Surveys tell us that 85% of all parents with children under 11 years of age have expressed concern for their child's safety by overseeing each and every click and 45% of all parents feel the Internet is critical for educational purposes. (4) We will also sell wholesale dial-up service to ISPs. The US market for Internet services includes over 7,785 ISPs generating revenues of $32.5 billion in 2000. (5) Many of these ISPs are unable to obtain cost effective pricing from other Tier 1 bandwidth providers. Through Two Dog Net's agreement with Qwest Communications as a re-seller of wholesale dial-up service, our agreement with Two Dog Net allows us to present ISPs with the ability to lower their telecommunications costs and obtain a national reach by becoming able to accept subscribers from across the United States. COMPETITION The market for Internet products and services is highly competitive and competition is expected to increase. There are no substantial barriers to entry in these markets. Although we currently believe that the diverse segments of the Internet market provide opportunities for more than one supplier of products and services similar to ours, it is possible that a single supplier may dominate one or more market segments. Our management believes that the principal competitive factors in our market are brand recognition, ease of use, comprehensiveness of available content, customization by the consumer, quality and responsiveness of search results, the availability of high-quality, focused value added services, and required technology to offer access to end users with few interruptions. Competition among current and future suppliers of Internet navigational and informational services, high-traffic websites and ISPs, could result in significant price competition and reductions in revenues. There can be no assurance that we will be able to compete successfully or that competitive pressures will not have a material adverse effect on our business, operating results, and financial condition. 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 Snoop (Pearl Software, Inc.), Cyber Sentinel (Security Software Systems, Inc.), Cybersitter 97 (Solid Oak Software, Inc.), SurfWatch (SurfWatch Software, Inc.), 1 - Internet Commerce & Communications Division, Information Technology Association of America, February 2002. 2 - Id. 3 - Report from the Internet Commerce & Communications Division, Information Technology Association of America, February 2002. 4 - Greenfield Online, Inc. April 1999. 5 - Cahners In-Stat Group. The U.S. ISP Industry: Revenues and Services (Report # IS00-04SP) September 2000. WebChaperone (WebCo International, Inc.) EdView Channel Lock and EdViewsmart Zone (EdView, Inc.) and X-Stop (Log-On Data, Inc.). In addition, we compete with online services such as Yahooligans! (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 two products through our agreement with Two Dog Net: (1) The Children's Internet(TM) service; and (2) wholesale dial-up Internet service. There are no other products available through our agreement at the present time, nor do we anticipate being able to offer other products for at least the next twelve months, if not longer. Any 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. 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 Qwest Communications Corporation to provide the principal Internet connection for The Children's Internet(TM). Any disruption in the Internet access provided by third-party providers or any failure of third-party providers to handle higher volumes of user traffic could have a material adverse effect on our business, operating results, and financial condition. DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS We currently do not have any customers. INTELLECTUAL PROPERTY Our success is dependent on the Two Dog Net, Inc. proprietary technology that we market and sell. Following is a list of the intellectual property we have the rights to use in our selling and marketing efforts of The Children's Internet from Two Dog Net, Inc.: - "The Children's Internet(TM)" registered trademark. - Safe Zone Technology(TM) registered trademark. - The Safe Zone Technology(TM) software patent application pending. - "Two Dog Net(TM)" a trademark. Despite our efforts to protect our exclusive sales and marketing 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 patent applications filed by Two Dog Net will result in patents being issued, and any patents that may be issued to it in the future, will afford protection against competitors with similar technology; nor can there be any assurance that patents issued to Two Dog Net will not be infringed upon or designed around by others or that others will not obtain patents that we would need to license or design around. 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. 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 look to Two Dog Net as our research and development partner and will continue to rely on Two Dog Net to keep The Children's Internet(TM) technology current. To date, all of the research and development efforts have been performed by Two Dog Net at their expense. Over the course of the past six years, Two Dog Net has been focused on the development of Safe Zone Technology(TM), The Children's Internet(TM), the creation of unique user interfaces and feature functionality for The Children's Internet(TM). 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(TM) 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(TM)and feel comfortable that the research and development effort will not dilute our focus and resources from the success of The Children's Internet(TM). EMPLOYEES We currently employ five full-time employees, four in management and one technical employee. We do not anticipating hiring any additional employees during calendar year 2003. The Company hires independent contractors on an "as needed" basis only. The Company has no collective bargaining agreements with its employees. The Company believes that its employee relationships are satisfactory. ITEM 2. PROPERTIES We currently lease 2,759 square feet of office space for $4,276.45 per month. Our lease has a term of 14 months from May 1, 2002 through June 30, 2003. We conduct all of our operations from these facilities. ITEM 3. LEGAL PROCEEDINGS We are not engaged in any legal proceedings and are not aware of any 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 is not currently quoted or traded on any public securities quotation system or exchange. HOLDERS As of March 28, 2003, there were 81 shareholders holding certificated securities. The Company's transfer agent is Transfer Online, 227 S.W. Pine, Suite 300, Portland, OR 97204. DIVIDENDS The Company has not paid any dividends on its Common Stock since its inception and does not anticipate or contemplate paying cash dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS. SELECTED FINANCIAL DATA The following selected statement of operations data for the period from September 25, 1996, the date of our inception, through December 31, 2002 and for the fiscal year ended December 31, 2002 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" and our audited financial statements, including the related footnotes.

For the period For the year from September 25, 1996 ended December 31, (inception) through 2002 December 31, 2002 STATEMENT OF OPERATIONS DATA Net sales $ -0- $ -0- Operating expenses: 392,389 400,994 Operating loss (392,389) (400,994) Net Loss (392,389) (400,994)

As of December 31, 2002 BALANCE SHEET DATA: Total assets $ -0- Current liabilities 115,389 Total stockholders' deficit (115,389)

PLAN OF OPERATION You should read the following plan of operation together with our financial statements and related notes appearing elsewhere in this annual report. 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 appearing elsewhere in this annual report. Effective September 10, 2002, we have an agreement with Two Dog Net, Inc. to be the exclusive marketers of their proprietary and patent pending secured internet service for pre-school to junior high school aged children called The Children's Internet(TM). We plan to introduce the first, fully comprehensive Internet service designed specifically for children that allows them to have completely safe, unrestricted live access to the Internet. During 2003, 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. 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 a Stock Purchase Agreement dated October 11, 2002, our original shareholders sold 1,118,500 of their shares of our common stock to various purchasers, two of whom are related parties to us. Some of these purchasers were introduced to the original shareholders by Sholeh Hamedani, our President, Chief Financial Officer, and a Director. Some of these purchasers resold their shares to unrelated third parties. A portion of the proceeds received from the stock sales by the purchasers was in turn loaned to Shadrack Films, Inc., our parent company, to finance our initial operations thus far. These amounts are reflected on the financial statements as "Due to Parent Company." 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. Additional funds may also be required in order to proceed with our marketing plan described above and our business plan described in "Business of the Company" below. 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 7. FINANCIAL STATEMENTS. The financial statements required to be filed pursuant to this Item 7 begin on page F-1 of this report. INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF THE CHILDREN'S INTERNET, INC.: We have audited the accompanying balance sheet of The Children's Internet, Inc. (formerly D.W.C. Installations) (A Development Stage Company) as of December 31, 2002 and the related statements of operations, stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2002 and for the period from September 25, 1996 (inception) to December 31, 2002. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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. as of December 31, 2002 and the results of its operations and its cash flows for each the two years in the period ended December 31, 2002 and for the period from September 25, 1996 (inception) to December 31, 2001 in conformity with generally accepted accounting principles in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 of the accompanying financial statements, the Company has no established source of revenue, which raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to this matter is also discussed in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Stonefield Josephson, Inc. --------------------------------- STONEFIELD JOSEPHSON, INC. Certified Public Accountants Santa Monica, California March 11, 2003

THE CHILDREN'S INTERNET, INC. (Formerly D.W.C. Installations) (A Development Stage Company) BALANCE SHEET December 31, 2002 --------- ASSETS TOTAL ASSETS $ - ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Accounts payable and accrued expenses 62,635 Due to parent company 52,754 --------- Total current liabilities 115,389 --------- TOTAL LIABILITIES 115,389 --------- 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 283,317 Deficit accumulated during the development stage (400,994) --------- TOTAL STOCKHOLDERS' DEFICIT (115,389) --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - ========= The accompanying notes are an integral part of the financial statements.

F-1

THE CHILDREN'S INTERNET, INC. (Formerly D.W.C. Installations) (A Development Stage Company) STATEMENTS OF OPERATIONS For the Period For The Year September 25, 1996 Ended December 31, (inception) to 2002 2001 December 31, 2002 REVENUE $ - $ - $ - General selling and 392,389 - 400,994 administrative expenses -------- -------- --------- Operating loss before (392,389) - (400,994) provision for income taxes Provision for income taxes - - - -------- -------- --------- NET LOSS $(392,389) $ - $(400,994) ======== ======== ========= Net loss per common share - basic and diluted $(0.19) $ - $(0.31) ======== ======== ========= Weighted average number of common shares outstanding - basic and diluted 2,067,267 1,121,000 1,277,460 ======== ======== ========= The accompanying notes are an integral part of the financial statements.

F-2

THE CHILDREN'S INTERNET, INC. (Formerly D.W.C. Installations) (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' DEFICIT Common Additional Deficit Accumulated Stock Paid-In During the Development Capital Stage Stockholders' Shares Amount Deficit 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) ========== ====== ====== ======== ======== The accompanying notes are an integral part of the financial statements.

F-3

THE CHILDREN'S INTERNET, INC. (Formerly D.W.C. Installations) (A Development Stage Company) STATEMENTS OF CASH FLOWS For the Period For The Year September 25, 1996 Ended December 31, (inception) 2002 2001 December 31, 2002 CASH FLOWS USED IN OPERATING ACTIVITIES: Net Loss $(392,389) $ - $ (400,994) Adjustments to reconcile net loss to net cash used in operating activities: Services performed as capital contribution 125,000 - 125,000 Expense paid by former officer on behalf of company 2,000 - 5,000 Increase (decrease) in liabilities Accounts payable and accrued expenses 62,635 - 62,635 Due to parent company 52,754 - 52,754 -------- ------- -------- Net cash used in operating activities (150,000) - (155,605) CASH PROVIDED BY FINANCING ACTIVITIES: Issuance of common stock 150,000 - 155,605 -------- ------- -------- Net cash provided by financing activities 150,000 - 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.

F-4 THE CHILDREN'S INTERNET, INC. (Formerly D.W.C. INSTALLATIONS) (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS December 31, 2002 NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Children's Internet, Inc. (formerly D.W.C. Installations ("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 our common stock for $150,000, thereby obtaining a majority ownership interest and becoming our parent company. Total issued and outstanding shares were increased to 2,287,755 as a result of this sale. Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. 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. Use of Estimates The preparation of financial statement in conformity with generally accepted accounting principles 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 investments purchased with original maturities of three months or less to be cash equivalents. Income Taxes Income taxes are provided for based on the liability method of accounting pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes, if any, are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. 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 gives effect to all dilutive potential common shares outstanding during the period. As of December 31, 2002, the Company has no anti-dilutive common shares outstanding. F-5 Comprehensive Income As of December 31, 2002, the Company has no items that represent comprehensive income and therefore, has not included a schedule of comprehensive income in the accompanying financial statements. Segment Reporting The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires public companies to report financial and descriptive information about their reportable operating segments. 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 and adoption of this standard did not have a material impact on The Company's financial statements. Through December 31, 2002 there have been no foreign operations. New Accounting Pronouncements In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles." SFAS No. 142 addresses the initial recognition, measurement and amortization of intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) and addresses the amortization provisions for excess cost over fair value of net assets acquired or intangibles acquired in a business combination. The statement is effective for fiscal years beginning after December 15, 2001, and is effective July 1, 2001 for any intangibles acquired in a business combination initiated after June 30, 2001. The Company does not expect the recently issued SFAS No. 142, "Goodwill and Other Intangibles" to currently have a material impact on the Company's financial position or results of operations since the Company has no goodwill or other intangible assets. In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires companies to record the fair value of a liability for asset retirement obligations in the period in which they are incurred. The statement applies to a company's legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, and development or through the normal operation of a long-lived asset. When a liability is initially recorded, the company would capitalize the cost, thereby increasing the carrying amount of the related asset. The capitalized asset retirement cost is depreciated over the life of the respective asset while the liability is accreted to its present value. Upon settlement of the liability, the obligation is settled at its recorded amount or the company incurs a gain or loss. The statement is effective for fiscal years beginning after June 30, 2002. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations since the Company has not participated in such activities covered under this pronouncement. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of a business. This statement is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. F-6 In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9", which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer- relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact to the Company's financial position or results of operations as the Company has not engaged in either of these activities. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock- Based Compensation-Transition and Disclosure", which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of this Statement did not have a material impact to the Company's financial position or results of operations as the Company does not have any stock-based compensation. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. 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 sale 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 (see Note 3). 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 ($53,118) and to reduce stockholders' deficit at September 30, 2002 by a like amount. 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) ========== ========== F-7 NOTE 3 - SALES AND MARKETING AGREEMENT The agreement is 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(R) 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. NOTE 4 - RELATED PARTY TRANSACTIONS The Company neither owns nor leases any real or personal property. 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 and Director, Sholeh Hamedani and an outside financial consultant have provided services to the Company at a fair market value of $125,000, 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, 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 is Nasser Hamedani, the father of the Company's President, Chief Executive 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 extend the term 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. Nasser Hamedani owns 47% of TDN, the company with whom the Company has entered into the Sales and Marketing Agreement, and he is the father of the Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani. F-8 In a Stock Purchase Agreement dated October 11, 2002, the Company's original shareholders sold 1,118,500 of their shares of common stock to various purchasers, two of whom are related parties to the Company. Some of these purchasers were introduced to the original shareholders by Sholeh Hamedani, the Company's President, Chief Financial Officer, and a director. Some of these purchasers resold their shares to unrelated third parties. A portion of the proceeds received from the stock sale by the Purchasers was in turn loaned to the Company's parent, who used these funds to finance the operations of the Company. These amounts are reflected on the financial statements as Due to Parent Company. NOTE 5 - SUBSEQUENT EVENTS On February 6, 2003, the Company filed a Form SB-2 registration statement offering for sale 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. F-9 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 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 Position ---- --- -------- Sholeh Hamedani 35 President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors Jamshid Ghosseiri 63 Secretary, Director Tyler Wheeler 32 Director Roger Campos, Esq. 56 Director Dale Boehm 34 Director MS. SHOLEH HAMEDANI, is our President, Chief Executive Officer, Chief Financial Officer and has been our 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., formerly The Children's Internet, Inc. From July 1995 to August 2002, she was President and co-founder of Two Dog Net, Inc. a security solutions provider and software developer. 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, Inc. Ms. Hamedani was part of the founding team at SyberVision Systems in the Production and TV Media Department from 1985 to 1989. Ms. Hamedani attended California State University, Hayward majoring in Business Administration from 1985 to1988. 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 35 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 a director since August 23, 2002. Mr. Wheeler has spent the greater portion of his life in the presence of computer technology, specializing in system integration and design. 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 through the present, Mr. Wheeler serves as Vice President of Technology at Two Dog Net, Inc. a security solutions provider and software developer. Mr. Wheeler completed a BA in Finance and Business Law at California State University, Fresno in May of 1996. MR. ROGER CAMPOS, ESQ. has been a director since August 23, 2002. Mr. Campos received his J.D. (law) degree in June 1972 from the United States International University (San Diego, CA) and received his BA in June of 1969 from the University of California at Santa Barbara. He has over 25 years of experience in legal and management positions with five federal U.S. agencies during the Nixon, Ford, and Reagan administrations, including the White House's Office of Management and Budget. From February 2002 through the present, he serves 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, financing and business transactions. MR. DALE BOEHM has been a director since August 23, 2002. From July 2001 continuing through the present, Mr. Boehm has served as Director of Sales at Qwest Telecommunications, Inc. From December 2000 to July 2001, Mr. Boehm was the Regional Vice President of Central Region Sales at OneSecure Inc., a managed security services provider enabling clients to co-manage firewalls. Mr. Boehm was Regional Vice President Enterprise Solutions of GlobalCenter from November 1999 through December 2000 and Manager IP Network Solutions at AT&T from February 1999 through November 1999. From January 2000 through the present, Mr. Boehm has been an instructor of TCP/IP, Business-to-Business e- Commerce, and IP Technology programs at the University of Wisconsin-Milwaukee. He is the Chairman on the Executive Steering Committee for the University Outreach Program. He is also a member of the Information Systems Security Association (ISSA)(R). Mr. Boehm received his Certificate of Telecommunications Analysis from the University of Wisconsin-Milwaukee in 1994 and is currently enrolled at Concordia University, Mequon, Wisconsin for a Bachelor of Arts, Management & Communication degree. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified. 10 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. 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. None of our officers earned more than $100,000 in the last three fiscal years. 11

ANNUAL COMPENSATION LONG TERM COMPENSATION Awards Payouts Year Other Annual Restricted Securities LTIP All Other Compen-sation Stock Awards Underlying Payouts Compensation Salary Bonus ($) ($) Options/ ($) ($) ($) ($) SARs (#) Sholeh Hamedani, President, CEO, CFO 2002 $75,000[1]$0 $0 $0 -0- $0 $0 Alan Schram, President, Secretary 2002 $142,848 $0 $0 $0 -0- $0 $0 and Treasurer[2] 2001 $ 0 $0 $0 $0 -0- $0 $0 Hagit Bernstein, President and 2000 $ 0 $0 $0 $0 -0- $0 $0 Secretary[3] 1999 $ 0 $0 $0 $0 -0- $0 $0 Raphi Shram, Treasurer[4] 2000 $ 0 $0 $0 $0 -0- $0 $0 1999 $ 0 $0 $0 $0 -0- $0 $0

No options or SARs where granted to any executive officers. EMPLOYMENT AND RELATED AGREEMENTS We have not entered into any employment agreements. 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. 12 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the shareholdings of those persons who: (i) own more than 5% of our common stock as of March 28, 2003 with the number of outstanding shares at 2,287,755; (ii) are our officers or directors; and (iii) all officers and directors as a group:

Name Number of Percentage Shares Beneficially Owned[5] Sholeh Hamedani, President, CEO, CFO, Director[6] 1,166,755[7] 51.0% Jamshid Ghosseiri, Ph.D., Secretary, Director(2) -0- -0- Tyler Wheeler, CTO, Director(2) -0- -0- Roger Campos, Esq., CTO, Director(2) -0- -0- Dale Boehm, Director(2) -0- -0- All Officers and Directors as a group (5 people) 1,166,755 51.0% Shadrack Films, Inc. 1,166,755 (3) 51.0%

1 - Accrued unpaid and was contributed to capital as of December 31, 2002. 2 - Resigned August 12, 2002. 3 - Resigned January 1, 2001. 4 - Resigned January 1, 2001. 5 - 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 no deemed outstanding for purposes of computing the percentage of any other person. 6 - c/o 2401 Crow Canyon Road, Suite 201, San Ramon, California 94583. 7 - Consists of 1,166,755 shares of common stock owned by Shadrack Films, Inc. formerly known as The Childrens Internet, Inc., a California corporation, of which Sholeh Hamedani is the sole shareholder. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. We have related parties as follows: - Our President, Chief Executive Officer, and one of our Directors, Sholeh Hamedani, is the sole shareholder of our parent company, Shadrack Films, Inc. Ms. Hamedani was also President of Two Dog Net, Inc., the licensor of The Children's Internet(R) technology until August 1, 2002. Ms. Hamedani also owns approximately 10% of the total outstanding shares of Common Stock of Two Dog Net, Inc. - Ms. Hamedani's father, Nasser Hamedani, is the current President, Chairman and majority shareholder of Two Dog Net, Inc. On June 28, 2002, we entered into a Consulting Agreement with Alan Schram. This agreement provides for Alan Schram to provide consulting services to us. In return for his services, the agreement entitles Alan Schram to receive 25,000 shares of our common stock at the completion of the agreement's four month term. We are currently in negotiations with Mr. Schram to extend the term of this agreement. As of the date hereof, these shares have not been issued. Alan Schram is our former President, Secretary, Chief Financial Officer and Director. On July 3, 2002, we entered into an agreement with Shadrack Films, Inc. Pursuant to the agreement, we sold 1,166,755 newly issued shares of our common stock to Shadrack Films, Inc. in exchange for an aggregate purchase price of $150,000. Sholeh Hamedani is the sole shareholder of Shadrack Films, Inc. On September 10, 2002, we entered into an agreement with Two Dog Net, Inc. for the exclusive rights to market, sell and distribute The Children's Internet(R) technology and intellectual property. Under our new Wholesale Sales & Marketing Agreement, effective March 3, 2003, we will pay the following fees to Two Dog Net: - $3.00 per month for each user accessing The Children's Internet(TM) service; - $3.79 per month for each user accessing the Internet dial-up service; and - $0.75 per user for each hour of usage in excess of 150 hours in a given month. In a Stock Purchase Agreement dated October 11, 2002, our original shareholders sold 1,118,500 of their shares of our common stock to various purchasers, two of whom are related parties to us. Some of these purchasers were introduced to the original shareholders by Sholeh Hamedani, our President, Chief Financial Officer, and a Director. Some of these purchasers resold their shares to unrelated third parties. A portion of the proceeds received from the stock sale by the purchasers was in turn loaned to Shadrack Films, Inc., our parent company. Shadrack Films used these funds to finance our initial operations thus far. These amounts are reflected on the financial statements as "Due to Parent Company." ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS 3.1 Articles of Incorporation, dated September 25, 1996* 3.2 Certificate of Amendment of Articles of Incorporation, dated February 10, 2000* 3.3 Certificate of Amendment of Articles of Incorporation, dated December 27, 2002* 3.4 Certificate of Designation of Series A Preferred Stock, dated November 8, 2002* 3.5 Bylaws* 10.1 Plan of Reorganization and Acquisition, July 3, 2002* 10.2 Consulting Agreement with Alan Schram, dated June 28, 2002* 10.3 License Agreement dated September 10, 2002* 10.4 Amendment to License Agreement, dated November 5, 2002* 10.5 Wholesale Sales & Marketing Agreement, dated March 3, 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 the Company's Registration Statement on Form SB-2, filed on February 10, 2003, as amended (Registration No. 333-103072). **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). (B) REPORTS ON FORM 8-K None. ITEM 14 CONTROLS AND PROCEDURES Our Chief Executive Officer, President, and Chief Financial Officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officers have designed such disclosure controls and procedures 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 within 90 days of the date of this report and believe that the Company's disclosure controls and procedures are effective based on the required evaluation. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, duly authorized. THE CHILDREN'S INTERNET, INC. DATED: November 21, 2003 By: /s/ Sholeh Hamedani ------------------------------------- Sholeh Hamedani President, Director (Principal Executive Officer) DATED: November 21, 2003 By: /s/ Sholeh Hamedani ------------------------------------- Sholeh Hamedani Chief Financial Officer, Director (Principal Financial Officer and Principal Accounting Officer)