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 June 30, 2005
|_| 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 20-1290331
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
|
5000 Hopyard Rd., Suite 320, Pleasanton, California 94588
(Address of principal executive offices)
(925) 737-0144
(Issuer's telephone number)
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 June 30, 2005, the number of shares of common stock issued and outstanding was 26,810,138.
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
Unaudited Balance Sheet - June 30, 2005 1
Unaudited Statements of Operations - For the six months and three 2
months ended June 30, 2005 and 2004, and the period from
inception to June 30, 2005
Unaudited Statements of Cash Flows - For the six months 3
ended June 30, 2005 and 2004, and the period from
inception to June 30, 2005
Notes to Unaudited Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Conditions and Plan of Operation 7
Item 3. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHILDREN'S INTERNET, INC.
(A Development Stage Company)
BALANCE SHEET
June 30, 2005
(Unaudited)
ASSETS
Current Assets:
Cash $ 57,796
-----------
Total Current Assets 57,796
Other Assets:
Deferred Charges - Related Company 5,670,000
Deferred Tax Asset (net of valuation allowance of
$442,374) --
-----------
TOTAL ASSETS $ 5,727,796
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 127,833
Taxes Payable 2,640
-----------
Total Current Liabilities 130,473
Long-Term Liabilities:
Due to Parent Company 213,464
Accrued Officer's Salary 90,000
-----------
Total Long-Term Liabilities 303,464
-----------
TOTAL LIABILITIES 433,937
-----------
COMMITMENTS AND CONTINGENCIES --
-----------
STOCKHOLDERS' EQUITY
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; 26,810,138 shares issued and outstanding 26,810
Additional paid-in capital 7,852,063
Deficit accumulated during the development stage (2,585,014)
-----------
TOTAL STOCKHOLDERS' EQUITY 5,293,859
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,727,796
===========
|
The accompanying notes are an integral part of the financial statements.
THE CHILDREN'S INTERNET, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30, From
---------------------------- ---------------------------- Inception
2005 2004 2005 2004 to Date
------------ ------------ ------------ ------------ ------------
(restated) (restated)
REVENUE $ -- $ -- $ -- $ -- $ --
General and Administrative Expenses 296,658 85,678 778,880 182,269 2,581,814
------------ ------------ ------------ ------------ ------------
Operating Loss before provision for
income taxes (296,658) (85,678) (778,880) (182,269) (2,581,814)
Provision for Income Taxes 800 800 800 800 3,200
------------ ------------ ------------ ------------ ------------
NET LOSS $ (297,458) $ (86,478) $ (779,680) $ (183,069) $ (2,585,014)
============ ============ ============ ============ ============
Net Loss per Common Share, after giving
retroactive effect to 2 for 1 stock
split on March 11, 2005, to the period
ended June 30, 2004 - basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.01) $ (0.41)
============ ============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding 26,795,808 13,523,510 23,480,932 13,523,510 6,382,458
============ ============ ============ ============ ============
PRO FORMA INCOME DATA
Net Loss as reported (2004 restated) $ (297,458) $ (86,478) $ (779,680) $ (183,069)
Effect of errors corrected (net of tax) -- 1,981 -- 29,371
------------ ------------ ------------ ------------
Pro forma Net Loss previously reported $ (297,458) $ (84,497) $ (779,680) $ (153,698)
============ ============ ============ ============
Pro forma Net Loss per Common Share,
after giving retroactive effect to
2 for 1 stock split on March 11,
2005, to the period ended June 30, 2004
- basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.01)
============ ============ ============ ============
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The accompanying notes are an integral part of the financial statements.
THE CHILDREN'S INTERNET, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2005, 2004 and From Inception
(Unaudited)
Restated Inception
2005 2004 to Date
----------- ----------- -----------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Loss $ (779,680) $ (183,069) $(2,585,014)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services performed as capital contribution -- 90,000 595,000
Expenses paid by former officer on behalf of company -- -- 5,000
Increase in assets
Deferred Charges (5,670,000) -- (5,670,000)
Increase in liabilities
Accounts payable and accrued expenses 141,590 3,205 220,473
Due to Parent Company -- 89,864 213,464
----------- ----------- -----------
Decrease in liabilities
Due to Parent Company (182,026) -- --
----------- ----------- -----------
Net cash used in operating activities (6,490,116) -- (7,221,077)
----------- ----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock 562,912 -- 1,293,873
Stock options granted 5,985,000 -- 5,985,000
----------- ----------- -----------
Net cash provided by financing activities 6,547,912 -- 7,278,873
----------- ----------- -----------
Net change in cash and cash equivalents 57,796 -- 57,796
Cash and cash equivalents - beginning of period -- -- --
----------- ----------- -----------
Cash and cash equivalents - end of period $ 57,796 $ -- $ 57,796
=========== =========== ===========
|
The accompanying notes are an integral part of the financial statements.
THE CHILDREN'S INTERNET, INC.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2005
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Children's Internet, Inc. [(formerly D.W.C. Installations) ("Company")] was incorporated under the laws of the State of Nevada on September 25, 1996.
On July 3, 2002, Shadrack Films, Inc. (Parent Company) purchased 2,333,510 newly issued post-split 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 4,575,510 post-split shares as a result of this sale.
On October 11, 2002, 8,948,000 newly issued restricted post-split shares of common stock were issued as a debt financing fee.
During the six months ended June 30, 2005, an additional 13,286,628 restricted post-split shares of common stock were issued as explained in Notes 2 and 3, bringing the total of the Company's issued and outstanding post-split shares to 26,810,138 at June 30, 2005.
Development Stage Enterprise
The Company is a development stage enterprise as defined by Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises." All losses accumulated since the inception of the Company (formerly D.W.C. Installations) have been considered as part of the Company's development stage activities. The Company's focus is on marketing The Children's Internet(R) service.
Interim Financial Information
The accompanying unaudited interim financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America pursuant to Regulation S-B of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company's audited financial statements and related notes as contained in the Company's Form 10-KSB for the year ended December 31, 2004. In the opinion of management, the interim financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of results of operations to be expected for the full year.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company had net losses and a negative cash flow from operations for the six months ended June 30, 2005. These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 2 - RELATED PARTY TRANSACTIONS
Services Provided
On January 26, 2005, the Company's Board of Directors resolved that starting January 1, 2005, all salary due and payable to the Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani, would be accrued when earned. The decision will be made at the end of the year whether to make the payment in cash, shares of the Company's restricted common stock, or a combination of both. Accordingly, for the six months ended June 30, 2005, $90,000 has been accrued and charged to General and Administrative Expense. During the six months ended June 30, 2004, Sholeh Hamedani provided services to the Company at a fair market value of $90,000, which was contributed to Additional Paid-in Capital. Accordingly, she will not seek payment for the services provided during that period.
Advances
In February 2005, the Company owed Shadrack Films, Inc., our parent company, approximately $457,000 representing loans made by Shadrack to the Company since activating the development stage on July 3, 2002 when it agreed to fund all of the Company's operations. On February 15, 2005, the Company's Board of Directors authorized and approved the conversion of the debt owed by the Company to Shadrack, into 13,054,628 post-split shares of the Registrant's restricted common stock at a conversion price of $.07 per share.
Shadrack Films, Inc. is an entity owned and controlled by the Company's
President, Chief Executive Officer, Chief Financial Officer and Chairman of the
Board, Sholeh Hamedani, who is the sole officer, director and shareholder of
Shadrack. Shadrack also owned 2,333,510 post-split shares of the Company's
common stock, of which it sold 1,276,150 shares to approximately 130 investors
between July 2004 and June 2005. In addition, Shadrack paid for services valued
at $35,000 with 70,000 shares of the Company's common stock. Together with the
13,054,628 post-split shares issued upon conversion of the debt, Shadrack owns
an aggregate of 14,041,988 post-split shares of the Company's common stock or
52.4% without giving effect to any presently exercisable options. The shares
issued to Shadrack upon conversion are exempt from registration pursuant to
Section 4 (2) of the Securities Act of 1933, as amended.
Licensing Agreement
On February 15, 2005, the Company's Board of Directors authorized and approved an amendment to the Wholesale Sales and Marketing Agreement between the Company and Two Dog Net, Inc. (TDN), dated March 3, 2003. The amended license agreement reduces the license fee for The Children's Internet(R) technology payable to TDN from $3.00 to $1.00 per monthly subscription. In consideration for the reduction of the fee, the Company granted TDN or its designees an option (the "Option") to purchase up to 18,000,000 post-split shares of the Company's restricted common stock at an exercise price of $.07 per share based upon the most recent sale of a share of the Company's common stock which occurred in October 2002 in a private transaction. The Option is exercisable, in whole or in part at any time and from time to time, for a period of five years from the date of grant. The Option also provides TDN with "piggyback" registration rights for all shares underlying the Option on any registration statement filed by the Company for a period of one year following any exercise of the Option.
Beneficial Ownership
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 as of June 30, 2005 owns 52.4% of the Company's common stock. Ms. Hamedani was President of TDN until she resigned on August 1, 2002 and is a 10% shareholder of TDN. In addition, the current President, Chairman and Founder of TDN, Nasser Hamedani, is the father of the Company's President, Chief Executive Officer, Chief Financial Officer, and Director, Sholeh Hamedani.
Stock Options Granted
On February 15, 2005, the Company's Board of Directors granted Tyler Wheeler, the Company's Chief Software Architect and a director, an option to purchase up to 1,000,000 post-split shares of the Company's restricted common stock at an exercise price of $0.07 per share. The option is exercisable, in whole or in part at any time and from time to time, for a period of five years from the date of grant.
An option to purchase shares of the Company's restricted common stock was also granted to TDN, as explained under "Licensing Agreement" above and in Note 5.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
On February 25, 2005, the Company entered into a one-year agreement with Crosslink Financial Communications, Inc., a California corporation, for consulting services related to stockholder communications and public relations with existing shareholders, brokers, dealers and other investment professionals. As compensation for these services, Crosslink received 200,000 restricted shares of the Company's common stock valued at $0.33 per share, monthly stock compensation of 8,000 restricted shares of common stock, and $5,000 per month from which Crosslink will pay for complementary services (e.g., other mailing services, email services, data base extensions) of not less than $1,500 per month up to an average of $2,500 per month. During the six months ended June 30, 2005, Crosslink had received a total of 232,000 restricted shares of the Company's common stock under this agreement.
NOTE 4 - COMMON STOCK
On February 15, 2005, the Company's Board of Directors authorized a 2 for 1 forward split of the Company's issued and outstanding common stock to shareholders of record on March 7, 2005, in the form of a 100% stock dividend. The effective date of the forward split was March 11, 2005.
NOTE 5 - NON-MONETARY TRANSACTIONS
Stock Options Granted
Deferred Charge
As explained in Note 2, the Company's Board of Directors authorized and approved an amendment to the Wholesale Sales and Marketing Agreement between the Company and Two Dog Net, Inc., and granted an option to purchase up to 18,000,000 post-split restricted common shares valued at $5,670,000. This amount has been recorded as a deferred charge and will be amortized into expense as subscription revenues are recognized.
Non-employee Compensation
As explained in Note 2, the Company's Board of Directors granted an option to Tyler Wheeler, the Company's Chief Software Architect and a director, to purchase up to 1,000,000 post-split restricted common shares valued at $315,000. This amount has been recorded as an expense for services and is included with general and administrative expenses in the Company's Statement of Operations for the six months ended June 30, 2005.
These options were valued using the Black-Scholes option pricing model, which was developed for estimating the fair value of traded options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.
Forward-Looking Statements
The following information contains certain forward-looking statements of management of the Company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may," "could," "expect," "estimate," "anticipate," "plan," "predict," "probable," "possible," "should," "continue," or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
Critical Accounting Policies and Estimates
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Selected Financial Data
The following selected statement of operations and balance sheet data for the period from September 25, 1996, the date of our inception, through June 30, 2005 and for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004 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 notes to the financial statements.
---------------------------------------------------------------------------------------------------------------------
For the period from
September 25, 1996
For the six months For the six months (inception) through
ended June 30, 2005 ended June 30, 2004 June 30, 2005
---------------------------------------------------------------------------------------------------------------------
Statement of Operations Data
---------------------------------------------------------------------------------------------------------------------
Net sales -- -- --
---------------------------------------------------------------------------------------------------------------------
Operating expenses: $778,880 $182,269 $2,581,814
---------------------------------------------------------------------------------------------------------------------
Operating loss ($778,880) ($182,269) ($2,581,814)
---------------------------------------------------------------------------------------------------------------------
Net Loss ($779,680) ($183,069) ($2,585,014)
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
As of June 30, 2005
---------------------------------------------------------------------------------------
Balance Sheet Data:
---------------------------------------------------------------------------------------
Total assets $5,727,796
---------------------------------------------------------------------------------------
Total liabilities $433,937
---------------------------------------------------------------------------------------
Total stockholders' equity $5,293,859
---------------------------------------------------------------------------------------
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Plan of Operation
The plan of operation should be read in conjunction with the Company's financial statements, including the notes thereto, appearing elsewhere in this Report.
On September 10, 2002, we entered into a License Agreement with Two Dog Net for an exclusive worldwide license to market and sell The Children's Internet(R) service. However, because this agreement did not reflect the intent of the parties, we replaced the royalty and license agreement with a Wholesale Sales & Marketing Agreement dated March 3, 2003. The new agreement provides for us to be the exclusive marketers of Two Dog Net's proprietary and patent pending secured Internet service for pre-school to junior high school aged children called The Children's Internet(R). We further amended this agreement in February 2005 to decrease the per user fee from $3.00 to $1.00. In consideration for this decrease, Two Dog Net was granted an option to acquire 18,000,000 post-split shares of the Company's restricted common stock at an exercise price of $.07 per share for five years from the date of grant. The shares underlying the option have "piggyback" registration rights for a period of one year following any exercise of the option.
Through the License Agreement with Two Dog Net, Inc. ("Two Dog Net"), we are the exclusive marketers of Two Dog Net's proprietary and patent pending secured Internet service for pre-school to junior high school aged children called The Children's Internet(R). The Children's Internet(R) service allows to have completely safe, unrestricted live access to the Internet. The cornerstone of our consumer marketing plan is a national television advertising campaign which includes a 30-minute infomercial that was produced over a two-year period of time by Two Dog Net and is ready to air. We intend to utilize the infomercial to introduce The Children's Internet(R) service to the public, as well as build brand recognition and generate customer subscriptions. We plan to first conduct a media test in the fourth quarter of 2005. We believe the results from the media test will give us the platform to launch the advertising campaign on a national basis thereafter and be the basis for the ongoing infomercial media schedule for 2005 and 2006.
In a Stock Purchase Agreement dated October 11, 2002, our original shareholders sold then 2,237,000 post-split shares of our common stock to various purchasers, two of whom are related parties to our management, Nasser Hamedani, Sholeh Hamedani's father, and Soraiya Hamedani, Sholeh Hamedani's sister. Some of these purchasers were introduced to the original shareholders by Sholeh Hamedani, our President, Chief Financial Officer, and a Director.
Simultaneously, the Company entered into a Loan Agreement with five shareholders, none of whom was an affiliate of the Company nor a shareholder of either Shadrack or Two Dog Net. These Shareholders then loaned some of the proceeds to Two Dog Net, which in turn loaned some of these funds to our parent company, Shadrack Films, which in turn has loaned the Company all of its operating capital to date. In consideration for this agreement, each such shareholder or their designee, was issued four shares of the Company's restricted common stock in exchange for every one freely tradable share owned by the five shareholders, as a debt financing fee.
As of June 30, 2005, we had net loss from inception of approximately $2,585,000. Of this amount, approximately $595,000 represents the estimated fair market value for the cost of wages, if paid, for the services rendered by our President, Chief Executive Officer and an outside consultant (we have recorded these amounts for the cost of wages, since they did not charge the Company, as additional paid in capital), $729,000 represents professional fees such as legal and accounting expenses, $575,000 represents a debt financing fee, $315,000 represents officers compensation for which options to purchase common stock were issued, $90,000 represents accrued officers compensation and the balance of $281,000 consists primarily of occupancy and telecommunications costs including internet costs. To date, our parent company, Shadrack, has funded all of our expended costs.
Currently, we are dependent on funding from Shadrack for our current operations and for providing office space and utilities that, for the six months ended June 30, 2005, averaged $10,400 per month in operating costs, exclusive of professional fees and time donated by employees. The accrued account payable due to Shadrack Films is an open account payable. Currently, the accrued balance of this account is approximately $213,000. Shadrack is under no obligation to continue to fund our operations and could stop at any time without notice. We estimate that we need a minimum of $350,000 in cash to continue our operations for the next twelve months. At February 15, 2005, the amount due Shadrack was approximately $457,000. Consequently on February 15, 2005, the Company's Board of Directors authorized the conversion of all debt owed to Shadrack of approximately $457,000 into 13,054,628 post-split shares of restricted common stock at a conversion price of $0.07 per share.
Where practicable we plan to contract with third party companies to market The Children's Internet Service as well as to provide administrative support services such as billing, level one technical support, and the like. We have already entered into two agreements with Infolink Communications, Ltd, a third party company, for the marketing of our service. However, there is no assurance that we will be able to enter into additional arrangements for marketing and administrative support services.
On February 25, 2005, we entered into a Consulting Agreement with Crosslink Financial Communications, Inc., a California corporation (herein referred to as "Consultant") for a term commencing February 25, 2005 and ending twelve months thereafter. Consultant is to represent the Company in stockholder communications and public relations with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management.
For undertaking this engagement the Company agreed to issue to the Consultant a "Commencement Bonus" payable in the form of 200,000 restricted shares of the Company's common stock. In addition, the Company agreed to a monthly stock compensation of 8,000 restricted shares of common stock every month on the contract anniversary date, and a cash fee of $5,000 per month for the term of the Agreement. Out of this fee, Consultant will pay for complementary services (e.g., other mailing services, email services, data base extensions) up to an average of $2,500 per month, never less than $1,500 per month.
On May 5, 2004, our registration statement on Form SB-2 ("SB-2") was declared effective by the SEC. The SB-2 registered 2,237,000 post-split shares for resale by our selling shareholders and an additional 8,000,000 post-split shares were registered for public sale directly by us. We had planned on using the proceeds, if any, from the sale of the shares registered for sale by us to fund the Company's business plans and operations. However, management determined to de-register the 8,000,000 post-split shares and on October 19, 2004 we filed a post-effective amendment to the SB-2 that was declared effective by the SEC on October 25, 2004. As a result, we did not realize any of the anticipated funding we may have received from the sale of these shares. Since such time, we have not had any financing except from loans received from Shadrack.
Need for Additional Funds
Since our anticipated offering of shares to the public was terminated as described above, we have relied exclusively on loans from Shadrack to fund all of our expenses. There is no assurance that Shadrack will be able or willing to continue such funding indefinitely. We will be required to obtain additional funds through private placements of our debt or equity securities or by borrowing money. We do not have any arrangements with potential investors or lenders to provide such funds and there is no assurance that such additional financing will be available when required in order to proceed with our business plan. Further, our ability to respond to competition or changes in the market place or to exploit opportunities will be significantly limited by lack of available capital financing. If we are unsuccessful in securing the additional capital needed to continue operations within the time required, we will not be in a position to continue operations. In this event, we would attempt to sell the Company or file for bankruptcy.
Off-Balance Sheet Arrangements
None.
ITEM 3. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
(a) Restatement.
As previously disclosed in the Company's Form 10-KSB for the fiscal year ended December 31, 2004 ("Form 10-KSB"), in the course of the due diligence for the Form 10-KSB, our management identified an agreement that the Company had entered into with five of our shareholders on October 11, 2002. This agreement provided that in consideration for the agreement of these shareholders to loan an affiliate of the Company proceeds from the sale of their shares of common stock of the Company to third parties, the Company would issue four shares of its restricted common stock for every one share owned. The aggregate number of shares of restricted common stock that the Company was obligated to issue pursuant to the agreement was 4,474,000 pre-split (8,948,000 post-split) shares. The agreement was not disclosed in any of the Company's previous SEC filings or otherwise included as an exhibit as a result of an error of omission. In addition, the 4,474,000 pre-split (8,948,000 post-split) shares to be issued were not included in any of the Company's financial statements for the fiscal years ended December 31, 2003 or 2002 or in any interim reporting period.
Management brought this matter to the attention of its Board of Directors
and the Board of Directors brought it to the attention of the Company's
new independent auditor. After discussions with management, the Board of
Directors determined that previously reported financial information for
the Company be restated to reflect the agreement. In light of the expected
restatement, the Company filed a Form 8-K on April 21, 2005 under Item
4.02 (a) advising that due to an error, its previously issued financial
statements for the fiscal years ended December 31, 2003 and 2002 and such
interim periods covered thereby and for the interim periods in fiscal 2004
should no longer be relied upon.
(b) Evaluation of Disclosure Controls and Procedures and Remediation.
In connection with the restatement, under the direction of our Chief Executive Officer and Controller and new outside counsel, we have reevaluated our disclosure and controls procedures. We have identified a material weakness in our internal controls and procedures relating to the handling and disclosure of material agreements. In order to prevent the kind of mistake noted above, the Company has implemented a new review system whereby all agreements which have a material effect on the Company will be reviewed by the Company's President and new outside counsel. Agreements will be forwarded by the President to the Company's new auditor which will keep copies in its files for reporting purposes. Additional copies will be forwarded to the Company's accounting department where it will be logged and processed for follow-up.
We are confident that, as of the date of this filing, the process enumerated above will remediate the weakness that we identified in our internal controls and procedures and further that all relevant personnel understand and will apply the rules relating to disclosure of material agreements.
In connection with this Form 10-QSB, under the direction of our Chief Executive Officer, we have evaluated our disclosure controls and procedures as currently in effect, including the remedial actions discussed above, and we have concluded that, as of this date, our disclosure controls and procedures are effective.
It should be noted that while our management believes our new disclosure controls and procedures will provide a greater and more "reasonable" level of assurance, they do not expect that these disclosure controls and procedures or internal controls will prevent all errors or all fraud. All control systems, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, there can be no absolute assurance that all control issues and instances of fraud, if any, within the Company have been or could be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by acts of collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In order to prevent this the company will continually review and refine and make any necessary changes if warranted and if within financial reason to keep the company's disclosure controls and procedures current and effective.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 24, 2004, Oswald & Yap, A Professional Corporation ("O&Y") filed a complaint in the Superior Court of California, County of Orange, Case No. 04CC11623, against the Company, seeking recovery of allegedly unpaid legal fees in the amount of $50,984.86 in connection with the legal representation of the Company. The complaint includes causes of action for breach of contract, account stated, and quantum merit. The Company disputes the amounts alleged owed, alleging that some payments have not been credited by O&Y and that O&Y's services were otherwise unsatisfactory. O&Y ultimately submitted an Offer to Compromise for a $0 payment by the Company to O&Y in exchange for mutual releases that the Company rejected.
The Company has cross-claimed against O&Y alleging breach of contract, professional negligence, negligent representation, and breach of good faith and fiduciary duty. The Company is seeking damages in an unspecified amount for costs, legal fees and losses incurred. O&Y has vigorously disputed the claims set forth in the cross-complaint and has indicated its intention, should it prevail in defending the cross-claim, to institute a malicious prosecution action against the Company, Nasser Hamedani, Sholeh Hamedani and Company counsel. Trial is set in the matter for November 14, 2005.
On September 30, 2004, the Company received a demand for arbitration from its former auditor, Stonefield Josephson, relating to the collection of approximately $21,700 in fees allegedly owed by the Company for accounting services that were disputed by the Company. The parties settled their dispute and on November 30, 2004 entered into a Settlement Agreement and Mutual General Release, which was executed on December 10, 2004. Pursuant to the Settlement Agreement the Company agreed to pay Stonefield Josephson the sum of $15,500 in two installments. The first installment of $7,750 was paid on January 18, 2005 and the second and final installment of $7,750 was paid on March 4, 2005.
On July 19, 2005, the Company and its Auditors and its former Auditors received correspondence from the Office of Enforcement of the Securities and Exchange Commission stating that they had commenced an "informal inquiry" to determine if there have been "any violations of the federal securities laws" by the Company. The Company is cooperating fully with the Commission in its inquiry and will report their findings when they are released by the Commission.
We are not aware of any other pending or threatened litigation that could have a material adverse effect on our business.
ITEM 2. UNREGISTRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Pursuant to the terms of the agreement between the Company and Crosslink Financial Communications, Inc., ("Crosslink") dated February 25, 2005, the Company agreed to issue Crosslink 200,000 restricted shares of the Company's common stock valued at $0.33 per share and a monthly stock compensation of 8,000 restricted shares of common stock as part of its compensation for services provided to the Company during the one year term of the agreement. During the six months ended June 30, 2005, Crosslink received a total of $232,000 restricted shares of common stock under this agreement. The shares are exempt from registration issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a) Exhibits:
No. Title
--- -----
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
10.13 Loan Agreement, dated October 11, 2002
(b) Reports on Form 8-K: None
|
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, duly authorized.
DATED: August12, 2005 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)
|
Exhibit 10.13
AGREEMENT
This AGREEMENT ("Agreement"), dated as of October 11, 2002 is by and between each of the Shareholders listed on Exhibit A hereto (collectively, the "Shareholders" and individually, a "Shareholder") and DWC Installations, Inc., a Nevada corporation (the "Company"). The Shareholders and the Company are sometimes hereinafter collectively referred to as the "Parties."
W I T N E S S E T H
WHEREAS, each of the Shareholders owns that certain number of shares of common stock (the "Shares") of DWC Installations, Inc., a Nevada corporation (the "Company") pursuant to the Stock Purchase Agreement dated October 11, 2002. In the aggregate, such shares amount to 1,118,500 shares.
WHEREAS, each of the Shareholders acting individually and not in
concert has agreed to offer his, her or its Shares for sale to unrelated third
parties, either in reliance upon an exemption from registration pursuant to
Section 4(1) of the Securities Act of 1933 or in connection with a registered
offering of securities by the Company.
WHEREAS, each of the Shareholders is not an officer, director or otherwise affiliated with the Company.
WHEREAS, each of the Shareholders warrants that his, her or its Shares are freely tradable in the open market without restriction.
WHEREAS, each of the Shareholders has agreed to loan a portion of the proceeds received from the sale of its Shares to Two Dog Net, Inc. (a related party) who in turn will loan proceeds to the Company's parent company, to be used to finance the ongoing operations of the Company.
WHEREAS, the Company has agreed to issue each of the Shareholders or their designees four restricted shares of its common stock for every one freely tradable share, a 4:1 ratio allocated accordingly to the current position each Shareholder holds. In the aggregate, such freely tradable shares amount to 1,118,500 and therefore the Company will issue 4,474,000 of its common shares to the Shareholders and their designees listed on Exhibit B. The Shareholders will receive their shares from the Company in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933.
NOW THEREFORE, in consideration of the promises and respective mutual agreements herein contained, it is agreed by and between the Parties hereto as follows:
A G R E E M E N T
1. AGREEMENT TO ISSUE SHARES
1.1 Authorization of Shares. On or prior to the Closing (as defined in Section 2 below), the Company shall have authorized the sale and issuance of the Shares to Shareholders. The Shares shall have the rights, preferences, privileges and restrictions set forth in the Amended Articles of Incorporation of the Company.
1.2 Issuance of Shares. Subject to the terms and conditions hereof, at the Closing (as hereinafter defined) the Company hereby agrees to issue to each Shareholder, severally and not jointly, and each Shareholder agrees to acquire from the Company, severally and not jointly, the number of Shares set forth opposite such Shareholder's name on Exhibit A.
2. CLOSING, DELIVERY AND PAYMENT.
2.1 Closing. The closing of the issuance of the Shares under this Agreement (the "Closing") shall take place at 1:00 p.m. on October 11, 2002, at the offices of the Company located at 2401 Crow Canyon Road, Suite 201, San Ramon, California 94583 or at such other time or place as the Company and a majority in interest of the Shareholders may mutually agree (such date is hereinafter referred to as the "Closing Date").
2.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Shareholder a certificate representing the number of Shares to be acquired at the Closing by such Shareholder.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions delivered by the Company to the Purchasers at the Closing, the Company hereby represents and warrants to each Purchaser as of the date of this Agreement as follows:
3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue the Shares and to carry out the provisions of this Agreement and to carry on its business as presently conducted and as presently proposed to be conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.
3.2 Capitalization; Voting Rights. The authorized capital stock of the Company, immediately prior to the Closing, will consist of Seventy Five Million (75,000,000) shares of Common Stock, (par value $.001 per share), Two Million Two Hundred Eighty Seven Thousand Seven Hundred Fifty Five (2,287,755) shares of which are issued and outstanding and Ten Million (10,000,000) shares of Preferred Stock, (par value $.001 per share), none of which are issued and outstanding. All issued and outstanding shares of the Company's Common Stock (a) have been duly authorized and validly issued, (b) are fully paid and nonassessable, and (c) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The rights, preferences, privileges and restrictions of the Shares are as stated in the Amended Articles of Incorporation. The Series A Preferred Stock is convertible into Common Stock on a one-for-one basis. When issued in compliance with the provisions of this Agreement and the Restated Articles, the Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon the Shareholders; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed.
3.3 Authorization; Binding Obligations. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, issuance and delivery of the Shares pursuant has been taken or will be taken prior to the Closing. The Agreement, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) as limited by general principles of equity that restrict the availability of equitable remedies. The issuance of the Shares is not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.
3.4 Title to Properties and Assets; Liens, Etc. The Company has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which have not yet become delinquent and, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound.
3.5 Patents and Trademarks. To the best of its knowledge the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. The Company has not received any communications alleging that the Company has violated or, by conducting its business as presently proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company's business as presently proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as presently proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated.
3.6 Litigation. There is no action, suit, proceeding or investigation pending or to the Company's knowledge currently threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.
3.7 Compliance with Laws; Permits. To its knowledge, the Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which violation would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement and the issuance of the Shares, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted.
3.8 Full Disclosure. The Company has provided the Shareholders with all information requested by the Shareholders in connection with their decision to acquire the Shares, including all information the Company believes is reasonably necessary to make such investment decision. Neither this Agreement nor any other statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or knowingly omits to state a material fact necessary to make the statements herein or therein not misleading.
3.9 Compliance with Other Instruments, None Burdensome, etc. The Company is not in violation of any term of its Articles of Incorporation or Bylaws, nor is the Company in violation of or in default in any material respect under the terms of any mortgage, indenture, contract, license, agreement, instrument, judgment or decree to which it is a party or by which it or its assets is bound and, is not in violation of any order, statute, law, rule or regulation applicable to the Company, its assets or its activities, nor has it received any information which would indicate such a violation or default. The execution, delivery and performance of and compliance with this Agreement, including the consummation of the transactions set forth herein will not (a) result in any violation or default in any material respect under the terms of any mortgage, indenture, contract, license, agreement, instrument, judgment or decree to which it is a party or by which it or its assets is bound or (b) be in conflict with or constitute a default under any such term or provision, or (c) result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company pursuant to any such term or provision.
3.10 Private Placement. Subject in part to the truth and accuracy of the Shareholders' representations set forth in this Agreement, the offer and issuance of the Shares as contemplated by this Agreement is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither the Company nor any authorized agent acting on its behalf will knowingly take any action hereafter that would cause the loss of such exemption.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder hereby represents and warrants, with regard to itself only, to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):
4.1 Requisite Power and Authority. Shareholder has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Shareholder's part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to the Closing. Upon its execution and delivery, this Agreement will be valid and binding upon Shareholder, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) general principles of equity that restrict the availability of equitable remedies.
4.2 Investment Representations. Shareholder understands that the Shares have not been registered under the Securities Act. Shareholder also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Shareholder's representations contained in the Agreement. Shareholder hereby represents and warrants as follows:
1. Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Shares, the Conversion Shares or any shares of its Common Stock. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Shares or the Conversion Shares under the circumstances, in the amounts or at the times Purchaser might propose.
2. Acquisition for Own Account. Purchaser is acquiring the Shares and the Conversion Shares for Purchaser's own account for investment only, and not with a view towards their distribution.
3. Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and the Investor Rights Agreement. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement.
4. Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.
5. Company Information. Purchaser has received and read the Financial Statements and Business Plan and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment.
6. Rule 144. Purchaser acknowledges and agrees that the Shares, and, if issued, the Conversion Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations.
7. Residence. If the Purchaser is an individual, then the Purchaser resides in the state or province identified in the address of the Purchaser set forth on Exhibit A; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of the Purchaser in which its investment decision was made is located at the address or addresses of the Purchaser set forth on Exhibit A.
B. Transfer Restrictions. Each Purchaser acknowledges and agrees that the Shares and, if issued, the Conversion Shares are subject to restrictions on transfer as set forth in the Investor Rights Agreement.
ARTICLE 2
REPRESENTATIONS AND COVENANTS OF SHAREHOLDERS
2.1 Each of the Shareholders for himself, herself or itself alone hereby represents and warrants that:
(a) The Shares owned by such Shareholder have been duly authorized by the appropriate corporate action of the Company and are validly outstanding and issued for lawful and proper consideration.
(b) The Shares which he, she or it is selling and transferring are free and clear of all liens, security interests, pledges, encumbrances, charges, restrictions, demands and claims, of any kind and nature whatsoever, whether direct or indirect or contingent.
(c) He, she or it is not now an officer, director or other affiliate of the Company, as that term is defined within the meaning of the federal securities laws.
(d) He, she or it has no equitable or beneficial interest in the ownership of or proceeds from sales of the Shares owned by other Shareholders.
(e) There are no "stop transfer" or similar instructions on file with the Company's transfer agent concerning the Shares of such Shareholder and, as to such Shareholder, his or its Shares may be freely traded in the over-the-counter markets.
(f) He, she or it is acting alone for his, her or its own benefit in connection with the sale of his, her or its Shares under this Agreement.
ARTICLE 3
MISCELLANEOUS
3.1 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the Parties hereto with respect to the transactions contemplated hereby, and supersedes all prior agreements, arrangements and understandings related to the subject matter hereof. No understanding, promise, inducement, statement of intention, representation, warranty, covenant or condition, written or oral, express or implied, whether by statute or otherwise, has been made by any party hereto which is not embodied in this Agreement or the written statements, certificates, or other documents delivered pursuant hereto or in connection with the transactions contemplated hereby, and no Party hereto shall be bound by or liable for any alleged understanding, promise, inducement, statement, representation, warranty, covenant or condition not so set forth.
3.2 Notices. Any notice, request, instruction, or other document required by the terms of this Agreement, or deemed by any of the Parties hereto to be desirable, to be given to any other Party hereto shall be in writing and shall be given by facsimile, personal delivery, overnight delivery, or mailed by registered or certified mail, postage prepaid, with return receipt requested, to the following addresses:
To Shareholders: At the address set forth below each name on Exhibit A hereto
The persons and addresses set forth above may be changed from time to time by a notice sent as aforesaid. If notice is given by facsimile, personal delivery, or overnight delivery in accordance with the provisions of this Section, said notice shall be conclusively deemed given at the time of such delivery. If notice is given by mail in accordance with the provisions of this Section, such notice shall be conclusively deemed given five (5) days after deposit thereof in the United States mail.
3.3 Waiver and Amendment. Any term, provision, covenant, representation, warranty or condition of this Agreement may be waived, but only by a written instrument signed by the Party entitled to the benefits thereof. The failure or delay of any Party at any time or times to require performance of any provision hereof or to exercise its rights with respect to any provision hereof shall in no manner operate as a waiver of or affect such Party's right at a later time to enforce the same. No waiver by any Party of any condition, or of the breach of any term, provision, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or waiver of any other condition or of the breach of any other term, provision, covenant, representation or warranty. No modification or amendment of this Agreement shall be valid and binding unless it be in writing and signed by all Parties hereto.
3.4 Choice of Law. This Agreement and the rights of each Seller and of each Purchaser hereunder shall be governed by and construed in accordance with the laws of the State of California, including all matters of construction, validity, performance, and enforcement and without giving effect to the principles of conflict of laws.
3.5 Jurisdiction. Each of the Sellers and the Company submit to the jurisdiction of the Courts of the County of Alameda, State of California or a Federal Court empaneled within the County of Alameda, State of California for the resolution of all legal disputes arising under the terms of this Agreement.
3.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.
3.7 Attorneys' Fees. Except as otherwise provided herein, if a dispute should arise between the Parties hereto, including, but not limited to arbitration, the prevailing party shall be reimbursed by the non-prevailing party for all reasonable expenses incurred in resolving such dispute, including reasonable attorneys' fees exclusive of such amount of attorneys' fees as shall be a premium for result or for risk of loss under a contingency fee arrangement.
3.8 Taxes. Any income taxes required to be paid in connection with the payments due hereunder, shall be borne by the Party required to make such payment. Any withholding taxes in the nature of a tax on income shall be deducted from payments due, and the Party required to withhold such tax shall furnish to the Party receiving such payment all documentation necessary to prove the proper amount to withhold of such taxes and to prove payment to the tax authority of such required withholding.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first written hereinabove.
DWC INSTALLATIONS, INC.,
a Nevada corporation
/s/ Sholeh Hamedani ----------------------------------- BY: Sholeh Hamedani ITS: President |
EXHIBIT A
"SHAREHOLDERS"
Farzin Cigarchi, an Individual
/s/ Farzin Cigarchi ----------------------------------- |
Larry Wheeler, an Individual
/s/ Larry Wheeler ----------------------------------- |
Reza Mizban, an Individual
/s/ Reza Mizban ----------------------------------- |
Lewis Wooler, an Individual
/s/ Lewis Wooler ----------------------------------- |
Ronald Jones, an Individual
/s/ Ronald Jones ----------------------------------- |
Exhibit 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
In connection with the Quarterly Report of The Children's Internet, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sholeh Hamedani, Chief Executive Officer and President of the Company, certify, pursuant to Rules 13a-14 and 15-d14 of the Securities Exchange Act of 1934 (the "Exchange Act"), as adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this Report;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of, and for, the periods presented in this Report;
4. I and the other certifying officers of the Company are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; and
b. Evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Report based on such evaluation (the "Evaluation Date"), and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. I and the other certifying officers have disclosed, based on our most recent evaluation, to the Company's auditors and to the audit committee of the Company's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control and procedures over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control and procedures over financial reporting.
/S/ SHOLEH HAMEDANI -------------------------------------- Sholeh Hamedani, Chief Executive Officer and President August12, 2005 |
Exhibit 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
In connection with the Quarterly Report of The Children's Internet, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sholeh Hamedani, Chief Financial Officer of the Company, certify, pursuant to Rules 13a-14 and 15-d14 of the Securities Exchange Act of 1934 (the "Exchange Act"), as adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this Report;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of, and for, the periods presented in this Report;
4. As Preident, Chief Executive Officer and Chief Financial Officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; and
/S/ SHOLEH HAMEDANI Sholeh Hamedani, Chief Financial Officer August12, 2005 |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Children's Internet, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sholeh Hamedani, Chief Executive Officer, President, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/S/ SHOLEH HAMEDANI ------------------------------------- Sholeh Hamedani, Chief Executive Officer, President, and Chief Financial Officer August 12, 2005 |