Good advise MGM, I would also add. He may be pushing towards showing the kids they are beneath him ie...he is alfa over them. Children are small, but even a small dog can try to dominate them. Find a trainer, one who is experienced in aggressive behavior, when a child is involved some will say to bring them along to teach them how to properly handle the dog and behavior, but most importantly also what NOT to do when the dog acts a certain way.
Any type of reprimand from them 'MAY' put them at a war of "alfa' like watching two dogs fight for alfa..actually I think the females fight worse.
So, do not place any harsh reprimand on them, a good stern NO should be all they do
It is good he is warning...for now. I was attacked by a chow I was grooming with absolutely no warning. He was sitting on the table, wagging his tail and few licks to my face as I had groomed him MANY MANY times before. All of a sudden he lunged at me, so unexpected, he and the table came crashing down on me. I was pinning by a dog trying to bite me and a grooming table :x
Yes, I recieved bites, bad one's on my armes
Now, in my opinion...and this is just MY opinion, I don't believe in 3 strikes your out. If he so much as nips at one of the children, or lunges, I would have him temperment tested by a pro, send him to a Prossesional licenced dog trainer, or euthanization if you really fear safety for your children around him. I would be very careful in monitoring his behavior, especially around any child. Do not leave him alone with any child. If you can't monitor every step when they are together, crate time. I would crate him during company visits. Actually when a dog is crate trained, they start to think of it as their bed and den. Mine go in theirs on their own, with the doors wide open. They just come and go...lol They love their crates. Also your breeder SHOULD take the dog back. I would. I have one now that is aggressive towards children. She was placed with an elderly couple when she was a bit older. She had NEVER shown any aggressive behavior here with me. She is just a sweetheart. They kept in touch very often via phone, and was thrilled with her. As the woman became a bit older and alone all day, the dog became very possive of her. One day when one of her grandchilden was over, she lunged at him and bit him on the face. THANK GOD it was not bad. He was 10 so was not messing with her. The lady called me in tears asking what she should do, should she give her another chance etc. I emphatically said NO, she does not get another chance around children. I told her to bring her back to me to live out her days happily and safely. I don't have children. She was still in tears begging me to not put her down. I assured I would not, there was no reason for me to. She is still here with me, happily running in my 1/4 acre fenced dog area. She has a nice comfortable bed in my climate controlled kennel, which she runs into for breakfast and dinner, or stays during inclimate weather. For the record ALL of my dogs, whether house dog or kennel get's a LOT of funtime and play time with me. I am a stay at home fur baby mama

Any way I know this was long, just trying to inform about dominance issues when it comes to children..he is jealous, and he is pushing them for alpha.
If not nipped in the bud it will continue and possibly worse.
All of the above is my opinion only, hopefully you will get other veiws as well.
Call the breeder, call a trainer, now.