CAPSTONE COMPANIES, INC. - Quarter Report: 2009 September (Form 10-Q)

form10q093009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-28831

CHDT CORPORATION

(Exact name of small business issuer as specified in its charter)

Florida	84-1047159
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

350 Jim Moran Boulevard, Suite 120, Deerfield Beach, Florida 33442

(Address of principal executive offices)

(954) 252-3440

(Issuer’s Telephone Number)

Indicate by check mark whether the issuer (1) has 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.xYesoNo

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).oYes xNo

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of September 30, 2009, there were 560,041,646 shares of the issuer's $.0001 par value common stock issued and outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	September 30,			December 31,
	2009			2008
Assets:

Current Assets:
Cash	$	855,632		$	156,371
Accounts receivable - net		2,291,711			2,399,859
Inventory		518,953			387,749
Prepaid expense		231,808			83,846

Total Current Assets		3,898,104			3,027,825

Fixed Assets:
Computer equipment & software		62,848			60,648
Machinery and equipment		448,565			408,429
Furniture and fixtures		5,665			5,665
Less: Accumulated depreciation		(321,980	)		(219,894	)

Total Fixed Assets		195,098			254,848

Other Non-current Assets:
Product development costs - net		63,208			103,700
Goodwill		1,936,020			1,936,020
Deposits		15,000			15,000

Total Other Non-current Assets		2,014,228			2,054,720

Total Assets	$	6,107,430		$	5,337,393

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)



	(Unaudited)
	September 30,			December 31,
	2009			2008
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued expenses	$	526,897		$	1,824,295
Note payable - Sterling Bank		1,744,066			722,547
Note payable - Examsoft		821,205			-
Notes and loans payable to related parties - current maturities		1,194,698			1,185,407

Total Current Liabilities		4,286,866			3,732,249

Total Liabilities		4,286,866			3,732,249

Stockholders' Equity:
Preferred Stock, Series A, par value $.001 per share
Authorized 100,000,000 shares, issued -0- shares
at September 30, 2009 and 60 shares at December 31, 2008		-			1
Preferred Stock, Series B, par value $.10 per share
Authorized 100,000,000 shares, issued -0- shares
at September 30, 2009 and 2,108,813 at December 31, 2008
Preferred Stock, Series B-1, par value $.0001 per share		-			210,882
Authorized 2,108,813 shares, issued 1,329,000 shares
at September 30, 2009 and -0- at December 31, 2008		133			-
Preferred Stock, Series C, par value $1.00 per share
Authorized 1,000 shares, issued 1,000 shares
at September 30, 2009 and -0- at December 31, 2008		1,000			-
Common Stock, par value $.0001 per share
Authorized 850,000,000 shares,
Issued 560,041,646 shares at September 30, 2009
and 557,941,646 shares at December 31, 2008		56,006			55,794
Related party receivable		(40,441	)		(40,441	)
Additional paid-in capital		6,684,601			5,585,702
Accumulated deficit		(4,880,735	)		(4,206,794	)

Total Stockholders' Equity		1,820,564			1,605,144

Total Liabilities and Stockholders’ Equity	$	6,107,430		$	5,337,393

The accompanying notes are an integral part of these financial statements.

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS



	(Unaudited)						(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008

Revenues	$	2,424,686		$	3,021,926		$	4,968,061		$	4,290,702
Cost of Sales		(1,697,072	)		(2,068,727	)		(3,477,929	)		(2,884,438	)
Gross Profit		727,614			953,199			1,490,132			1,406,264

Operating Expenses:
Sales and marketing		36,556			9,333			113,284			79,743
Compensation		292,232			378,946			874,114			1,199,921
Professional fees		33,967			37,051			95,346			117,567
Consulting		49,700			22,600			106,627			75,930
Other general and administrative		246,476			357,886			776,580			862,060
Total Operating Expenses		658,931			805,816			1,965,951			2,335,221

Net Operating Income (Loss)		68,683			147,383			(475,819	)		(928,957	)

Other Income (Expense):
Debt forgiveness		-			-			-			-
Miscellaneous income		-			-			57			-
Interest expense		(67,548	)		(84,196	)		(198,179	)		(148,699	)
Interest income		-			394			-			1,177
Total Other Income (Expense)		(67,548	)		(83,802	)		(198,122	)		(147,522	)

Net Income (Loss)	$	1,135		$	63,581		$	(673,941	)	$	(1,076,479	)

Income (Loss) per Common Share	$	-		$	-		$	-		$	-

Weighted Average Shares Outstanding		560,041,646			557,941,646			559,691,830			560,476,479

The accompanying notes are an integral part of these financial statements.

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	For the Nine Months Ended
	September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing operations:
Net Income (Loss)	$	(673,941	)	$	(1,076,479	)
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Stock issued for accrued expenses		-			40,000
Stock issued for expenses		21,000			2,500
Depreciation and amortization		172,873			119,168
Compensation expense from stock options		168,360			433,892
(Increase) decrease in accounts receivable		108,148			(980,173	)
(Increase) decrease in inventory		(131,204	)		(362,659	)
(Increase) decrease in prepaid expenses		(147,962	)		(8,940	)
(Increase) decrease in deposits		-			(1,793	)
(Increase) decrease in other assets		(30,292	)		(88,504	)
Increase (decrease) in accounts payable and accrued expenses		(1,297,398	)		1,730,994
Increase (decrease) in due to/from related parties		-			-
Increase (decrease) in accrued interest on notes payable		28,495			6,669
Increase (decrease) in deposits from customers		-			-
Net cash provided by (used in) operating activities		(1,781,921	)		(185,325	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(42,336	)		(140,153	)
Net cash provided by (used in) investing activities		(42,336	)		(140,153	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock		700,000			-
Proceeds from notes payable		1,823,518			439,830
Repayments of notes payable		-			-
Proceeds from notes and loans payable to related parties		-			575,000
Repayments of notes and loans payable to related parties		-			(697,000	)
Net cash provided by financing activities		2,523,518			317,830

Net (Decrease) Increase in Cash and Cash Equivalents		699,261			(7,648	)
Cash and Cash Equivalents at Beginning of Period		156,371			257,802
Cash and Cash Equivalents at End of Period	$	855,632		$	250,154

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	169,683		$	142,031
Franchise and income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

NONE.

The accompanying notes are an integral part of these financial statements.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of accounting policies for CHDT Corporation, a Florida corporation (formerly, “China Direct Trading Corporation”) (“Company” or “CHDT”) and its wholly-owned subsidiaries (“Subsidiaries”) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. CHDT changed its name to “CHDT Corporation” by amending its Articles of Incorporation, which name change was effective July 16, 2007 in respect of NASD Regulation, Inc. and OTC Bulletin Board approval of the name change, the trading symbol change from “CHDT.OB” to “CHDO.OB” and change in CUSIP Number for CHDT Common Stock and effective May 7, 2007 in terms of approval by the State of Florida of the charter amendment.

The unaudited financial statements as of September 30, 2009 and for the three and nine month periods ended September 30, 2009 and 2008 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three and nine months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.

Organization and Basis of Presentation

CHDT was initially incorporated September 18, 1986 under the laws of the State of Delaware under the name "Yorkshire Leveraged Group, Incorporated", and then changed its domicile situs to Colorado in 1989 by merging into a Colorado corporation, named "Freedom Funding, Inc." Freedom Funding, Inc. then changed its name to "CBQ, Inc." by amendment of its Articles of Incorporation on November 25, 1998. In May 2004, the Company changed its name from “CBQ, Inc.” to “China Direct Trading Corporation” as part of a reincorporation from the State of Colorado to the State of Florida. Effective May 7, 2007, the Company amended its charter to change its name from “China Direct Trading Corporation” to “CHDT Corporation.” This name change was effective as of July 16, 2007 for purposes of the change of its name on the OTC Bulletin Board.

Souvenir Direct, Inc. was incorporated on September 9, 2002 under the laws of the State of Florida. Souvenir Direct, Inc. operations were transferred to Capstone Industries, Inc. in the first quarter of fiscal year 2007 and Souvenir Direct, Inc.’s operating assets were sold on December 1, 2007 to an unaffiliated buyer.

On December 1, 2003, CHDT issued 97 million shares common stock to acquire 100% of the outstanding common stock of Souvenir Direct, Inc. in a reverse acquisition. At that time, a new reporting entity was created. Souvenir Direct, Inc. is considered the reporting entity for financial reporting purposes. Also on December 1, 2003, an additional 414,628,300 shares of common stock were issued to the previous owners of the Company.

In February 2004, the Company established a new subsidiary, initially named “China Pathfinder Fund, L.L.C.”, a Florida limited liability company. During 2005, the name was changed to “Overseas Building Supply, LLC” to reflect its shift in business lines from business development consulting services in China for North American companies to trading Chinese-made building supplies in South Florida. This business line was ended in fiscal year 2007 and OBS’ name was changed to “Black Box Innovations, L.L.C.” (“BBI”) on March 20, 2008.

On January 27, 2006, the Company entered into a Purchase Agreement with Complete Power Solutions ("CPS") to acquire 51% of the member interests of CPS. CPS was organized by William Dato on September 20, 2004, as a Florida limited liability company to distribute power generators in Florida and adjacent states. The Company subsequently sold its 51% membership interest in CPS, pursuant to a Purchase and Settlement Agreement dated and effective as of December 31, 2006.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On September 13, 2006 the Company entered into a Stock Purchase Agreement with Capstone Industries, Inc., a Florida corporation (Capstone). Capstone was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling low technology consumer products to distributors and retailers in the United States.

Nature of Business

Since the beginning of fiscal year 2007, the Company has been primarily engaged in the business of marketing and selling consumer products through national and regional retailers and distributors, in North America. Capstone currently operates in four primary business segments: Lighting Products, Power Tools, Automotive Accessories and Computer peripherals. The Company’s products are typically manufactured in the Peoples’ Republic of China by third-party manufacturing companies.

During the period that the Company owned a 51% interest in CPS (January 27, 2006 through December 31, 2006), the Company, through CPS, engaged in the business of selling and installing standby commercial and residential power generators in South Florida and, to a lesser extent, in adjacent states.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents, to the extent the funds are not being held for investment purposes.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. The allowance for bad debt is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the receivables. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.

As of September 30, 2009, management has determined that the accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts.

Inventory

The Company's inventory, which is recorded at lower of cost (first-in, first-out) or market, consists of finished goods for resale by Capstone, totaling $518,953 and $387,749 at September 30, 2009 and December 31, 2008, respectively.

BBI (previously “Overseas Building Supply, L.C.”) had inventory of $40,441 at December 31, 2007. During 2008, a director and shareholder of the Company took the remaining inventory of BBI and agreed to pay the Company for the cost of the inventory, which was $40,441. As a result, the inventory was removed from the balance sheet as an asset, and a shareholder receivable was recorded and disclosed in the equity section of the balance sheet.

Property and Equipment

Fixed assets are stated at cost. Depreciation and amortization are computed using the straight- line method over the estimated economic useful lives of the related assets as follows:

Computer equipment	3 - 7 years
Computer software	3 - 7 years
Machinery and equipment	3 - 7 years
Furniture and fixtures	3 - 7 years

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company follows FASB Statement No. 144 (SFAS 144), "Accounting for the Impairment of Long-Lived Assets." SFAS 144 requires that long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell. No impairments were recognized by the Company during 2008 and the first quarter of 2009.

Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss.

Expenditures for maintenance and repairs are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their estimated economic useful lives.

Depreciation expense was $102,088 and $76,004 for the nine months ended September 30, 2009 and 2008, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets are recorded under the provisions of the Financial Accounting Standards Board (FASB) Statement No.142 (SFAS 142), Goodwill and Other Intangible Assets. SFAS 142 requires that an intangible asset that is acquired either individually or with a group of other assets (but not those acquired in a business combination) shall be initially recognized and measured based on its fair value. Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired.

Costs of internally developing, maintaining and restoring intangible assets (including goodwill) that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business and related to an entity as a whole, are recognized as an expense when incurred.

An intangible asset (excluding goodwill) with a definite useful life is amortized; an intangible asset with an indefinite useful life is not amortized until its useful life is determined to be no longer indefinite. The remaining useful lives of intangible assets not being amortized are evaluated at least annually to determine whether events and circumstances continue to support an indefinite useful life. If and when an intangible asset is determined to no longer have an indefinite useful life, the asset shall then be amortized prospectively over its estimated remaining useful life and accounted for in the same manner as other intangibles that are subject to amortization.

An intangible asset (including goodwill) that is not subject to amortization shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the intangible assets with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. In accordance with SFAS 142, goodwill is not amortized.

It is the Company's policy to test for impairment no less than annually, or when conditions occur that may indicate an impairment. The Company's intangible assets, which consist of goodwill of $1,936,020 recorded in connection with the Capstone acquisition, were tested for impairment and determined that no adjustment for impairment was necessary as of December 31, 2008, whereas the fair value of the intangible asset exceeds its carrying amount.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income (Loss) Per Common Share

Basic earnings per common share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. Diluted loss per common share for the nine months ended September 30, 2009 and 2008 are not presented as it would be anti-dilutive. At September 30, 2009 and 2008, the total number of potentially dilutive common stock equivalents was 246,562,717 and 197,165,627, respectively.

Principles of Consolidation

The consolidated financial statements for the nine months ended September 30, 2009 and the year ended December 31, 2008 include the accounts of the parent entity and its wholly-owned subsidiaries Souvenir Direct, Inc., Black Box Innovations, L.L.C. (formerly “Overseas Building Supply, LLC” and formerly “China Pathfinder Fund, LLC”), and Capstone Industries, Inc.

The results of operations attributable to Capstone are included in the consolidated results of operations beginning on September 13, 2006, the date on which the Company’s interest in Capstone was acquired.

The results of operations attributable to the Company’s interest in its former subsidiary, CPS, for the period of time in which majority interest in CPS was held by the Company (January 27, 2006 through December 31, 2006) are included in the loss from discontinued operations on the consolidated statement of income (loss). All significant intercompany balances and transactions have been eliminated.

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments, including accounts receivable, accounts payable and accrued liabilities at September 30, 2009 and December 31, 2008 approximates their fair values due to the short-term nature of these financial instruments.

Reclassifications

Certain reclassifications have been made in the 2008 financial statements to conform with the 2009 presentation. There were no material changes in classifications made to previously issued financial statements.

Revenue Recognition

Product sales are recognized when an agreement of sale exists, product delivery has occurred, pricing is final or determinable, and collection is reasonably assured.

Allowances for sales returns, rebates and discounts are recorded as a component of net sales in the period the allowances are recognized. In addition, accrued liabilities contained in the accompanying balance sheet include accruals for estimated amounts of credits to be issued in future years based on potentially defective product, other product returns and various allowances. These estimates could change significantly in the near term.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising and Promotion

Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in Sales and Marketing expenses. Advertising and promotion expense was $113,284 and $79,743 for the nine months ended September 30, 2009 and 2008, respectively.

Shipping and Handling

The Company’s shipping and handling costs, incurred by Capstone amounted to $48,884 for the nine months ended September 30, 2009.

Accrued Liabilities

Accrued liabilities contained in the accompanying balance sheet include accruals for estimated amounts of credits to be issued in future years based on potentially defective products, other product returns and various allowances. These estimates could change significantly in the near term.

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (FASB) Statement No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company and its subsidiaries intend to file consolidated income tax returns

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payments, SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, applied for periods through December 31, 2005. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123(R). The Company has applied the provision of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective application transition method, which requires the application of the accounting standard as of January 1, 2006, the first date of the Company’s fiscal year. The Company’s consolidated financial statements as of and for the year ended December 31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expenses over the requisite service periods in the Company’s consolidated statements of income (loss). Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25, as allowed under SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123). Under the intrinsic value method, compensation expense under fixed term option plans was recorded at the date of grant only to the extent that the market value of the underlying stock at the date of grant exceeded the exercise price. Accordingly, for those stock options granted for which the exercise price equaled the fair market value of the underlying stock at the date of grant, no expense was recorded.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. There was no stock-based compensation expense attributable to options for the years ended December 31, 2007 and 2006 for compensation expense for share-based payment awards granted prior to, but not vested as of December 31, 2005. Such stock-based compensation is based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123. Compensation expense for share-based payment awards granted subsequent to December 31, 2005 are based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

In conjunction with the adoption of SFAS 123(R), the Company adopted the straight-line single option method of attributing the value of stock-based compensation expense. As stock-based compensation expense is recognized during the period is based on awards ultimately expected to vest, it is subject to reduction for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. As of and for the year ended December 31, 2008, there were no material amounts subject to forfeiture. The Company has not accelerated vesting terms of its out-of-the-money stock options, or made any other significant changes, prior to adopting FASB 123(R), Share-Based Payments.

On April 23, 2007, the Company granted 130,500,000 stock options to two officers of the Company. The options vest at twenty percent per year beginning April 23, 2007. For the year ended December 31, 2007, the Company recognized compensation expense of $503,075 related to these options. On May 1, 2008, 850,000 of the above stock options were canceled and on May 23, 2008, 74,666,667 of the above stock options were cancelled. For year ended December 31, 2008, the Company recognized compensation expense of $405,198 related to these options. For the nine months ended September 30, 2009, the Company recognized compensation expense of $117,418 related to these options.

On May 1, 2007, the Company granted 4,000,000 stock options to five employees of the Company. The options vest over two years. For the year ended December 31, 2007, the Company recognized compensation expense of $29,214 related to these options. During 2008, 1,000,000 of the above options were cancelled prior to vesting. For the year ended December 31, 2008, the Company recognized compensation expense of $25,131 related to these options. For the nine months ended September 30, 2009, the Company recognized compensation expense of $8,151 related to these options.

On October 22, 2007, the Company granted 700,000 stock options to a business associate of the Company. The options vest over two years. For the year ended December 31, 2007, the Company recognized compensation expense of $1,330 related to these options. For the year ended December 31, 2008, the Company recognized compensation expense of $7,978 related to these options. For the nine months ended September 30, 2009, the Company recognized compensation expense of $4,986 related to these options.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On January 10, 2008, the Company granted 1,000,000 stock options to an advisor of the Company. The options vest over one year. For the year ended December 31, 2008, the Company recognized compensation expense of $19,953 related to these options.

On February 5, 2008, the Company granted 3,650,000 stock options to four directors and one employee of the Company. The options vest over two years. For the year ended December 31, 2008, the Company recognized compensation expense of $59,619 related to these options. For the nine months ended September 30, 2009, the Company recognized compensation expense of $1,952 related to these options.

On May 1, 2008, the Company granted 850,000 stock options to an employee of the Company. The options vest over two years. For the year ended December 31, 2008, the Company recognized compensation expense of $5,242 related to these options. For the nine months ended September 30, 2009, the Company recognized compensation expense of $5,898 related to these options.

On June 8, 2009, the Company granted 4,500,000 stock options to four directors of the Company. The options vest in one year. For the nine months ended September 30, 2009, the Company recognized compensation expense of $29,955 related to these options.

The Company recognizes compensation expense paid with common stock and other equity instruments issued for assets and services received based upon the fair value of the assets/services or the equity instruments issued, whichever is more readily determined.

As of the date of this report the Company has not adopted a method to account for the tax effects of stock-based compensation pursuant to SFAS 123(R) and related interpretations. However, whereas the Company has substantial net operating losses to offset future taxable income and its current deferred tax asset is completely reduced by the valuation allowance, no material tax effects are anticipated.

During the year ended December 31, 2005, the Company valued stock options using the intrinsic value method prescribed by APB 25. Since the exercise price of stock options previously issued was greater than or equal to the market price on grant date, no compensation expense was recognized.

Stock-Based Compensation Expense

Stock-based compensation expense for the nine months ended September 30, 2009 included $21,000 for consulting fees. Stock-based compensation expense for the nine months ended September 30, 2008 included $2,500 for consulting fees.

Recent Accounting Standards

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The FASB has indicated it believes that SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 159 is effective for the Company as of the beginning of fiscal year 2008. The adoption of this pronouncement is not expected to have an impact on the Company's financial position, results of operations or cash flows.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In December 2007, the FASB issued No. 160, “Non-controlling Interests in Financial Statements, an amendment of ARB No. 51" (“SFAS 160"). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.

In December 2007, the FASB issued No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS 141(R) also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141(R) is effective for business combinations occurring in fiscal years beginning after December 15, 2008, which will require the Company to adopt these provisions for business combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS 141(R) is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.

In March 2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. (“SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.

Pervasiveness of Estimates

The preparation of financial statements 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 revenues and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material.

NOTE 2 – CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable.

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

Cash and Cash Equivalents

The Company at times has cash and cash equivalents with its financial institution in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company places its cash and cash equivalents with high credit quality financial institutions which minimize these risks. As of September 30, 2009, the Company had cash in excess of FDIC limits of $250,099 with Bank of America and $45,743 with Sterling National Bank.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE (continued)

Accounts Receivable

The Company grants credit to its customers, substantially all of whom are retail establishments located throughout the United States. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company’s customer base and their dispersion across different geographical regions. The Company monitors exposure of credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.

Major Customers

The Company had three customers who comprised at least ten percent (10%) of gross revenue during the fiscal years ended December 31, 2008 and 2007. The loss of these customers would adversely impact the business of the Company. The percentage of gross revenue and the accounts receivable from each of these customers is as follows:

	Gross Revenue %						Accounts Receivable

	2008			2007			2008		2007

Customer A		44	%		30	%	$	1,742,135	$	691,110
Customer B		22	%		28	%		614,384		485,275
Customer C		15	%		21	%		21,773		161,571

		81	%		79	%	$	2,378,292	$	1,337,956

Major Vendors

The Company had two vendors from which it purchased at least ten percent (10%) of merchandise during the fiscal year ended December 31, 2007 and three vendors from which it purchased at least ten percent (10%) of merchandise during the fiscal year ended December 31, 2008. The loss of these suppliers would adversely impact the business of the Company. The percentage of purchases, and the related accounts payable from each of these vendors is as follows:

	Purchases %						Accounts Payable

	2008			2007			2008		2007

Vendor A		52	%		56	%	$	169,997	$	131,973
Vendor B		31	%		10	%		969,741		45,481
Vendor C		14	%		-			-		-

		97	%		66	%	$	1,139,738	$	177,454

NOTE 3 – NOTES AND LOANS PAYABLE TO RELATED PARTIES

CHDT Corp - Notes Payable to Director

On May 30, 2007, the Company executed a $575,000 promissory note payable to a director of the Company. The note carries an interest rate of 10.459% per annum. All principal was payable in full, with accrued interest, on May 30, 2009. As of September 30, 2007, the total amount payable on the note was $575,000. On November 2, 2007, the Company issued 12,074 shares of its Series B Preferred stock valued at $28,975 as payment towards this loan. At September 30, 2009 and December 31, 2008, the total amount payable on this note was $546,025. Interest payments are being made monthly to the note holder.

On July 11, 2008, the Company received a loan from a director of $250,000. The note was due on January 11, 2009 and carries an interest rate of 8% per annum. At September 30, 2009 and December 31, 2008, the total amount payable on this note was $250,000 and $254,932, respectively.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – NOTES AND LOANS PAYABLE TO RELATED PARTIES (continued)

As part of this note payable, the Company also issued a warrant to the loan holder to purchase 4,000,000 shares of common stock at a price of $.025 per share. At the date of issuance, the stock price was $.021 per share. The Company accounted for the debt and warrants using APB 14, whereby the proceeds of $250,000 was allocated between the debt and warrants. This resulted in the warrants being valued at $56,375 which was recorded as additional paid-in capital, and a discount on the note of $56,375 being recognized. The discount was amortized over the term of the note (6 months) to interest expense. At December 31, 2008, the discount had been fully amortized resulting in interest expense of $56,375 being recognized.

CHDT Corp - Notes Payable to Officers

During the quarter ended June 30, 2008, the Company executed three notes payable for $200,000 to an officer of the Company. The notes carry an interest rate of 8% per annum and are due within six months. At September 30, 2009, the total amount due on these notes was $200,000. At December 31, 2008, the total amount due on these notes was $201,358, including interest of $1,358.

Capstone Industries – Loans Payable to Director

On June 15, 2007, Capstone Industries executed a $72,000 promissory note payable to a director of the Company. The note carries an interest rate of 8% per annum and was due on February 15, 2008. During the quarter ended September 30, 2007, the Company paid accrued interest of $240. At December 31, 2007, the total amount payable on this loan was $74,904, including interest of $2,904. In January 2008, the Company repaid this note payable.

On July 16, 2007, Capstone Industries executed a $103,000 promissory note payable to a director of the Company. The note carries an interest rate of 8% per annum and is due on December 31, 2007. At December 31, 2007, the total amount payable on this loan was $106,838, including interest of $3,838. In December 2008, the Company borrowed an additional $75,000 from this director. At September 30, 2009, the total amount payable on this loan was $198,674, including interest of $20,674. At December 31, 2008, the total amount payable on this loan was $188,023, including interest of $10,023.

Capstone Industries – Loans Payable to Officer

On September 7, 2007, Capstone Industries executed a $100,000 promissory note payable to an officer of the Company. The note carries an interest rate of 8% per annum and was due on December 31, 2007. At December 31, 2007, the total amount payable on this loan was $102,521, including interest of $2,520. In January 2008, this note was repaid.

During the quarter ended December 31, 2007, Capstone Industries executed two promissory notes payable totaling $400,000 to an officer of the Company. The notes carry an interest rate of 8% per annum and were due on January 31, 2008. At December 31, 2007, the total amount payable on this loan was $404,043, including interest of $4,043. In January 2008, the Company paid $250,000 towards this note payable. On May 9, 2008, the Company paid principal of $150,000 and interest of $6,443 to pay off the remainder of this note.

On March 11, 2008, Capstone Industries executed a $100,000 promissory note payable to an officer of the Company. The note carries an interest rate of 8% per annum and was due on June 30, 2008. On August 5, 2008, the Company paid principal of $100,000 and interest of $3,222 to pay off this note.

On June 24, 2008, Capstone Industries executed a $25,000 promissory note payable to an officer of the Company. The note carries an interest rate of 8% per annum and was due September 24, 2008. On August 5, 2008, the Company paid principal of $25,000 and interest of $230 to pay off this note.

Based on the above, the total amount payable to officers and directors as of September 30, 2009 and December 31, 2008 was $1,194,698 and $1,185,407, respectively, including accrued interest of $20,674 and $20,861, respectively. The maturities under the notes and loan payable to related parties for the next five years are:

Year Ended December 31,
2009	$	1,194,698
2010		-
2011		-
2012		-
2013		-
Total future maturities	$	1,194,698

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – NOTE PAYABLE – STERLING BANK

On May 1, 2008, Capstone secured a conventional $2,000,000 asset based loan agreement from Sterling National Bank, located in New York City whereby Capstone received a credit line to fund working capital needs. The loan provides funding for an amount up to 85% of eligible Capstone accounts receivable and 50% of eligible Capstone inventory. The interest rate of the loan is the Wall Street Journal prime rate plus one and one-half percent per annum. CHDT and Howard Ullman, the Chairman of the Board of Directors of CHDT, have personally guaranteed Capstone’s obligations under the Loan. At September 30, 2009 and December 31, 2008, there was $1,744,066 and $722,547 due on this loan, respectively.

As part of the loan agreement with Sterling National Bank, a subordination agreement was executed with Howard Ullman, a shareholder and director of the Company. These agreements subordinated the debt of $115,055 (plus future interest) and $546,025 due to Howard Ullman to the Sterling National Bank loan. No payments will be made on the subordinated debt until the Sterling Bank is paid in full, except for scheduled payments of interest.

NOTE 5 – PURCHASE ORDER ASSIGNMENT-FUNDING AGREEMENT

On February 27, 2009, Capstone Industries, Inc. entered into a Purchase Order Assignment Funding Agreement with Examsoft Worldwide, whereby Examsoft will advance funds to Capstone to secure the purchase of materials, and in return Capstone will assign purchase orders to Examsoft in exchange for the funding. The total funding will be up to a total of $441,100. The interest rate is 18% per annum and the total loan plus accrued interest will be due no later than July 15, 2009. As security for the performance by Examsoft of its services under the agreement, Capstone has granted a security interest in the inventory purchased by the submitted purchase orders and upon product shipment in the accounts receivable until the loan is paid in full. At June 30, 2009, the total amount due on this loan was $459,080, including interest of $19,080. This loan was paid in full in July 2009.

On May 22, 2009, Capstone Industries, Inc. entered into a Purchase Order Assignment Funding Agreement with Examsoft Worldwide, whereby Examsoft will advance funds to Capstone to secure the purchase of materials, and in return Capstone will assign purchase orders to Examsoft in exchange for the funding. The total funding will be up to a total of $843,847. The interest rate is 18% per annum and the total loan plus accrued interest will be due no later than February 28, 2010. As security for the performance by Examsoft of its services under the agreement, Capstone has granted a security interest in the inventory purchased by the submitted purchase orders and upon product shipment in the accounts receivable until the loan is paid in full. At September 30, 2009, the total amount due on this loan was $551,885, including interest of $9,885.

On June 18, 2009, Capstone Industries, Inc. entered into a Purchase Order Assignment Funding Agreement with Examsoft Worldwide, whereby Examsoft will advance funds to Capstone to secure the purchase of materials, and in return Capstone will assign purchase orders to Examsoft in exchange for the funding. The total funding will be up to a total of $548,615. The interest rate is 18% per annum and the total loan plus accrued interest will be due no later than February 28, 2010. As security for the performance by Examsoft of its services under the agreement, Capstone has granted a security interest in the inventory purchased by the submitted purchase orders and upon product shipment in the accounts receivable until the loan is paid in full. At September 30, 2009, the total amount due on this loan was $269,320, including interest of $9,320.

On June 16, 2009, Capstone Industries, Inc. received a $100,000 loan from Examsoft Worldwide. The loan is due July 16, 2009 and carries an interest rate of 1.5% simple interest per month. At June 30, 2009, the total amount due on this loan was $100,690, including accrued interest of $690. This loan was paid in full in July 2009.

NOTE 6 – LEASES

On June 29, 2007, the Company relocated its principal executive offices and sole operations facility to 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida 33442, which is located in Broward County. This space consists of 4,000 square rentable feet and is leased on a month to month basis. Monthly payments are approximately $4,250 per month.

Rental expense under these leases was approximately $45,668 and $49,415 for the nine months ended September 30, 2009 and 2008, respectively.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS

Employment Agreements

On February 5, 2008, the Company entered into an Employment Agreement with Stewart Wallach, the Company’s Chief Executive Officer and President, whereby Mr. Wallach will be paid $225,000 per annum. The term of the contract begins February 5, 2008 and ends on February 5, 2011.

On February 5, 2008, the Company entered into an Employment Agreement with Gerry McClinton, the Company’s Chief Operating Officer, whereby Mr. McClinton will be paid $150,000 per annum. The term of the contract begins February 5, 2008 and ends on February 5, 2011.

On February 5, 2008, the Company entered into an Employment Agreement with Howard Ullman, the Chairman of Board of Directors of the Company, whereby Mr. Ullman will be paid $100,000 per annum. The term of the contract begins February 5, 2008 and ends on February 5, 2011.

License Agreement

On April 12, 2007, the Company entered into a trademark and licensing agreement with The Armor All/STP Products Company (“AASTP”). As part of the agreement, the Company is required to pay AASTP royalties either at fixed periodic amounts or 7% of product sales. The Company is required to make guaranteed minimum royalty payments during 2009 and 2010 as follows: $85,000 payable in 2009; $165,000 payable in 2010. Future guaranteed minimum royalty payments are as follows:

	Guaranteed Minimum
Year	Royalty Payments
2009	$	85,000
2010	$	165,000
	$	250,000

NOTE 8 - STOCK TRANSACTIONS

Common Stock

In February 2008, the Company issued 1,584,000 shares of common stock for accrued directors fees of $40,000.

In March 2008, the Company issued 112,000 shares of common stock for consulting expenses of $2,500.

In February 2009, the Company issued 2,100,000 shares of common stock for consulting expenses of $21,000.

For issuances of shares of common stock during the periods described above, the Company issued restricted shares (Rule 144). The shares issued were valued by the Company based upon the closing price of the shares on the date of issuance. The value of these shares issued for services was charged to expense, unless they were in consideration for future services, in which case they were recorded as deferred consulting fees. Shares retired / cancelled were recorded at par value.

Series “A” Preferred Stock

A total of 8,100 shares of series “A” preferred stock were issued in 2004, and, in May 2005, 100 shares were returned to the treasury and cancelled.

In January 2006 the Company issued 600,000 shares of series “A” convertible preferred stock, convertible into 50,738,958 shares of the Company’s common stock, in connection with the acquisition of a 51% majority interest in CPS. The shares were valued at $1,200,000.

In January 2007 (effective December 31, 2006), the 600,000 shares of series “A” convertible preferred issued to CPS were returned to the treasury and cancelled, in connection with the Company’s sale of its interest in CPS. The shares were valued at $1,775,864. None of the preferred shares were converted to common shares. At December 31, 2006, the shares had not been returned, and a related party receivable of $1,775,864 was recorded. During the three months ended March 31, 2007, these shares were returned to the treasury and cancelled.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

In June, 2006, 1,000 shares of the Company’s series “A” convertible preferred stock, beneficially owned by the Company’s CEO, were exchanged for 1,000,000 shares of the Company’s common stock. In February 2007, 74 shares of the Company’s series “A” preferred stock were exchanged for 73,400 shares of the Company’s common stock. In May 2007, 367 shares of the Company’s series “A” preferred stock were exchanged for 367,000 shares of the Company’s common stock.

In February 2008, 6,500 shares of the Company’s series “A” convertible preferred stock were exchanged for 6,500,000 shares of the Company’s common stock.

As of December 31, 2008, a total of 60 shares of series “A” convertible preferred stock were issued and outstanding, and are convertible into CHDT common shares, at a rate of 1,000 shares of common stock for each share of series “A” convertible preferred stock and are redeemable at the option of the Company. During the three months ended March 31, 2009, the remaining 60 shares were cancelled.

Series “B” Preferred Stock

In January 2006 the Company sold 657,000 shares of its series “B” convertible preferred stock for cash of $637,000, including 387,000 shares to the Company’s former CEO and the remaining shares to other directors of the Company. During the three months ended March 31, 2007, 15,000 shares of the Company’s series “B” preferred shares issued to a director were exchanged for 990,000 shares of the Company’s common stock.

In September 2006 the Company issued 300,030 shares of its series “B” convertible preferred stock to the Company’s former CEO in exchange for 20,000,000 shares of its common stock held by the former CEO.

In September, 2006 the Company issued an additional 236,739 shares of its series “B” convertible preferred stock in connection with the acquisition of 100% of the voting interest of Capstone Industries, Inc. The shares were valued at $1,250,000. During the three months ended March 31, 2007, 236,739 shares of the Company’s series “B” convertible preferred stock was converted into 15,624,774 shares of the Company’s common stock.

In November 2007, the Company issued 416,708 shares of its series “B” convertible preferred stock to a director for notes payable of $1,000,000.

In January 2008, the Company’s chairman exchanged 50,000,000 shares of the Company’s common stock for 750,075 shares of the Company’s series B” convertible preferred stock.

The series “B” convertible preferred shares are convertible into common shares, at a rate of 66.66 shares of common stock for each share of series “B” convertible preferred stock.

On July 9, 2009, the 2,108,813 outstanding Series B Preferred Shares were converted to Series B-1 Preferred Shares, while canceling 779,813 of the outstanding Series B Preferred Shares, leaving 1,329,000 shares of the new Series B-1 Preferred Shares outstanding. The Series B-1 Preferred Shares are convertible into common shares, at a rate of 66.66 shares of common stock for each share of series “B-1” convertible preferred stock. The par value of the new Series B-1 Preferred Shares is $0.0001.

Series “C” Preferred Stock

On July 9, 2009, the Company authorized and issued 1,000 shares of Series C Preferred Stock in exchange for $700,000. The 1,000 shares of Series C Stock is convertible into 67,979,725 common shares. The par value of the Series C Preferred shares is $1.00.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

Warrants

The Company has outstanding stock warrants that were issued in prior years to its officers and directors for a total of 5,975,000 shares of the Company's common stock. The warrants expire between November 11, 2011 and July 20, 2014. The warrants have an exercise price of $.03 to $.05.

The Company issued a stock warrant to each of two former officers of the Company in December 2003 for a total of 35,000 shares of the Company's common stock. Each of the stock warrants expires on July 20, 2014, and entitles each former officer to purchase 10,000 and 25,000 shares, respectively, of the Company's common stock at an exercise price of $0.05.

During September and October 2007, the Company issued 31,823,529 shares of common stock for cash at $.017 per share, or $541,000 total as part of a Private Placement under Rule 506 of Regulation D. Along with the stock, each investor also received a warrant to purchase 30% of the shares purchased in the Private Placement.

A total of 9,548,819 warrants were issued. The warrants are ten year warrants and have an exercise price of $.025 per share.

Options

In 2005, the Company authorized the 2005 Equity Plan that made available 10,000,000 shares of common stock for issuance through awards of options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units. On May 20, 2005 the Company granted non-qualified stock options under the company’s 2005 Equity Plan for a maximum of 250,000 shares of the Company’s common stock for $0.02 per share. The options expire May 25, 2015 and may be exercised any time after May 25, 2005.

On May 1, 2007, the Company granted 4,000,000 stock options to five employees of the Company under the 2005 Plan. The options vest over two years. During 2008, 1,000,000 of these options were cancelled prior to vesting.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2008 and 2007, the Company recognized compensation expense of $25,131 and $29,214 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.64%

Expected term – 11 years

Expected volatility of stock – 131.13%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company will recognize compensation expense of $10,869 in 2009 related to these stock options.

On April 23, 2007, the Company granted a ten-year non-qualified, non-statutory stock option for 102,400,000 “restricted” shares of the Company’s common stock to Stewart Wallach, the Company’s CEO, as incentive compensation. The exercise price of the options is $.029 per share, which was the fair market value of the stock on the date of grant. Twenty percent of the options vested on the date of issuance, and twenty percent per year will vest on the anniversary date through April 23, 2011. On May 23, 2008, 74,666,667 of these options were cancelled. Compensation expense was recognized through the date of the cancellation of the options.

On April 23, 2007, the Company granted a ten-year non-qualified, non-statutory stock option for 28,100,000 “restricted” shares of the Company’s common stock to Gerry McClinton, the Company’s COO and Secretary, as incentive compensation. The exercise price of the options is $.029 per share, which was the fair market value of the stock on the date of grant. Twenty percent of the options vested on the date of issuance, and twenty percent per year will vest on the anniversary date through April 23, 2011. On May 1, 2008, 850,000 of these options were cancelled.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2008 and 2007, the Company recognized compensation expense of $405,198and $503,075 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.66%

Expected term – 10 years

Expected volatility of stock – 133.59%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps - 100

The Company will recognize compensation expense of $156,557 in 2009, $156,557 in 2010, and $52,186 in 2011 related to these stock options.

On October 22, 2007, the Company granted 700,000 stock options to a business associate of the Company. The options vest over two years.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2008 and 2007, the Company recognized compensation expense of $7,978 and $1,330 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.42%

Expected term – 11 and 12 years

Expected volatility of stock – 134.33%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company will recognize compensation expense of $6,648 in 2009 related to these stock options.

On January 10, 2008, the Company granted 1,000,000 stock options to an advisor of the Company. The options vest over one year.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the year ended December 31, 2008, the Company recognized compensation expense of $19,953 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 3.91%

Expected term – 10 years

Expected volatility of stock – 133.83%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

On February 5, 2008, the Company granted 3,650,000 stock options to four directors and one employee of the Company. The options vest over two years.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the year ended December 31, 2008, the Company recognized compensation expense of $59,619 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 1.93% to 3.61%

Expected term – 2 to 10 years

Expected volatility of stock – 133.83%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company will recognize compensation expense of $2,603 in 2009 related to these stock options.

On May 1, 2008, the Company granted 850,000 stock options to an employee of the Company. The options vest over two years.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the year ended December 31, 2008, the Company recognized compensation expense of $5,242 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 3.78%

Expected term – 11 years

Expected volatility of stock – 133.59%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company will recognize compensation expense of $7,862 in 2009 and $2,620 in 2010 related to these stock options.

The following table sets forth the Company’s stock options outstanding as of September 30, 2009, December 31, 2008 and 2007 and activity for the years then ended:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Shares		Exercise Price		Contractual Term (Years)		Intrinsic Value

Outstanding, December 31, 2007		135,450,000	$	0.028
Granted		5,500,000		0.028
Exercised		-		-
Forfeited/expired		76,516,667		0.028

Outstanding, December 31, 2008		64,433,333		0.028
Granted		-		-
Exercised		-		-				-
Forfeited/expired		-		-

Outstanding, September 30, 2009		64,433,333	$	0.028		8.64	$	-

Vested/exercisable at December 31, 2008		43,102,777	$	0.028		8.68	$	-

Vested/exercisable at September 30, 2009		56,916,667	$	0.028		8.68	$	-

The following table summarizes the information with respect to options granted, outstanding and exercisable under the 2005 plan:

Exercise Price	Options Outstanding	Remaining Contractual Life in Years	Average Exercise Price	Number of Options Currently Exercisable
$.02	250,000	6	$.020	250,000
$.029	54,983,333	9	$.029	48,241,667
$.029	3,000,000	10	$.029	3,000,000
$.029	700,000	11	$.029	350,000
$.029	1,000,000	9	$.029	1,000,000
$.029	150,000	9	$.029	150,000
$.029	2,000,000	1	$.029	2,000,000
$.027	1,500,000	1	$.027	1,500,000
$.029	850,000	10	$.029	425,000
$.029	4,500,000	2	$.029	-

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – BUSINESS ACQUISITIONS AND DISPOSALS

Complete Power Solutions

On January 27, 2006, the Company entered into a Purchase Agreement (the "Purchase Agreement") with William Dato and Complete Power Solutions ("CPS") pursuant to which the Company acquired 51% of the member interests of CPS owned by Mr. Dato for a purchase price consisting of the payment of $637,000 in cash and the delivery of 600,000 shares of Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock") having a stated value of $1,200,000, which Series A Preferred Stock are convertible into 50,739,958 shares of the Company's Common Stock at the demand of Mr. Dato. The cash paid in the transaction was obtained from capital provided to the Company for use in connection with acquisitions by Howard Ullman, our Chief Executive Officer and President, and certain of our directors and principal shareholders.

On January 26, 2007, the Company entered into a Purchase and Settlement Agreement (the "Settlement Agreement"), dated and effective as of December 31, 2006, with William Dato and CPS whereby: (a) CPS repurchased the 51% membership interest owned by China Direct in return for the transfer of the 600,000 shares of the Company’s "Series A Preferred Stock”, which are convertible into 50,739,958 shares of the Company's common stock, and (b) the issuance of a promissory note by CPS to CHDT for 225,560, bearing annual interest at 7% with interest-only payments commencing on July 1, 2007 and thereafter being paid quarterly on April 1st, July 1st, October 1st, and January 1st until the principal and all unpaid interest thereon shall become due and payable on the maturity date, being January 6, 2010 (the “2007 Promissory Note”). The 2007 Promissory Note also provides that the principal amount may be automatically increased by an amount of up to $7,500 if the amount of a customer claim is settled for less than $7,500. As of the date of this report the principal amount has not been increased by an amount up to $7,500, as described above. The shares were valued at $1,775,864 based on the market value of the common stock the shares are convertible into.

As of December 31, 2006, the balance due on the $225,560 was classified on the Company’s balance sheet as an amount due from former subsidiary. This item was classified as long-term as of December 31, 2006, in anticipation of its conversion to a note receivable, the maturity of which is more than one year from the balance sheet date. Subsequently, upon execution of the 2007 Promissory Note on January 26, 2007, the Company reclassified the balance as a long-term note receivable from former subsidiary.

CPS is also indebted to CHDT under a promissory note in the original principal amount of $250,000, executed by William Dato on June 27, 2006 and payable to CHDT, bearing interest at 7% per annum and maturing on June 30, 2007, subject to extension (the “2006 Promissory Note”) and subject to offset by (i) $41,600 owed by an affiliate of CHDT to the CPS funds advanced by CPS for portable generators that were never delivered and (ii) $15,000 as an agreed amount paid to compensate CPS for certain refunds required to be made by CPS (which amounts have been first applied to accrued and unpaid interest due September 30, 2006 and December 31, 2006 and then applied to quarterly interest payable on the principal of the 2006 Promissory Note to maturity (June 30, 2007) and then to reduce the principal amount of the 2006 Promissory Note to $210,900.

On March 10, 2008, the Company was granted a Final Summary judgment against CPS for $501,740 related to the two notes due from CPS to the Company as part of the disposal agreement entered into in January 2007. As of December 31, 2007, the Company determined these two notes to be uncollectible and wrote-off $427,710 to expense. The Company has pursued legal action to collect this judgment, but it is now considered uncollectible.

The Company disposed of its interest in CPS to further its goal of focusing on its Capstone Industries consumer product business line in an effort to achieve sustained profitability from low-coast, low inventory consumer products that are direct shipped from Chinese and other low cost contract manufacturing sources to the Company’s customers.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – BUSINESS ACQUISITIONS AND DISPOSALS (continued)

Capstone Industries

On September 13, 2006 the Company entered into a Stock Purchase Agreement (the Purchase Agreement) with Capstone Industries, Inc., a Florida corporation (Capstone), engaged in the business of producing and selling portable book lights and related consumer goods, and Stewart Wallach, the sole shareholder of Capstone. Under the Stock Purchase Agreement the Company acquired 100% of the issued and outstanding shares of Capstone Common Stock in exchange for $750,000 in cash (funded by a note payable to the Company’s CEO and $1.25 million of the Company’s Series B Preferred Stock, $0.01 par value per share, which Series “B” stock is convertible into 15.625 million “restricted” shares of CHDT Common Stock, $0.0001 par value (common stock). CHDT has agreed to register shares of Common Stock under the Securities Act of 1933, as amended, to cover conversion of the Series “B” Stock issued to Mr. Wallach in the acquisition of Capstone. Such registration has not been filed as of the date of this Report. CHDT will operate Capstone as a wholly-owned subsidiary. As of the date of this report these share have not been registered. The Capstone acquisition was recorded as follows:

Cash	$	33,676
Accounts receivable		208,851
Inventory		340,109
Prepaid expenses		7,500
Property and equipment		16,127
Goodwill		1,936,020
Accounts payable and accrued expenses		(417,283	)
Loan payable to China Direct		(125,000	)
Total purchase price	$	2,000,000

Capstone was acquired to expand the Company’s customer base and sources of supply, the value of which contributed to the recording of goodwill.

For tax purposes, the goodwill is expected to be amortized as an IRC Sec. 197 intangible over a period of fifteen years from date of acquisition.

NOTE 10 - INCOME TAXES

As of December 31, 2008, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $2,900,000 that may be offset against future taxable income through 2028. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount.

	2008			2007
Net Operating Losses	$	594,500		$	454,690
Valuation Allowance		(594,500	)		(454,690	)
	$	-		$	-

The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:

	2008			2007
Provision (Benefit) at US Statutory Rate	$	(139,810	)	$	(161,745	)
Increase (Decrease) in Valuation Allowance		139,810			161,745
	$	-		$	-

The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - INCOME TAXES

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s condensed consolidated financial position and results of operations. At January 1, 2008, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.

Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended December 31, 2008 and 2007. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2004. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2008:

United States (a)		2005 – Present
(a) Includes federal as well as state or similar local jurisdictions, as applicable.

NOTE 11 – CONTINGENCIES

ESQUIRE TRADE & FINANCE INC. & INVESTOR, LLC v. (Case Number 03 CIV. 9650 (SC), decided November 5, 2009) (formerly styled “CELESTE TRUST REG., ESQUIRE TRADE, ET AL. V. CBQ, INC., Case Number 03 CIV. 9650 RMB) (“Celeste case”). On November 5, 2009, the U.S. District Court for the Southern District of New York (“Court”) issued a Memorandum Decision denying all of the Plaintiffs’ claims and denying recovery by the Plaintiffs under their amended complaint. The Company learned of this decision on November 6, 2009. The Plaintiffs have 30 days from the date of this decision to appeal. The Company does not know if the Plaintiffs intend to appeal. The Company believes that the November 5, 2009 decision by the Court is well reasoned in terms of stating the legal basis for denial of all Plaintiffs’ claims. The Company intends to contest any appeal by the Plaintiffs, if any. The Memorandum Decision of the Court is filed as Exhibit 99.1 to the Form 8-K, dated November 6, 2009, as filed with the Commission on November 9, 2009.

Howard Ullman, a current director and former officer of the Company, signed an indemnification agreement with the Company on June 3, 2009, whereby Mr. Ullman would indemnify, subject to certain conditions, the Company, its subsidiaries, and their respective successors, officers, directors, other members of management, employees, shareholders, agents and attorneys for all claims that may arise from the Celeste case. The indemnification agreement is attached as Exhibit 2.1.1.3 to the Company’s Form 10-Q for the quarter ending June 30, 2009 and filed with the Commission on 14 August 2009, File # 000-28831.

The Celeste case concerns events that occurred prior to the start of service of the current executive management with the Company. The current management has sought the payment of legal fees and indemnification from certain former officers of the Company. To date, legal fees in the Celeste case have been mostly paid by one or more of those former officers. The payment of such legal fees or any indemnification arrangement by former officers of the Company does not contain or constitute an admission of liability or an admission of the validity of any adverse claims in the Celeste case.

Should the Plaintiffs win on appeal from the November 5, 2009 memorandum decision and then obtain a judgment on their claims in a subsequent trial or otherwise, the Company would enforce its rights under the aforesaid indemnification agreement. If such judgment, if any, is not paid or substantially paid by Mr. Ullman and the Company did not or could not appeal such a judgment, then under such circumstances the Company would be unable to pay the cash portion of the damages and would be absent a suitable settlement of the cash claims, possibly insolvent without an emergency infusion of capital from investors. As of the date of this Report, the Company does not know if the Plaintiffs intend to appeal to the denial of their claims under the amended complaint and denial of any recovery thereunder.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – CONTINGENCIES (continued)

Potential Litigation

Cyberquest, Inc.

As reported previously, the Company has received two claims from certain former shareholders of Cyberquest, Inc. that they hold or own approximately 70,000 shares of a class of the Company's redeemable preferred stock that was issued in the Company's 1998 acquisition of Cyberquest. Cyberquest ceased operations in 2000-2001 period. The Company has investigated these claims and has not been able to date to fully substantiate any of the ownership claims to date to the preferred stock in question and the claimants have not pursued their claims beyond an initial communication asserting ownership of these shares of serial preferred stock. The Company did not maintain preferred stock ownership records with a stock transfer agent at the time in question and has to rely on available internal records in this matter. The Company has not received any further claims or communications since mid-2006. Since the Company has no record of the claimants as preferred stock shareholders, the Company is taking the position that they are no shareholders of record and the alleged redeemable preferred stock is not issued and outstanding.

NOTE 12 - SALE OF ASSETS

The assets and liabilities of Souvenir Direct were transferred into Capstone January 1, 2007. The assets consisted of cash of $13,816, accounts receivable of $20,967, deposits of $1,775, net fixed assets of $3,329, and intercompany receivables of $160,263. The liabilities consisted of accrued expenses of $38,387 and loans payable of $10,000.

On December 1, 2007, the Company sold the remaining assets of Souvenir Direct for $206,284. For the year ended December 31, 2007, a gain on disposal of assets of $206,284 was recognized in the financial statements of the Company.

NOTE 13 - INTANGIBLE ASSETS

At December 31, 2008, the Company had capitalized $168,890 related to packaging artwork and design costs related to the Company’s AASTP products and Lighting products as intangible assets. These costs are being amortized over their useful life, which the Company has determined to be two years. During 2008, the Company recorded $65,199 of amortization expense related to these assets. For the nine months ended September 30, 2009, the Company capitalized an additional $30,302 related to packaging artwork and design costs and recognized amortization expense of $70,785 during the nine months. At September 30, 2009 and December 31, 2008, the net amount of the intangible asset was $63,208 and $103,700, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General – CHDT Corporation, a Florida corporation, (“CHDT,” “Company,” “we,” or “our”) is a public holding company with its Common Stock, $0.0001 par value per share, (“Common Stock”) quoted on the Over-The-Counter Bulletin Board under the trading symbol “CHDO.OB.” This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's annual report on Form 10-K for the year ended December 31, 2008.

Forward Looking Statements

Management’s Discussion and Analysis contains “forward-looking” statements within the meaning of Private Securities Litigation Reform Act of 1995, as amended as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors – many of those factors being beyond our control or ability to predict. Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable at the time made, these statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Actual results may differ significantly from anticipated business and financial results.

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, except as required by law, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

Introduction

The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008; and (ii) financial liquidity and capital resources.

We are a developer and manufacturer of niche consumer products selling to primarily distributors and retailers in the United States. Our Capstone subsidiary currently operates in five primary business segments: Reading Lights, Task Lights, Power Failure Lighting, Power Tools, Automotive Accessories and Computer Peripherals.

Our growth strategy has four main elements:

Introduce our new product lines to more departments at existing retail distribution channels; and

Continue to expand retail distribution and move into new distribution channels; and

Release new innovative products in order to expand existing categories; and

Through acquiring businesses that have innovative products that would compliment our existing marketing strategies or allow the company to diversify into other markets.

Capstone Lighting products specialize in low cost, innovative portable lighting products that we believe can win a profitable niche in market share without high market penetration costs (especially marketing and advertising costs). Capstone sells booklights, multi-task lights, flashlights and also offers “Private Label” programs to major retailers. “Private Label” is the manufacture of products by a company and those products are sold under the name or trade name of the manufacturer’s retailers, distributors or bulk buyers. In March 2009 at the International Hardware Show, Capstone launched a new and expanded line of booklights and multi-tasklights under the name PathwayLights™.

In 2008 Capstone also launched the Eco-i-Lite ™ Power Failure Lights. In March 2009 the company launched additional Eco-i –Lite™ products and many in new trendy colors. The Eco-i-Lite™ products have been developed in association with the engineers from the STP® tools business unit.

STP®-branded tools were launched in October 2007. This product line includes the new technology lithium batteries for the 3.6v, 4.0v, 8.0v screwdrivers and 12v and 20v drill driver lines.

STP®-branded Automotive Accessories were also launched in October 2007. This product line includes 200w, 400w, 800w and 1000w inverters, rechargeable Spotlights from 1 million candle power up to 10 million candle power, 12v air compressor, garage clocks and weather centers.

As a result of the continued economic downturn and its adverse effect on the Hardware and Automotive Aftermarket retail channels, as of the date of this Report, we do not believe that we have a long enough history in promoting the STP®-branded products to determine if this product line will be successful or sustainable.

As a small business issuer with limited resources, we do not have the resources to compete head-to-head with larger, more established competitors for any of the products. While we face fewer competitors in our booklight and specialty light product line, we face many national or regional brand-named competitors in the power tool product line. In general, we attempt to compete by leveraging the engineering and manufacturing capabilities of our Chinese contract manufacturers in order to provide quality products with more functions at what we deem to be a value price and supported.

Since the start of the 1990’s, the history of CHDT has been a series of failed operating subsidiaries engaged in various business lines. With each failed business, we usually experienced a change in management and business focus. We believe that these past failures were due to a combination of one or more of the following: (1) inadequate financing of operations; (2) absence of a readily available sources of affordable funding for operations and product and business exception; (3) absence of any or enough experienced managers or executives; (4) lack of adequate strategic and financial planning and accurate budgeting projections; (5) general economic conditions and downturns in industries that undermined many small businesses, especially in the value-added reseller of computer hardware and software developer and systems developer industries; (6) inability to raise money in the public markets due to poor financial track record of CHDT, resulting low stock market price and lack of sufficient institutional investor and market maker support for CHDT Common Stock; (7) selection of business lines that CHDT was ill suited to compete in or acquire; (8) operating losses severely limiting the business and financial options and resources of CHDT; (9) frequent changes in management and business lines; (10) concurrently operating incompatible business lines that were ill-suited for a small business issuer; and (11) acquisitions that diverted resources from existing operations and ultimately failed and, as such, hindered CHDT’s efforts to attain profitability on a sustained basis.

Starting in 2007, we have sought to avoid the problems of the past by recruiting an experienced management and sales team for the stated purpose to develop and expand a consumer products business and we have endeavored to raise funds for planned business development efforts. These steps have resulted in losses on a quarter-by-quarter basis for fiscal year 2008 and 2009, except the 3rd quarter 2008 and the 3rd quarter 2009 which we had profits, but we believe that this investment in corporate infrastructure is necessary to lay the foundation for future success and business and product development. While we are not certain that our current strategy and business line will produce sustained future profitability or any growth, we believe that the current strategy and business line is the best approach for our current management team and available resources and, in our opinion, the most likely path to any hope of sustained future profitability.

For the years ended December 31, 2008 and 2007, the Company’s revenues were derived from 5 sources: (i) the sale of our booklight products (Capstone and its booklight product line was acquired by CHDT in September 2006); (ii) sale of Eco-i-Lite ™ Power Failure Lights, (iii) sale of our STP® tools power drills and automotive accessories; (iv) for fiscal year 2007, the sale of promotional, gift and souvenir items by our sold SDI subsidiary; and (v) revenues, if any, from our 51% membership interest in CPS, which interest we divested in 2007.

Despite the recent efforts to make CHDT and its operations a focused and professionally run organization, we continue to be hampered in our efforts to achieve sustained profitability by problems that stem from the past and our history of failed businesses.

The failure of CHDT to achieve sustained profitability in its operations continues to hamper our efforts to establish and sustain a profitable, growing business. In fiscal year 2008 and through 2009 to date, we had to continue our historical reliance on raising working capital for operations and business and product development by selling securities to investors and/or receiving loans or investment from members of management or their affiliates. We were able to obtain a conventional asset based bank loan to help support Capstone operations and working capital needs, however we may have to continue to raise working capital for CHDT working capital and for Capstone business and product development (as well as mergers and acquisitions of other companies or their products) by selling our securities in private placements to investors and/or loans or investments by our management and their affiliates. This reliance on private placements of securities and insider loans or investments adds to the already significant number of outstanding shares of Common Stock, dilutes our shareholders and further weakens our ability to attract primary market makers and institutional investor support for our Common Stock as a publicly traded security and also adversely impacts on our ability to do mergers and acquisitions, attract traditional bank funding or raise working capital by public offerings of our securities.

Our lack of primary market makers and institutional investor support of our Common Stock also contributes to our burden in achieving sustained, profitable business lines. These problems stem from the manner in which CHDT was taken public in the late 1980’s and developed a public market for the Common Stock in 1998. CHDT did not, and perhaps could not under then current circumstances, do an underwritten initial public offering and produce a national network of broker-dealers and institutional investors interested in long-term investment in CHDT and stability in the market price for the Common Stock. As a result, we have had difficulty in sustaining any increases in the market price of the Common Stock. When the market price of the Common Stock enjoys any significant percentage increase, shareholders tend to sell the Common Stock to reap any gains (no matter how small) from the market price increase and the selling causes the market price of the Common Stock to fall back to prior levels. Since there are no primary market makers or institutional investors supporting the Common Stock, there are no investors effectively countering the impact of the selling pressure on the market price for the Common Stock. The low market price and lack of support for our Common Stock means that we are hampered in our ability to resort to the public markets to raise working capital because of the low stock market price. As such, we do not readily enjoy one of the principal benefits of being a public company: ready access to the public securities markets for working capital.

We intend to address the above problems in public and market maker support for our Common Stock by: (1) establishing revenue growth in consecutive fiscal quarters in our current consumer product business line in order to demonstrate that current management has a sound business line and business strategy; (2) upon establishing a record of profitability, members of management and agents will solicit support from institutional investors, asset managers, market makers and others to provide long-term investors in the Common Stock and stability in the public market for the Common Stock; (3) seek investment banker assistance in developing a strategic plan, including an acquisition plan, to dramatically grow CHDT, in our core business line or in other emerging market opportunities. We can make no assurances that we shall succeed in this effort.

We intend to remain focused on niche consumer products that we believe can attain a profitable market niche with minimal market penetration costs and is attractive to our existing distribution channel of regional and national retailers and distributors. We intend to develop new products by internal efforts as well as acquire new products by mergers and acquisitions.

Results of Operations: For the nine months ended September 30, 2009, the Company had a net loss from continuing operations of approximately $674,000. For the nine months ended September 30, 2008 the Company had a net loss from operations of $1,076,000. That is a net loss decrease of $402,000 or 37% over 2008 results.

Total Net Revenues: For the nine months ended September 30, 2009 and 2008, the Company had total sales of approximately $4,968,000 and $4,291,000 respectively, for an increase of $677,000 which represents a 16% increase over 2008 results. All of the revenue was generated by Capstone. This increase was due to placement of the Eco-i-Lite™ program, the Company’s multi functional power failure lights, the launch of the Company’s new Pathway Lights™ booklight program and limited sales of our STPtools® program.

Cost of Sales: For the nine months ended September 30, 2009 and 2008, we had cost of sales of approximately $3,478,000 and $2,884,000, respectively. This cost represents 70.0% and 67.2% respectively of total Revenue. As a percentage of Total Revenue costs have increased. This is a direct result of the expanded mix of products now being sold and the cost variation depending on the product sold.

Gross Profit: For the nine months ended September 30, 2009, gross profit was $1,490,000, an increase by approximately $84,000 or 6% from the nine months ended September 30, 2008.For the nine months ended September 30, 2008, gross profit was $1,406,000. Gross profit as a percentage of sales was 30.0% for the nine months ended September 30, 2009 as compared to 32.8% for the nine months ended September 30, 2008. This gross profit percentage decrease is a direct result of two factors.

With our expanded product lines the Gross Profit is now a blended percentage. Each product category provides a different Gross Profit percentage. In 2008 the gross profit primarily reflected the sale of booklights, which provided a steady margin.

Our larger customers are now buying on a direct import basis. The gross margin percentages are lower in this selling scenario but the Company’s expenses are also reduced as the customer is responsible for related expenses such as freight, duties and handling costs.

Even though the blended gross profit percentage to sales has decreased as compared to 2008, the blended percentage for the 9 months of 2009 has remained steady at 30%.The overall gross profit increased by $84,000 or 6% from 2008. This increase is attributed directly to the increase in product sales volume.

Operating expenses were $1,966,000 for the nine months ended September 30, 2009 as compared to $2,335,000 for the nine months ended September 30, 2008, a decrease of approximately $369,000 or 15.8%. This decrease can be attributed to various factors.

Employee compensation for nine months ended September 30, 2009 was $874,000 a decrease of $326,000 from $1,200,000 for the nine months ended September 30, 2008. This decrease was the result of a reduction in the amount of compensation expense recognized from stock options issued in 2007 and 2008 for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008.

For the nine months ended September 30, 2009 the Sales and Marketing Expenses were $113,000 an increase of $33,000 or 41.3% over the $80,000 expensed for the nine months ended September 30, 2008. This reflects the increased sales and marketing efforts being made to promote our new product lines and investment for future continued revenue growth.

Depreciation and Amortization Expenses were $173,000 for the nine months ended September 30, 2009; an increase of $97,000 or 127.6% over the $76,000 expensed for the nine months ended September 30, 2008. This represents the depreciation and amortization of the cost of investing in the moulds for the Power Tools, Eco-i-Lite™ and new Pathway Light Booklight programs and investment in new packaging design and molds. This represents another investment for possible future revenue growth.

Other Income (Expense): Interest Expenses for the nine months ended September 30, 2009 was $198,000, an increase of $49,000 or 32.9% over $149,000 expensed for the nine months ended September 30, 2008. This expense increase was the direct result of the new bank line of credit and additional funding required to finance the order activity overseas.

Net Income (Loss): The Loss for the nine months ended September 30, 2009 was $674,000 against a loss of $1,076,000 for the nine months ended September 30, 2008, a decreased loss of $402,000 or 37%. This substantial loss decrease was the result of the increase of revenues and a significant decrease in operating expenses.

Directors & Officers Insurance: We currently operate with directors’ and officers’ insurance and we believe our coverage is adequate to cover likely liabilities under such a policy.

Impact of Inflation: Our major expenses have been the cost of selling and marketing product lines to customers in North America. That effort involves mostly sales staff traveling to make direct marketing and sales pitches to customers and potential customers trade shows around North America and visiting China to maintain and seek to expand distribution and manufacturing relationships and channels. As a result of world economic conditions and the current price of world oil and resulting increased material costs, there are now pressures from Chinese Manufacturers to gradually increase costs. We generally have been able to reduce cost increases by strong negotiating or re-engineering products, but we may have to increase the price of our products in fiscal year 2009 in response to such inflationary pressures. Since we operate in industries where the consumers tend to be price sensitive, any such increase in the prices of our products may adversely impact our sales and financial results in fiscal year 2009.

Country Risks. Almost all of our contract manufacturing operations and sources of products are located in Peoples’ Republic of China or “China.” We are dependent on China for almost all of the design and production of our consumer products. As such, we are subject to significant risks not typically faced by companies operating in or obtaining products from North America and Western Europe manufacturing sources. Political, economic and trade conflicts between the United States and China, including possible conflict over North Korea's nuclear weapons program or the independence of Taiwan, could severely hinder the ability of CHDT to obtain products and fill customer orders from our current Chinese manufacturing sources. Further, Chinese commercial law is still evolving to accommodate increasing capitalism in Chinese society, especially in terms of commercial relationships and dealings with foreign companies, and can be unpredictable in application or principal. The same unpredictability exists with respect to the central Chinese government, which can unilaterally and without prior warning impose new legal, economic and commercial laws, policies and procedures. This element of unpredictability heightens the risk of doing business in China. While dramatic anti-trade shift in Chinese policy or laws would seem to be clearly against the best interests of China and its current economic trends, China has a central government with the authority to make such changes and an incentive to take actions designed to reaffirm the control of the central government over the economy and society.

China has been under ongoing international pressure to value its currency in a manner that would increase the value of Chinese currency in respect of otherworld currencies and thereby increase the cost of Chinese goods in the world market. Such a revaluation of Chinese currency could adversely impact business by increasing costs to consumers, but this cost impact would also affect our competitors with products produced in China. China adopted a 2% revaluation of its currency in 2005 and the U.S. Dollar declined slightly in response to this revaluation. While under international pressure to value the Chinese currency in a manner that more realistically reflects the strength and value of the Chinese currency, China may continue to keep Chinese currency at a level that some regard as below its perceived, true value.

Currency. The U.S. dollar is the currency used in all of our commercial transactions and our property and business is conducted in North America. As a result, the effect of the fluctuations of exchange rates is considered minimal to our business operations.

Interest Rate Risk. We do not have significant interest rate risk during the fiscal quarter ending September 30, 2009.

Credit Risk. We have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records. Our managers monitor our receivables regularly and our Direct Import Programs are typically supported by a customers’ Letter of Credit which is a guaranteed form of payment.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009 and concluded that the disclosure controls and procedures were effective.

Item 4(T). Controls and Procedures.

Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The certifications of our chief executive officer and chief financial officers attached as Exhibits 31.1, 31.2 and 31.3 to this Report include information concerning our disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4, including the information incorporated by reference to our annual report on Form 10-K for the year ended December 31, 2008, for a more complete understanding of the matters covered by such certifications.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Other than as set forth below, we are not a party to any other material pending legal proceedings and, to the best our knowledge, no such action by or against us has been threatened. From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur in such routine lawsuits, we believe that the final disposition of such routine lawsuits will not have material adverse effect on its financial position, results of operations or status as a going concern.

Potential Litigation

Cyberquest, Inc.

Other Legal Matters. To the best of our knowledge, none of our directors, officers or owners of record of more than five percent (5%) of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us in reference to pending litigation.

We are not currently a party to any other legal proceedings not disclosed above that we believe will have a material adverse effect on our financial condition or results of operations.

Item 1A. Risk Factors.

During the nine months ended September 30, 2009, there were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In February 2009, the Company issued 2,100,000 shares of restricted common stock for consulting expenses of $21,000.

In July 2009, the Company issued 1,000 shares of Class C Preferred Stock for $700,000 in a private placement made under Rule 506 of Regulation D to a single “accredited investor.”

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT #	DESCRIPTION OF EXHIBIT

2.1	Purchase Agreement, dated January 27, 2006, by and among CHDT Corporation, William Dato and Complete Power Solutions, LLC. +
2.1.1	Purchase and Settlement Agreement by and among CHDT Corporation, Complete Power Solutions, LLC, William Dato and Howard Ullman, January 26, 2007 ++
2.1.1.1	Stock Purchase Agreement dated September 15, 2006, by and between CHDT Corporation, and Capstone Industries, Inc. +++
2.1.1.2	Stock Purchase Agreement, dated 9 July 2009, by and between CHDT Corporation and Involve, LLC †
2.1.1.3	Indemnification Agreement, dated June 6th, 2009, by Howard Ullman and CHDT Corporation ΩΩ
3.1	Articles of Incorporation of CHDT Corp.*
3.1.1	Amendment to the Articles of Incorporation of CHDT Corp. **
3.2	By-laws of the Company***
3.3	Certificate of Designation of the Preferences, Limitations, and Relative Rights of Series B Convertible Preferred Stock of CHDT Corp. ****
10.1	Voting Agreement, dated January 27, 2006, by and among CHDT Corp., William Dato and Howard Ullman. +
10.2	Operating Agreement, dated January 27, 2006, for Complete Power Solutions, LLC. +
10.3	Employment Agreement dated January 27, 2006, by and between William Dato, CHDT Corporation and Complete Power Solutions, LLC. +
10.4	Purchase Agreement, dated December 1, 2007, by Capstone Industries, Inc. and Magnet World, Ltd. For sale of operating assets of Souvenir Direct, Inc. ++++
10.6	2005 Equity Plan of CHDT Corp.++++++
10.7	2008 Employment Agreement by Stewart Wallach and CHDT Corp.++++++
10.8	CHDT Corp. ++++++
10.9	2008 Employment Agreement by Howard Ullman and CHDT Corp.++++++
10.10	Form of Non-Qualified Stock Option+
10.11	Non-Employee Director Compensation++++++
10.12	Memorandum Decision in Esquire Trade & Finance Inc. & Investor, LLC v. CBQ, Inc., Case # 03 CIV. 9650 (SC), S.D.N.Y., 11/05/2009) Ω
14	Code of Ethics Policy, dated December 31, 2006+++++
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Stewart Wallach, Chief Executive Officer^

31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Gerry McClinton, Chief Financial Officer and Chief Operating Officer^
32.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Stewart Wallach, Chief Executive Officer. ^

32.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Gerry McClinton, Chief Financial Officer and Chief Operating Officer^

------------------------------------------

* Incorporated by reference to Annex G to the Special Meeting Proxy Statement, Dated April 15, 2004, filed by CHDT Corporation with the Commission on April 20, 2004.

** Incorporated by reference to Exhibit 3(I) to the Form 8-K filed by CHDT Corporation with the Commission on July 10, 2007.

*** Incorporated by reference to Annex H the Special Meeting Proxy Statement, Dated April 15, 2004, filed by CHDT Corporation with the Commission on April 20, 2004.

**** Incorporated by reference to Exhibit 99.2 to the Form 8-K filed by CHDT Corp. with the Commission on November 6, 2007.

+ Incorporated by reference to Exhibit 2 to the Form 8-K filed by CHDT Corporation with the Commission on January 31, 2006.

++ Incorporated by reference to Exhibit 2 to the Form 8-K filed by CHDT Corporation with the Commission on January 26, 2007.

+++ Incorporated by reference to Exhibit 2.1 to the Form 8-K filed by CHDT Corporation with the Commission on September 18, 2006.

++++ Incorporated by reference to Exhibit 99 to the Form 8-K filed by CHDT Corp. With the Commission on December 3, 2007.

+++++ Incorporated by reference to Exhibit 14 to the Form 10-KSB for the fiscal year ended December 31, 2006 and filed by CHDT Corp. With the Commission on April 17, 2007.

++++++Incorporated by reference to Form 10-KSB for the fiscal year ended December 31, 2007 and filed by CHDT Corp. with the Commission on March 31, 2008.

† Incorporated by reference to Exhibit 10.1 to the Form 8-K, dated 9 July 2009, and filed with the Commission on 14 July 2009, File # 000-28831.

Ω Incorporated by reference to Exhibit 99.1 to the Form 8-K, dated November 6, 2009, as filed with the Commission on 9 November 2009.

ΩΩ Incorporated by reference to Exhibit 2.1.1.3 to the Form 10-Q for the quarter ending June 30, 2009, as filed with the Commission on 14 August 2009.

Note: All Exchange Act reports referenced above and filed by the Company has a Commission file number of #000-28813.

^ Filed herein.

SIGNATURES

In accordance with Section13 or 15(d) of the Securities Exchange Act of 1934, CHDT Corporation has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Broward County, Florida on this 16th day of November 2009.

CHDT CORPORATION

Dated: November 16, 2009

/s/Stewart Wallach Stewart Wallach Principal Executive Officer		Chief Executive Officer



/s/Gerry McClinton Gerry McClinton Principal Operations Executive		Chief Financial Officer and Chief Operating Officer