Capstone Companies (CAPC) 10-K 2009 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     _______ to _______

Commission File Number 000-28831

CHDT CORPORATION

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

Florida	84-1047159
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer No.)

350 Jim Moran Boulevard, Suite 120

Deerfield Beach, Florida  33442

(Address of principal executive offices)

(Zip Code)

(954) 252-3440

(Small business issuer’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $0.0001 PAR VALUE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes _ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes __ No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   Yes x  No _

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer __   Accelerated filer ___  Non-accelerated filer ___

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).    Yes  _   No  X

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as March 30, 2010 was approximately $2,458,501.

Number of shares outstanding of the Registrant’s Common Stock, as of March 30, 2010, is 648,632,786

DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the Registrant’s Definitive Information Statement under Regulation 14C to be filed within 120 days after the Registrant’s fiscal year ended December 31, 2009, are incorporated by reference into Part III.

2

TABLE OF CONTENTS

Item Number and Description	Page
Part I
Item 1.     The Company	5
Item 1A.  Risk Factors	13
Item 1B.  Unresolved SEC Staff Letters	19
Item 2. Properties	20
Item 3.    Legal Proceedings	20
Item 4.   Submission of Matters to a Vote of Security Holders	22
Item 4A.  Executive Officers
Part II
Item 5.  Market for Common Equity and Related Stockholder Matters	23
Item 6.  Management’s Discussion and Analysis of Operation	24
Item 7.   Financial Statements	30
Item 8.   Change in and Disagreements with Accountants on Accounting and  Financial Disclosure	30
Item 8A(T).  Evaluation of Disclosure Controls and Procedures	30
Part III
Item 9.    Directors and Executive Officers of the Registrant	32
Item 10.  Executive Compensation	32
Item 11.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 12.  Certain Relationships and Related Transactions	32
Item 13.  Exhibits, and Reports on Form 8-K	32
Item 14.  Principal Accountant Fees & Services	34

3

FORWARD-LOOKING STATEMENTS

This Report on Form 10-K contains statements that constitute   "forward-looking statements” as defined under the Private Securities Litigation Reform Act 1995, as amended.  Those statements  appear in a number of places in this Report and include,  without limitation,  statements  regarding the intent,  belief and  current  expectations of the Company, its directors or its officers with respect to the  Company's  policies  regarding  investments,  dispositions,  financings, conflicts of interest and other  matters;  and trends  affecting  the  Company's financial condition or results of operations. Any such forward-looking statement is not a guarantee of future performance and involves several risks and uncertainties, and actual results may differ  materially  from those in the  forward-looking statement as a result of various factors – some factors being beyond the Company’s control. The accompanying information contained in this Report, including the "Management's Discussion and Analysis of Results of Operations and Financial Condition," identifies important factors that could cause such   differences.   With respect  to  any  such forward-looking   statement   that  includes  a  statement  of  its  underlying assumptions  or  bases,  the  Company  cautions  that,  while it  believes  such assumptions or bases to be reasonable and has formed them in good faith, assumed facts or bases  almost  always vary from  actual  results,  and the  differences between  assumed facts or bases and actual results can be significant or “material”  depending on the circumstances.  When, in any forward-looking statement, the Company, or its management,  expresses  an  expectation  or belief as to  future  results,  that expectation  or belief is  expressed  in good  faith and is  believed  to have a reasonable  basis, but there can be no assurance that the stated  expectation or belief will result or be achieved  or  accomplished.  Further, the Company is a "penny stock" and a micro-cap company with no primary market makers.  Such a status makes highly risky any investment in the Company securities.  The forward-looking statements in this Report on Form 10-K are made as of the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events,  new  information  or  circumstances  occurring  after the date hereof.

DEFINITIONS:

As used in this Report on Form 10-K, the following terms have the stated meaning or meanings:

(1) “Black Box Innovations, L.C.” or “BBIL” is a wholly owned subsidiary of CHDT Corporation.

(2) “CHDT Corporation,” a Florida corporation, may also be referred to as “we,” “us” “our,” “Company,” or “CHDT.” Unless the context indicates otherwise, “Company” includes in its meaning all of CHDT’s subsidiaries.

(2) “China” means Peoples’ Republic of China.

(3) “V” means volts.

(4) “W” means watts.

(5) References to "'33 Act" or "Securities Act" means the Securities Act of 1933, as amended.

(6) References to "'34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(7) “SEC” or “Commission” means the U.S. Securities and Exchange Commission.

4

PART I

Item 1.   The Company Overview.  We are a public holding company organized under the laws of the State of Florida and engaged in the business of producing and selling certain consumer products, which are manufactured in China by contract manufacturers,  through our two wholly owned operating subsidiaries; (a) Capstone Industries, Inc., a Florida corporation organized in 1997 and acquired by us in a cash and stock transaction on September 13, 2006 (“Capstone”) and (b) Black Box Innovations, L.L.C., a Florida limited liability company (“BBIL”) formerly known as “Overseas Building Supply, L.C.” and organized by certain members of CHDT management and the Company on February 20, 2004. In April 2008, we changed the name of Overseas Building Supply, L.C., which had no significant business operations at that time, to “Black Box Innovations, L.L.C.” as part of our launch of new computer memory products to be marketed and sold by BBIL.  BBIL is operated as a division of Capstone and Capstone personnel provide the labor and services necessary to operate BBIL This allows BBIL to utilize Capstone’s existing relationships with retailers  as well as reducing operational startup costs by sharing expenses such as labor costs, office space rental and Products Liability and General Insurance. Once BBIL products generate sufficient revenues and sales volume that can support operations, BBIL will begin running as an independent subsidiary with its own personnel.

Publicly Traded Securities:  Our Common Stock, $0.0001 par value, is quoted on the Over-the-Counter Bulletin Board under the Symbol “CHDO.OB” (“Common Stock”).  No other securities of the Company are publicly traded.

Business and Product Lines:  Capstone produces through contract manufacturers in China:  (1) Portable booklights, specialty flashlights, multi-task lights and an EReader E-Lite (2) Eco-i-Lite power failure lights (3)C-Lite wireless motion sensor light (4) Light Ringers™ lamps (5) BBIL computer peripheral accessories (6) STP®-branded power tools and automotive accessories.

Company History:  The Company history is set forth after “Employees” below in this Part 1, Item 1 of this Form 10-K.

Current Products.   Capstone is engaged in the business of producing the following consumer products, which are, unless indicated otherwise, manufactured for and under the trade name of “Capstone” by contract manufacturers in China, distributed by us and sold through regional and national retailers and distributors in the United States:

 (1) Portable Book Lights, Task Lights and EReader E-lite:  In March 2009 the Company launched an expanded new line of booklights and multi-task lights, under the name PATHWAY LIGHTS. This program included the following named products: Mini Taskbright, Multi Taskbright, Poser Taskbright, PawprintTaskbright, Compact 1 Brightbook, Compact 2 Brightbook, Britespot 2 Brightbook, Britespot 3 Brightbook, and Multipose Brightbook. These products were offered in various trendy colors. The line was further expanded with the launch of the E-Reader Light, Diva Compact Booklight, the Retro Taskbright and the Minipose Taskbright at the International Housewares Show in March 2010. These LED booklights are small, lightweight and portable and attach to reading materials and illuminate the area of text. They are powered by batteries.  The new EReader E-lite has been specifically designed to provide lighting for the new trendy E-Reader products. The Diva Compact booklight has been designed for consumers that require multi functions. Shaped as a compact case, it is a booklight but also has a mirror.

(2) In 2009 the Company also launched The Eco-i-Lite and Mini Eco-i-lite Power Failure Lights. Both use induction charge technology and function as a power failure light, hand held flashlight, and night lite. Each product uses an encased lithium ion battery that when fully charged provides 7 + hours of battery life and LED light bulbs that last 100,000 hours. In March 2010 at the International Housewares Show, the Company expanded the line with the launch of the Midi Eco-i-Light and the Pawprint Line in Full size, Midi and Mini, specifically developed for the dog walking consumers.

5

(3). In March 2010 at the International Housewares Show the Company also launched its new C-Lite Wireless Motion Sensor light. This is offered in a 12 LED full size and a 6 LED Mini Size and is powered by AA batteries. These lights provide lighting for dark areas without having to install electrical wiring. The bulb housing rotates 360 degrees to allow for light to be directed where needed. Both versions have a Motion Sensor Circuitry that activates the lights when movement is detected within 13 feet of the C-Lite. Both versions have a Hi and Lo light brightness setting to conserve the batteries. The full size also has a period selector (60 seconds, 90 seconds or 120 seconds) which presets the time period that a light should turn off after the last motion has been detected. Both come with a unique slide and snap bracket that allows for the product to be installed on a wall.

(4) In March 2010 the Company officially launched its new line of Light Ringers Lamps. This offer includes the 12 LED Battery Operated Lamp, 12 LED Rechargeable Lamp, 12 LED Solar Lamp and 12 LED AC Lamp also the 20 LED Rechargeable Lamp, 20 LED AC Lamp, 20 LED Metal Lamp and 20 LED Utility Lamp. These products are all offered in trendy colors and unique packaging.

(5) BBI launched its initial products in the second half of fiscal year 2008.  with (1) Personal Pocket Safe®– a portable computer flash memory device that provides pre-formatted fields for easy entry of all personal important records, documents and images and (2) Secret Diary® is a portable computer memory device that works on PC computer systems using as a personal diary --- providing pre-teens and teens with absolute privacy while allowing for complete creativity. The line was expanded in late 2009 with the introduction of  (3) SafeMouse ™.  A mouse that can backup computer files automatically in real time and keep the files securely protected by the same encryption software as the other products. (4)Secure Flash Drive™ was also launched which  is a secured storage flash drive.  All of these devices use Datalock™ Pin Protection, Military –grade 256 bit AES Hardware Encryption and Epoxy Coatings that destroys contents upon forced entry.

These products were renamed under the “CLASSIFIED” brand and officially relaunched in March 2010  at the International Hardware Show.

Personal Pocket Safe®has the following features: click- Icons identify all of your personal vital categories; enter- preformatted fields allow easy entry of all records and also attach documents, photos, and other images; and view- Quickly view your information on any standard Windows based PC computer system (Vista/XP operating systems), any time, any place. No software installation is required for PC computer systems using Vista or XP by MicroSoft; and exit- The encrypted data auto-saves to your Personal Pocket Safe®. When you’re done, no trace of the software or your data is left behind on the PC computer system.

Secret Diary® has the following features:  Secure - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - -  Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Helpful - PIN replacement assistance and optional registration for Never-Lost, a backup subscription that retains your diary entries in case of loss or theft.

SAFEMOUSE™ has the following features:  A mouse that can back up files automatically in real time and keeps the data secured.  - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Helpful - PIN replacement assistance and optional registration for Never-Lost, a backup subscription that retains your diary entries in case of loss or theft.

SECURE FLASH DRIVE™ has the following features:  Secure - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - -  Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Useful for storing storage files, videos and pictures. Simple to use just add a pin number.

6

(6)       STP®-Branded Power Tools and Automotive Accessories:  Under an April 2007 licensing agreement with Clorox Company, we have the right to use the trade name STP® on a line of power tools and automotive accessories made for Capstone by Chinese manufacturers and sold by Capstone though its distribution channels in the United States. STP® is a registered trademark of The Armor All/STP Products Company, which is owned by Clorox Company.  Our licensing rights to the STP® trademark require periodic licensing payments to Clorox Company and achievement of certain milestones in sales.  Clorox Company is a Delaware corporation and an SEC reporting company.

A selection of these STP ®-branded products, which are designed for home use and are not contractor-grade tools, are: Screw drivers, power drills, inverters, spot-lights and automotive accessories.      STP®-Branded Power Tools and Automotive Accessories sales have not met expectations. Due to current economic conditions and disappointing sales, we do not intend to market this product line beyond 2010.

Distribution of Products:  Capstone distributes its products through existing national and regional distributors and retailers in the United States, including,   office-supply chains, book store chains, warehouse clubs, supermarket chains, drug chains, department stores, catalog houses, online retailers and book clubs.   Our largest distribution channels are: Target Stores, Wal-Mart,  Meijer Stores,  Staples,  Barnes & Noble book stores, Fred Meyer-Kroger Stores, Costco Wholesale, Sams Club, BJ’s Wholesale  Club, Cost –U –Less,  Container Store ,  and  Smart Home Inc.  These distribution channels may sell our products through the Internet as well as through retail storefronts and catalogs/mail order.  When we launch new products, our sales team will introduce the new line to the applicable departments within our existing customer base.

Capstone personnel market and sell BBI products and do so in the same manner as they market and sell Capstone products.

Marketing and Sales:  We use employee-salesmen, distributors, and a network of manufacturer representatives to direct sell our products to the distribution channels referenced above.   We also display and market our products at industry trade shows to promote our products to retailers and distributors in North America. We rely on our distribution channels to advertise our products to the consumers.   We have redesigned and developed new Websites for CHDT, Capstone and STP®-branded tools and BBIL products. These are user friendly sites and designed to be informational purposes only. We have developed consumer e-commerce capability on the BBIL site, but do not plan at this point to develop e-commerce capabilities on the other sites.

We also try to promote our products through sponsorships. In 2008, we were the primary sponsor for the #72 MacDonald Motorsports Dodge race car, driven by D.J. Kennington, at the NASCAR Nationwide Series, Camping World 300 at Daytona International Speedway on February 16,  2008 and remain a major associate sponsor for the remaining 34 races with one more full sponsorship at Homestead-Miami Speedway in November, 2008. The STP® logo was displayed on racing cars and related promotional displays.  The sponsorship also included a 12-race schedule in the Canadian Tire Series with D.J. Kennington, which is viewed on the Cable Speed Channel.

On February 2nd 2009 we announced that we will be the official tool sponsor for D’Hondt Motorsports, LLC in both the ARCA and Nationwide racing series for the 2009 season.

7

In March 2009 at the International Housewares Show, we successfully launched the Pathway Lights booklight program and the Eco-i-Light power failure light program.

In March 2010 at the International Houseware show we launched the new product line C-Lite Wireless Motion Sensor Light, the Light Ringers Lamps, expansion to our Pathway Lights program and an expansion to our BBIL program.

Strategy:  We intend to become a major producer of certain identified consumer product categories in the United States.    We expect to bring new ideas and concepts to these categories through innovation and new technology, but with certain benchmarks, namely:

-designed for an everyday use or task;

-is affordable within the range of manufacturer’s suggested retail price for such a product (below $100 or $200 dollars, depending on product and market segment);

-represent value when compared to items produced or marketed by major consumer product companies on a national scale; and

-has reasonable profit and profit margin opportunity and acceptable market penetration costs, in our opinion.

We hope to accomplish this goal by the following (which, although deemed advantages or strengths of the Company or effective means of marketing or selling, may not translate into success in sales and income):

-           Leveraging Chinese Manufacturing Relationships:  China has become a major manufacturing source for products sold in the U.S. because many of the Chinese manufacturers can quickly produce as well as engineer quality products meeting all design and product specifications, produce such products at an extremely competitive per unit cost (because of low labor rates and relatively modern manufacturing facilities) and timely direct ship those products to any place in the world.  Often, it is more economical and efficient to manufacture products in China and have them shipped to the United States than to have such products produced in North America. While this resource is available to and used by large numbers of U.S. companies, including our competitors, we believe this Chinese manufacturing resource gives us the level of production cost and quality that allows us to be competitive with larger competitors in the United States. We also have very close business partnerships with two Hong Kong-based companies, who work with us to develop and prototype new product concepts and then interface with our Chinese factories to ensure products are Quality Control tested before and during production. These Hong Kong companies also provide extensive, product development, and quality control and logistics support to ensure on time shipments. We also have close relationships with the Certification Labs in Hong Kong such as STR Labs and Bureau Vitas Labs that provide full product testing and certification and factory and security auditing services.

-           Experienced in Dealing with Retail and Distributor Networks:  We believe our management has extensive experience in getting consumer products into the retail and distribution channels, which is key to being competitive in our segments of the consumer product industries; and

-           Niche Markets.  We believe our management is experienced in locating and developing niche consumer product opportunities that may be overlooked or underexploited by competitors, especially larger competitors.   Typically, we seek to find consumer products where we believe that we can win a profitable niche of the market share – one where the number or extent of commitment of competitors presents a reasonable opportunity to acceptable market entry costs to obtain a profitable market niche.

8

-           Leveraging Licensing and Brand Name Services.  We are pursuing and using recognized trademarks or logos of other companies, like STP®,   to assist our products in gaining market recognition and acceptance without extensive marketing and advertising campaigns.  The current STP® branded power tool product line is the first and an instance of such leveraging of existing trademarks.

-           Acquisition for Niche Consumer Products. We will also pursue acquiring promising niche consumer products by acquiring other companies with such niche consumer products or the technology to develop such niche consumer products.  We will use, in most instances, the Common Stock to acquire such companies.  If cash is required for an acquisition, we will have to raise such cash by selling our securities to investors and/or borrowing money from our officers and directors and/or third party sources.  The selling of our securities will dilute our existing shareholders and the borrowing of money will divert any cash flow from operations.  Despite these negative consequences, we believe that we cannot be competitive or successful without innovation and expansion of consumer products, which may require acquisition by merger or other form of acquisition.  The low market price of our Common Stock makes acquisitions difficult to negotiate and consummate.  Some of the companies, technology or products acquired by us may be owned by CHDT management or affiliates.

Patents and Proprietary Rights:  Patents currently owned by Capstone include:

- Liqui-Light Flashlights.

 · Timely Reader Booklights with Timer and Auto Shut Off.

Trade Marks owned by Capstone include:

· Liqui-Lights

·Timelyreader

·Simply Comfort

·Personal Pocket Safe

·Secret Diary

There can be no assurance that patent applications owned by us, or licensed to us, will issue as patents or that, if issued, our patents will be valid or that they will provide us with meaningful protection against competitors or with a competitive advantage. There can be no assurance that we will not need to acquire licenses under patents belonging to others for technology potentially useful or necessary to us and there can be no assurance that such licenses will be available to us, if at all, on terms acceptable to us. Moreover, there can be no assurance that any patent issued to or licensed by us will not be infringed or circumvented by others. In particular, if we are unable to obtain issuance of a patent with broad claims with respect to our products or if we are unable to prevail in oppositions against our foreign patents with similar claim scope, a competitor may be able to design around our patent rights by employing technologies or innovations that are not covered by our subsisting patents.  Litigating intellectual property rights claims is very expensive and we may not have the available cash flow to engage in litigation in every or any specific instance.

Much of our know-how and technology may not be patentable. To protect our rights, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. There can be no assurance, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. In addition, our business may be adversely affected by competitors who independently develop competing technologies, especially if we obtain no, or only narrow, patent protection.

Lastly, there can be no assurance that third-parties will not bring suit against us for patent infringement by a licensee or us, or to have our patents declared invalid.  We do not have insurance to cover such intellectual property lawsuits and such lawsuit can be extremely expensive to defend.

9

Competition:  Capstone competes against numerous consumer product companies.  Competitors of Capstone include:  Zelco Industries,  Inc. of  Mount Vernon,  New York,  which makes the ITTY BITTY(TM) light and Lightwedge, LLC of Nantucket, Massachusetts.  With trends and technology continually changing, to remain competitive in the industry, Capstone will have to continue to develop and introduce new products and color options at competitive pricing.  Many national retailers such as Target, Walmart and Barnes & Noble offer book lights as part of their product line.

We face extensive competition from numerous competitors in the power tool and accessory product line in the United States.  Many of our competitors have significantly greater resources, far more years in selling this market segment and far greater market share than we do.  Companies like Black & Decker, Bosch, Mikita, Hitachi, TechTronic, Porter & Cable, Panasonic, Ryobi and CPO Milwaukee are significantly larger companies than we are and they have well-established and much larger market share than we do in the U.S. home use power tool industry.  Our ability to obtain any market share in the U.S. home use power tool market depended on the name recognition and consumer acceptance of our licensed STP®-brand name for our power tool line for home use.   We started to market and sell our STP®-branded power tool line in October 2007.  However after initial successes we have been impacted by the continued severe downturn in the retail market especially the automotive and hardware segments. After exhausting our efforts in this market it is evident that this category will remain severely depressed as a result of the recession and we do not plan to continue marketing this line beyond 2010.

Government Regulation: We are subject to regulation by federal and state securities authorities (including FINRA) as well as usual and customary state and county business and tax regulation of a for-profit business.  Capstone and BBIL are subject to the usual and customary federal, state and local business and tax regulation of a consumer products company and a for-profit business.  We are not subject to any U.S. federal, state or local regulation that poses, in our opinion, any special or unusual burden or obstacle to conducting our business and financial affairs.   Our main concern in terms of government regulation is the changing regulatory environment in China and its impact on our ability to access our consumer product manufacturing sources and obtain our consumer products.  While the general trend in China has to be conducive to trade and commerce, China is a still a single-party nation-state in which the central government has the power to dramatically and immediately change its trade and commercial policies and laws.  China has benefited greatly from a more liberal trade and commercial policies and laws in the 1990’s and this decade to date.  However, political or military conflict between the United States and China, who are rivals for power and influence in Asia and to an increasing extent all along the Pacific Rim as well as being diametrically opposed to one another over the status of Taiwan, could provoke a change in Chinese trade or commercial law that makes it more difficult or expensive for us to obtain consumer products.  Such a development would have a serious impact on our ability to compete in the United States in the niche consumer product market.

Bank Loan. On May 1, 2008, Capstone entered into a $2 million principal-amount, asset-based loan agreement with Sterling National Bank of New York City whereby Capstone received a credit line to fund working capital needs (“Loan”).   The Loan provides funding for an amount up to 85% of eligible Capstone U.S. accounts receivable and 50% of eligible Capstone inventory. The interest rate of the Loan shall be the Wall Street Journal Prime Rate plus one and one-half percent (1.5%) per annum (adjusted automatically with changes in the Wall Street Journal Prime Rate).  Capstone management believes that this credit line and available cash flow will be adequate to fund most of Capstone’s ongoing working capital needs. CHDT and Howard Ullman, the Chairman of the Board of Directors of CHDT, have personally guaranteed Capstone’s obligations under the Loan. The foregoing summary of the Loan is qualified in its entirety by reference to the documents evidencing the Loan, which are attached as exhibits 10.1 through 10.4 to the Form 8-K, dated May 1, 2008,  and filed with the SEC on May 8, 2008.  The maturity date for this loan was May 1, 2010. On February 19, 2010, Capstone entered a loan modification agreement which extended the loan for two years until May 1, 2012. The interest rate for the loan shall be the contract rate plus one and three quarter’s percent (1.75%)

10

Employees:  As of December 31, 2009, we had a total of 9 full-time employees, consisting of 4 officers employed by CHDT and five  persons employed by Capstone.  Capstone may add additional salespersons in 2010 to sell its consumer products and an additional logistics coordinator.  Capstone personnel also serve as BBIL personnel in bookkeeping, clerical, administrative, marketing and sales functions.

Company History:  The Company was incorporated under the name “Freedom Funding, Inc." in Delaware on September 18, 1986.  On January 18, 1989, the Company reincorporated from Delaware to Colorado. On November 18, 1989 the name of the Company was changed to "CBQ, Inc." On May 17, 2004, the Company changed its name from “CBQ, Inc.” to “China Direct Trading Corporation” and also reincorporated from Colorado to Florida by a statutory merger.

From 1986 through 1997, the Company had no business operations and its sole activity was to pursue its business plan to investigate business opportunities in which to engage by merger or acquisition. The Company was a "blank check" shell company during this initial  development stage.

From 1997 through 2002, the Company became a holding company acquiring a series of small, private companies and operating subsidiaries.

These operating subsidiaries were engaged in either software systems development operations, resellers of computer hardware and software manufactured by other companies, installers and repair firms of computer networks, or providers of various information technology technical consulting services. Most of these acquisitions were accomplished by stock-for-stock exchanges. By the fourth quarter of 2002, these operating subsidiaries had ceased conducting business due to their inability to compete effectively in their respective geo-graphical markets; loss of key sales, technical, sales and management personnel; unexpected downturns in customer demand in certain industries (especially in the value-added reseller of computer hardware and software); inadequate management and planning (especially the lack of a coherent strategic business plan); failure of CHDT to eliminate duplicative overhead among its operating subsidiaries; inadequate financing of operations; use of financing for non-revenue generating purpose; inability to obtain financing or funding on affordable or commercially reasonable terms or at all; or a combination of the foregoing factors.

By the first quarter of fiscal year 2003,   we had no business operations or source of revenue and its management was reduced to a caretaker officer and one to two directors.

From December 1, 2003 to September 2006:  On December 1, 2003, we acquired SDI, which became the Company's sole wholly-owned operating subsidiary at that time.   SDI management also became our management as part of the stock-for-stock acquisition of SDI.  Howard Ullman was the principal shareholder of SDI at the time of our acquisition and he became the senior executive of CHDT as a result of the acquisition of SDI.

On January 27, 2006,  CHDT entered into a Purchase  Agreement  (the  “CPS Purchase  Agreement”) with  William  Dato (“Dato”) and Complete  Power  Solutions  LLC, a Florida limited liability company, (“CPS”)  pursuant  to which CHDT  acquired  from Dato 51% of the member interests of CPS for a purchase price consisting of the payment of $637,000 in cash and the delivery of 600,000 unregistered shares of CHDT's Series A Convertible  Preferred  Stock (the “Series A Preferred Stock”) having a stated value of $1,200,000 which were convertible into 50,739,958 shares of CHDT's Common Stock.

11

On January 26, 2007,  we entered into a Purchase and Settlement  Agreement, dated and effective as of December 31, 2007  ("CPS Settlement Agreement") with CPS, Dato and Howard  Ullman (our Chairman of the Board and  also Chief Executive Officer at the time),  whereby:  (a) CPS is repurchasing  the 51% CPS Membership  Interests owned by us in return for the transfer of 600,000 shares of our Series A Preferred  Stock"),  and which are convertible into 50,739, 958 shares of our Common Stock, $0.0001 par value per share, beneficially owned by  Dato, to us,  and (b) the issuance of a promissory note by CPS to us in the principal  amount of $225,560,  bearing annual interest at 7% with interest-only  payments commencing on July 1st 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 26, 2010, (the "2007 Promissory Note") and (c) the mutual releases  contained in the Agreement.  As a result of this transaction, we have no ownership interest in CPS and  neither  CPS nor Dato will have an  ownership  interest in us (from the CPS Purchase Agreement). The 2007 Promissory Note provides that if principal and accrued interest thereon is not paid in full by the maturity date, then 2007 Promissory  Note's maturity  date will be roll over for  successive  one year periods until paid in full.  For any roll over period, the annual interest will be increased to 12%. The 2007 Promissory  Note  also  provides  that  the  principal  amount  may be automatically  increased by an amount up to $7,500 if the amount  claimed as the cost of  replacement  of a  garden  by the  customer  for a power  generator  is abandoned or settled for less than $7,500.  The Agreement allows CPS to off set, if CPS so  elects,  any  payments  due under the 2007  Promissory  Note to us  by any amounts owed to CPS under the  indemnification  provisions  of the CPS Settlement Agreement.

The 2007 Promissory Note, CPS Settlement Agreement and CPS Purchase Agreement are attached as exhibits to this Report and all summaries herein of those agreement and instrument are qualified in their entirety by reference to said agreements and note as attached as exhibits hereto.

CPS is also indebted to us under a promissory note in the original principal  amount of  $250,000,  executed  by Dato on June 27, 2006 and payable to us,  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 for funds advanced by CPS for  portable  generators  which were never  delivered  and (ii) $15,000 as an agreed amount paid to compensate CPS for refunds required to be made to clients of CPS for  cancelled  sales made  personally  by Howard  Ullman (which amounts  have been  applied  first 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 Note to maturity (June 30, 2007),  and then to reduce the principal  amount of the 2006  Promissory  Note to $210,900).

Further,  the CPS Settlement Agreement:  (a) cancels the Voting  Agreement,  dated January 27, 2006,  by and among Dato, CHDT and Howard  Ullman;  (b) removes us as a party to the Employment Agreement, dated January 27, 2006, with Dato and CPS and  (d) requires CPS and Dato to  cooperate  with us and the auditors   in    completing    all   audits    required   by CHDT’s Commission-reporting  obligations in fiscal years 2006 and 2007. Pursuant to the terms of the Agreement, Dato resigned from all positions at CHDT and Howard Ullman resigned from all positions at CPS - both effective  January 26, 2007.

The net result of the CPS Settlement Agreement was to cancel the transactions  entered into by and among CHDT, CPS and Dato under the CPS Purchase Agreement by and among CHDT, CPS and  Dato, which transaction was reported by the Form 8-K filed by CHDT with the  Commission on January 31, 2007, and end  CHDT’s involvement in the  distribution of commercial and residential standby power generators by CPS.

CHDT and certain note holders were involved in a lawsuit against CPS and others over payments due under the above referenced notes. CHDT was awarded a judgment against CPS but after further legal pursuit, it has been determined that any payments awarded under the judgment are uncollectable.

12

On September 15, 2006, we entered into a Stock Purchase Agreement with Capstone and Stewart Wallach, the sole shareholder, a director and a senior executive officer of Capstone. Under the Stock Purchase Agreement, we acquired 100% of the issued and outstanding shares of Capstone Common Stock in exchange for $750,000 in cash (funded by the previously reported credit line provided by certain directors of CHDT) and $1.25 million in Series B Preferred Stock, $0.01 par value per share, which Series B Stock is convertible into 15.625 million “restricted” shares of our Common Stock, $0.0001 par value (“Common Stock”).   On July 9th, 2009 the outstanding Series B Preferred Shares were converted to Series B-1 Preferred Shares. The series B-1 shares are convertible into common stock; at a rate of 66.66 of common shares for each share of series “B-1” In 2009 the Series B-1 shares were converted into common stock.  As of January 1, 2007, SDI merged its operations and marketing efforts under the Capstone umbrella in order to streamline operations and consolidate sales and marketing operations under one company.   On December 1, 2007 SDI’s operating assets were sold to an unaffiliated buyer.   SDI has been dissolved in 2009 under Florida law.

Item 1A.  Risk Factors.

RISKS RELATED TO OUR BUSINESS

(A) VARYING, UNPREDICTABLE FINANCIAL RESULTS.  Our periodic operating results may significantly  fluctuate from time to time due to sales  cycles or  decreased  demand  from customers  or  reliance  on and a  decrease  in demand  from those limited number of customers that generate most of the sales revenues, limited funding or cash flow, or changes in business focus.  Investors should not rely on financial results for any fiscal period as an accurate basis for predicting or an indication of future financial results. Our future revenues and results of operations may significantly fluctuate due to a combination of factors, many of which are outside of management's control.  Our operating results for any particular quarter may not be indicative of future operating results.  Prospective investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future consolidated or segment performance, especially since we have experienced changes from year to year in our business lines or business focus.  It is possible that results of operations may be below the expectations of public and investors, which could cause the market price of our Common Stock to fall.  The most important of these factors include:

*          market   rejection of Chinese-made products;

*          drop   in   consumer   demand for our products or changes in consumer buying habits;

*          increased competition from competitors, especially from competitors  with  substantially greater resources than us, especially targeted marketing by such

            competitors to eliminate us, as a small business competitor, from a specific product line or market;

*          political or economic or trade conflicts between the U.S. and China;

*          ability to obtain products on favorable terms from our Chinese manufacturing sources;

*          general economic conditions;

*          impact of terrorism on the businesses of CHDT;

*          the timing  and   effectiveness   of  marketing  and product expansion programs;

*          the timing of the introduction of new products;

*          the availability of funding or financing in a timely manner and on affordable terms;

*          timing and effectiveness of capital expenditures;

*          change in distribution terms and conditions or approach by the third parties that distribute or sell our products;

*          any decline in brick-and-mortar retailers (our main distribution channel) and increase in web-based sales of products (where we do not have a significant presence);

 and

*          strength of foreign and domestic competition.

13

We have also had a history of successive operating subsidiaries or business lines failing and several resulting changes in management and business focus.  While we are optimistic about the abilities and business plan of current management, which has been in place since 2007, we have not yet achieved any record of sustained profitability.  We believe that only such a record of performance will allow any sustained increase in the market price of our Common Stock, which during the past five years has been consistently lower than two cents per share.  The Company reviews options to enhance shareholder value from time to time, including, without limitation, a change in business line or lines, and mergers and acquisitions.

(B)  CURRENT ECONOMIC CONDITIONS. Many economic and other factors outside of our control, including consumer confidence, consumer spending levels, employment levels, consumer debt levels and inflation, as well as the availability of consumer credit, affect consumer spending habits. A significant deterioration in the global financial markets and economic environment, recessions or uncertain economic outlook, could adversely affect consumer spending habits, and can result in lower levels of economic activity. The domestic and international political situation also affects consumer confidence. Any of these events or factors can curtail consumers spending, especially with respect to our more discretionary offers. During fiscal 2009, there was a significant deterioration of global markets and economic environment which negatively impacted consumer spending at retail. If these adverse trends in economic conditions continue to worsen or our efforts to counteract these trends are not sufficiently effective, our revenue would decline, negatively affecting our results of operations.

(C)   RELIANCE ON KEY PERSONNEL.  We rely on Stewart Wallach, Gerry McClinton,  and Howard Ullman for executive management, financial management and  strategic planning for the Company.  The loss of the services of any one those executives would adversely impact our business and financial prospects.  Neither CHDT nor Capstone has a key-man insurance policy or  similar  policy to fund the cost of  replacing  any of the aforesaid key personnel.  We lack internal cash resources to fund such replacement.

We may not be able to attract and retain qualified personnel, which could impact the quality of our content and services and the effectiveness and efficiency of our management, resulting in increased costs and losses in revenue.  Our success also depends on our ability to attract and retain qualified sales and marketing, customer support, financial and accounting, legal and other managerial personnel.   Our personnel may terminate their employment at any time for any reason.  Loss of personnel may also result in increased costs for replacement hiring and training.  If we fail to attract new personnel or retain and motivate our current  personnel,  we may not be able to operate  our  businesses  effectively  or  efficiently,  serve our  customers properly or maintain the quality of our content and services.

(D) MERGERS AND ACQUISITIONS.  We may seek from time to time to consummate mergers and acquisitions of companies as part of a strategy to grow or acquire new products, which mergers and acquisitions could have an adverse impact on our financial and business condition and prospects as a result of inability to manage growth or integrate or manage acquired operations.  We have historically tried to expand or grow our business through mergers and  acquisitions  with  small,  private companies  with existing  operations.  Except for Capstone,  those prior efforts have failed to establish a business or businesses with steady or growing revenues, or grow the  overall  revenues  or  business  of the  Company  for any extensive period.  Most of our acquired businesses failed and we closed or sold off.  The historically and current low market price of our Common Stock is a significant deterrent or hindrance to consummating mergers and acquisitions or do so on commercially reasonable terms and conditions.

Any such mergers and acquisitions may not, due to the low market  price  of  our common  stock,  and  our lack of  extensive  cash reserves,  be consummated on terms that are favorable to us or without certain  conditions,  such as a provision allowing the acquired or merged entity to spin out of or split  off from us in the  future  or if  certain milestones are not met.

14

We have throughout its history acquired new businesses,  as we expect to continue  to make  acquisitions  in the  future.  With respect  to  recent  and any  future  acquisitions, we may  fail to successfully  integrate  our  financial  and  management  controls,  technology, reporting  systems and procedures,  or adequately  expand,  train and manage our work force. The process of integration could take a significant period of time and will require the  dedication of management  and other  resources,  which may distract management's attention from our other operations. If we make acquisitions   outside  of  our  core  businesses,   assimilating  the  acquired technology,  services or products  into our  operations  could be difficult  and  costly.  Our inability to successfully integrate any acquired company, or the failure to achieve any expected synergies,  could  result in  increased expenses and a reduction in expected revenues or revenue growth, and as a result our stock price could fluctuate or decline.

Such risks include:

* the  risk  that  our  industry  may  develop  in  a  different direction  than  anticipated  and  that  the  technologies  we acquire do not prove to be those we need to be  successful  in the industry;

* the risk that future  valuations  of acquired  businesses  may decrease from the market price we paid for these acquisitions;

* the generation of insufficient revenues by acquired businesses to offset acquisition costs and increased  operating expenses  associated with these acquisitions;

* the potential  difficulties in completing  in-process research and development  projects and delivering high quality products to our customers;

* the  potential   difficulties  in  integrating  new  products, businesses  and  operations  in  an  efficient  and  effective manner;

* the risk  that our  customers  or  customers  of the  acquired businesses may defer  purchase  decisions as they evaluate the impact of the acquisitions on our future product strategy;

* the   potential   loss  of  key   employees  of  the  acquired businesses;

* the risk that acquired businesses will divert the attention of our senior  management from the operation of our core Capstone business; and

* the risks of  entering  new  markets in which we have  limited experience and where  competitors  may have a stronger  market presence.

Our inability  to  successfully   operate  and  integrate newly-acquired  businesses  appropriately,  effectively  and in a timely  manner  could have a material adverse effect on our ability to take advantage of further  growth in demand for products in our  marketplace,  as well as on our  revenues, gross margins and expenses.

15

(E)  WE HAVE A SMALL MANAGEMENT  AND STAFF AND MAY NOT BE ABLE TO ADEQUATELY  HANDLE ANY GROWTH IN OUR BUSINESS AND TO IMPLEMENT AND MAINTAIN INTERNAL  FINANCIAL AND ACCOUNTING  CONTROLS AND SYSTEMS.

If we cannot effectively manage growth, if any, and whether from mergers and acquisitions or internal growth, our business may suffer or fail.  We have previously expanded our operations through acquisitions in order to pursue perceived existing and potential  market opportunities and in most instances we have failed to do so. If we fail to manage our growth properly, it may incur unnecessary expenses and the efficiency of our operations may decline. To manage any growth effectively, we must, among other things:

* successfully  attract,  train,  motivate  and  manage a larger number of employees for  production  and testing,  engineering and administration activities;

* control higher inventory and working capital requirements; and

* improve the efficiencies within our operating, administrative, financial and accounting  systems,  and our  procedures  and controls.

(F) A FEW OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS HAVE VOTING CONTROL OVER CHDT.  A few members of management beneficially own approximately 52% of our outstanding Common Stock on a fully diluted basis. Howard Ullman,  the Chairman of the Board, beneficially  owns  approximately  15% of issued and  outstanding  shares of Common  Stock (excluding conversion of any preferred stock of CHDT or the exercise of options). Stewart Wallach,  the Chief Executive Officer, beneficially  owns  approximately  19% of issued and  outstanding  shares of Common  Stock (excluding conversion of any preferred stock of CHDT or the exercise of options).

 These members of  management control the  management and affairs and have voting power sufficient to determine any matters requiring shareholder approval, including:

* election of our board of directors;

* removal of any of our directors;

* amendment of our certificate of incorporation or bylaws;

* adoption of  measures  that could delay or prevent a change in control  or  impede  a  merger,  takeover  or  other  business combination involving us; and

* Significant    corporate    transactions, like    mergers, acquisitions, dissolution, recapitalization, stock splits and bankruptcy.

This voting control by insiders over CHDT may hinder the interests of public shareholders from being fully considered in corporate decision making or actions and may result in corporate actions that are not always in furtherance of our public shareholder interests.   Further, the voting control of a few members of management may shield management from pressure from public shareholders for changes or revisions in failing or underachieving business strategies.

16

(G)  INADEQUATE OR EXPENSIVE FUNDING OR FINANCING.   We rely on funding from insiders and investors from time to time to fund operations or extraordinary transactions and we may be unable to raise adequate funding or financing to survive unexpected  revenue shortfalls,  or to reduce  operating  expenses quickly enough to offset any such unexpected revenue shortfall.  The funding and cash flow problems of the Company often hinder or undermine business development efforts, which in turn undermines the market price of our Common Stock.

If we have a shortfall in revenues without a corresponding reduction to its expenses, operating results may suffer.  If we do not have sufficient bank financing, we will be forced to seek expensive financing or funding, or forms of financing that require issuance of our securities (such as  equity  credit  lines or PIPE  financing).  Such financing  would dilute the position of existing  shareholders  and put negative pressure  on the market  price of the  our  Common  Stock  while  possibly failing to provide  adequate and ongoing working capital for the Company and its operations.  While members of our management have provided personal loans to us to fund working capital in fiscal year 2009, we cannot be sure that such financing will be available in the future or in amounts that are adequate to meet our working capital needs. During 2008 Capstone   secured  a conventional $2,000,00 asset based loan from Sterling  National Bank in New York  to  help fund Capstone’s working capital needs. This original line matured on May 1, 2010.  On February 14, 2010 this line was renewed for a further 2 years until May 1, 2012.  This facility funds up to 85% of eligible Accounts Receivable and 50% of eligible on hand Inventory.  However the continued reliance on private placement of CHDT securities and insider loans or investments to fund CHDT working capital needs and Capstone product development may depress or limit the market price for our Common Stock.

(H)  COMPLIANCE WITH CHANGING  REGULATION OF CORPORATE  GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.

Changing  laws,   regulations  and  standards   relating  to  corporate governance and public  disclosure,  including the  Sarbanes-Oxley Act of 2002 or "SOX" .and new SEC  regulations  are creating  uncertainty for companies such as ours.  These new or changed  laws,  regulations  and  standards  are  subject to varying interpretations in many cases due to their lack of specificity, and as a result,  their  application  in practice may evolve over time as new guidance is provided by regulatory  and governing  bodies,  which could result in continuing uncertainty  regarding  compliance  matters  and higher  costs  necessitated  by ongoing  revisions to disclosure and governance  practices.  We intend to invest resources to comply with evolving laws, regulations  and  standards,  and this investment  may result in increased  general and  administrative  expenses and a diversion of management time and attention from revenue-generating activities to compliance  activities.  If our efforts to comply with new or changed laws, regulations and standards  differ from the activities  intended by regulatory or governing bodies due to ambiguities  related to practice,  our reputation and attraction as an investment may be substantially harmed.

(I)WE NEED TO REGULARLY INTRODUCE NEW PRODUCTS TO REMAIN COMPETITIVE.

We need to regularly introduce new products with enhanced features, styles and/or technology to remain competitive in our product lines.  We believe that we have done so to date in the lighting product line.  If we are unable to keep up with the trend in our primary product lines to introduce new products with enhanced or popular functions, styles and technologies, we may fail to compete in those product lines.

17

(II)  RISKS RELATED TO OUR COMMON STOCK

(A) RISKS RELATING TO OUR SECURITIES.  OUR COMMON STOCK IS A "PENNY STOCK" UNDER SEC RULES AND,  AS SUCH,  THE MARKET FOR OUR COMMON  STOCK IS LIMITED BY CERTAIN SEC RULES  APPLICABLE TO PENNY  STOCKS.  Our Common Stock is subject to certain  "penny stock" rules  promulgated by the SEC. Those rules impose certain sales practice requirements  on brokers who sell "penny stock" ( that is, stock with a market price below $5 per share and more commonly  below $1 per share) to persons other than  established  customers and accredited  investors  (generally institutions  with assets in excess of $5,000,000 or individuals  with net worth in excess of $1,000,000).  Brokers must make a special suitability determination for the purchaser and receive the purchaser's written consent to the transaction prior to the sale.  Furthermore,  the penny stock rules generally require, among other things,  that brokers engaged in secondary trading of penny stocks provide customers with written  disclosure  documents,  monthly statements of the market value of penny stocks,  disclosure of the bid and asked prices and disclosure of the  compensation  to the  brokerage  firm and  disclosure  of the sales  person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell or promote our Common Stock  shares and limit the  liquidity  and market price of our securities.  Our lack of any sustained history of sustained profitability from operations also depresses our the market value of our Common Stock.

(B) NO DIVIDENDS.   We have not paid and we do  not intend to pay dividends  on our Common Stock in the foreseeable future. We currently intend to retain all future earnings, if any, to finance our current and proposed business activities and do not  anticipate  paying any cash  dividends  on our  Common  Stock in the foreseeable  future.  We may also incur  indebtedness  in the  future  that may prohibit or  effectively  restrict  the payment of cash  dividends on our Common Stock.

(C)   OUR COMMON STOCK’S MARKET PRICE MAY BE VOLATILE AND COULD FLUCTUATE WIDELY IN PRICE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS, OR FAIL TO MAINTAIN ANY APPRECIATION IN PRICE.       The market  price of our Common  Stock is likely to be highly  volatile and could  fluctuate  widely in price in  response to various  factors,  many of which are beyond our control, including:

*           our lack of primary market makers for our Common Stock – we have market makers but none are primary market makers who maintain an inventory of our Common Stock and actively support the Common Stock;

 *          general worldwide economic conditions and the current crisis in the financial markets;

*           the lack of research  analysts or news media coverage of CHDT or our Common Stock;

*           additions or departures of key personnel;

*           sales of our Common Stock by the Company or insiders;

*           our status as a “Penny Stock” Company;

*           our ability to execute our business plan;

*           operating results being below expectations;

*           loss of any strategic relationships;

*           industry or product developments;

*           economic and other external factors; and

*           period-to-period fluctuations and the uncertainty in our financial results.

(D) SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE. The market price of our Common Stock could decline as a result of sales of  substantial  amounts  of our  Common  Stock  in the  public  market,  or the perception that these sales could occur.  These factors could make it more difficult for us to raise funds  through  future  offerings  of Common Stock.  We continue to date to rely on private placement of our securities and insider-management loans to fund operations or business development efforts.  We already have over 648 million shares of Common Stock issued and outstanding.  This large float also depresses our Common Stock’s market price and discourages investor investment in our Common Stock.

18

With no primary market makers, our Common Stock tends to fall back to prior price levels whenever there is an increase in the stock price.  We believe this is the result of sell offs by investors seeking to attain any profit, no matter how slight, from the Common Stock.

(E)  THE LACK OF PRIMARY MARKET MAKERS AND INSTITUTIONAL INVESTOR SUPPORT LIMITS THE ABILITY OF OUR COMMON STOCK TO MAINTAIN ANY INCREASES IN VALUE.  We lack primary market makers and institutional support for our Common Stock traded in the public markets. As result, whenever the market price for our Common Stock experiences any significant increase in market price, in terms of percentage increase,  it is difficult for our Common Stock to maintain such an increased market price due to  the pressure of shareholders selling shares of Common Stock to reap any profits from such increase in market price and the lack of primary market makers and institutional investors to stabilize and support any such increase in market price of our Common Stock (by not selling their positions of such stock in response to market price increases and entering the market to purchase more shares of our Common Stock).

Item 1B:   Unresolved SEC Staff Letters.  None for fiscal year ended December 31, 2009.

Prior Fiscal Years.   As previously reported in our SEC filings, we received comments and inquiries from the Division of Corporation Finance (“DFC”) of the Securities and Exchange Commission on or about September 7, 2007, which communication concerned our Form 10-KSB for the fiscal year ended December 31, 2006. The comments and inquiries were part of the DFC’s periodic review of SEC-reporting company Securities and Exchange Act of 1934 periodic filings. As part of the Company’s response to the SEC, the Company filed a Form 8-K, dated and filed with the Commission on October 12, 2007, to report the corrections to the financial statements for the Company’s fiscal year ended December 31, 2005 that were previously filed as Note 14 to the financial statements of the Company’s Form 10-KSB for the fiscal year ended December 31, 2006.

Note 14 states in its entirety: “We have restated our balance sheet at December 31, 2005,  and  statements  of operations,  stockholders' equity and cash flows for the year ended December 31, 2005.  The restatement impacts the year ended  December 31,  2005, but has no effect on the financial statements issued in prior fiscal years. The restatement is the result of a correction of an error.  In 2005, the Company did not accrue $175,000 of directors' fees that had been  authorized,  but not paid at December 31, 2005. The $175,000 was paid in 2006 with the issuance of Common Stock. Also, the Company had accrued  $30,600 in payroll tax expense on accrued  compensation of  $200,000  that  had  been  paid in  stock at  December  31,  2005,  that was subsequently treated as contract services and not employee services.  The impact of the restatement on the balance sheet was to increase current liabilities from $573,351 to $717,751.  The impact of the restatement on net loss is an increase of $144,400,  from  $589,171 to $733,571 net of tax for the year ended  December 31, 2005. There was no change in the loss per share.”

Date of Conclusion regarding Corrections to Annual Financial Statements for the Fiscal Year Ending December 31, 2005.  The errors in accounting treatment of the two compensation issues referenced above came to light on March 1, 2007 as a result of the audit work for the fiscal year ending December 31, 2006.

Audit Committee Response: Independent director and audit committee member Jeffrey Guzy has discussed the aforementioned corrections with Robison Hill & Co., the Company’s public auditors.  The conclusion of those discussions was that the errors were the result of Company management misunderstanding inquiries from the public auditors and that misunderstanding resulted in a response to the auditors that produced the two errors in the fiscal year 2005 audit. Mr. Guzy and the public auditors also concluded that the Company’s addition of a chief operating officer with financial and accounting experience in early 2007 and the addition of an in-house bookkeeper assisted by a local accountant in early 2007 should help prevent any repeat of the miscommunication between management and the public auditors about such compensation matters and their accounting treatment.

19

Item 2.  Properties.

Neither the Company nor its operating subsidiaries owns any real properties or facilities.  CHDT and Capstone share principal executive offices and operating facilities at 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida 33442. Rent expense, included in general and administrative expenses, for the years ended December 31, 2009 and 2008 amounted to $52,684   and $51,809,, respectively.  The Company has no current plans to expand its facilities and believes that its current facilities will be adequate for fiscal year 2010.

Item 3. Legal Proceedings.

Other than as set forth below, we are not a party to any 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 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 our financial position, results of operations or status as a going concern.

ESQUIRE TRADE & FINANCE INC. & INVESTOR, LLC v.  CBQ, Inc. (former name of our company)(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”).   The parties settled this case by mutual agreement on February 18, 2010.  A summary of the settlement is below. A stipulation withdrawing the plaintiffs’ appeal in the Celeste case was filed with and accepted by the court on March 8, 2010, which filing effectively ended the litigation in the Celeste case between the parties.  With the entry of the stipulation, there is no pending litigation in this matter.

The settlement and release provides a mutual, general release of all claims that plaintiffs and the Company may have against each other as the date of the release, including any causes of action or claims under the Celeste case and any related proceedings.  The settlement provides, in part, that: (1) the parties will seek a court order dismissing the Celeste case (which is the above referenced stipulation); (2) the parties will release each other from any and all claims and causes of action in or related to the Celeste case or the pending appeal to the U.S. Circuit Court for the Second Circuit;  (3) the plaintiffs will pay $100,000 towards the Company’s legal fees incurred in the Celeste case, which will go to legal counsel for the Company; (4) the Company will support the release of shares of Company Common Stock, $0.0001 par value per share, (“Common Stock”) owned of record by Networkland, Inc., a Virginia corporation, (“NET”) and Technet Computer Services, Inc., a Virginia corporation, (“TECH”) to the plaintiffs or their designees (each such block of Common Stock was sought by the plaintiffs in the Celeste case as part of their claims against the Company) (collectively, said shares of Common Stock held of record by NET and TECH being referred to as the “N&T Shares”));  (5) the issuance of 350,000 shares of Common Stock owned by Howard Ullman, a director of the Company, to the plaintiffs or their designees; and (6) the granting by Mr. Ullman of a five year option to purchase 20 million shares of Common Stock owned by Mr. Ullman to the plaintiffs or their designees, which option has an exercise price of $0.029 per share.  Under the settlement agreement and release, the Company will grant piggy-back registration rights to the option and underlying shares of Common Stock referenced in (6) above, which rights will be effective after June 1, 2010.  The Company will pay all registration fees and legal costs associated with any such registration, which are currently estimated to be approximately $5,000.

The settlement and release, which consists of a settlement agreement and release and option agreement by Mr. Ullman, was negotiated by Mr. Ullman on behalf of the Company with the plaintiffs. Mr. Ullman has provided case administration of the Celeste case for the Company in his capacity as a Company director.

The Company believes that the settlement and release is in the best interests of the Company and its public shareholders because (1) it will eliminate the possibility of an adverse ruling by the U.S. Court of Appeals for the Second Circuit on the plaintiffs’ appeal, which adverse ruling could potentially impose a significant liability on the Company; and (2) the continuation of the Celeste case may discourage potential investors and funding sources from assisting the Company in financing operations and business development as well as make it more difficult to pursue any possible future merger and acquisition transactions, and (3) it may have suppressed the market price of the Company Common Stock due to the potentially significant liability presented by the case to the Company.

20

The Company’s board of directors approved the general terms of the settlement and release on February 1, 2010, but approval and execution of all documents necessary to reaching a settlement and release was not achieved until the February 18, 2010 signing of the option granted by Mr. Ullman.  A copy of the settlement agreement and release and the option granted by Mr. Ullman are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to the Form 8-K, dated February 19, 2010 and filed by the Company with the Commission on February 22, 2010).  The above summary of the settlement agreement and release and option are qualified in its entirety by reference to the proposed settlement agreement and release as attached as Exhibit 99.1 and the option attached as Exhibit 99.2 to the aforesaid Form 8-K report.

CPS (Complete Power Solutions, LLC): As part of the January 26, 2007,  Purchase and Settlement Agreement between CPS, Company and other parties, CPS issued of a promissory note to us in the principal amount of $225,560, bearing annual interest at 7% with interest-only payments commencing on July 1, 2007 and thereafter being paid quarterly on October 1st, January 1st, April 1st and July1st until the principal and all unpaid interest thereon shall become due and payable on the maturity date, being January 26, 2010, (the "2007 Promissory Note").  The 2007 Promissory Note provides that if principal and accrued interest thereon is not paid in full by the maturity date, then 2007 Promissory Note’s maturity date will be roll over for successive one-year periods until paid in full.  For any roll over period, the annual interest will be increased to 12%.

CPS is also indebted to us under a second promissory note in the original principal amount of  $250,000, executed by Dato on June 27, 2006 and payable to us, 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 for funds advanced by CPS for portable generators which were never delivered and (ii) $15,000 as an agreed amount paid to compensate CPS for refunds required to be made to clients of CPS for cancelled  sales made  personally  by Howard  Ullman (which amounts  have been  applied  first 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 Note to maturity (June 30, 2007),  and then to reduce the principal  amount of the 2006  Promissory  Note to $210,900).

CPS have failed in their responsibility to pay interest and principal payments and laid out in both of the aforesaid notes and agreement. As a result we have been forced to take legal action to collect all outstanding amounts including full payment of principals.

On March 10th, 2008 we were granted a Final Summary judgment against CPS (Case # CACE07-19082 (25) 17th Judicial Court, Broward County, Florida) for the following amounts June note $238,748.90 and January note $262,990.88 for a total of $501,739.78. We actively pursued further legal action to collect this judgment but we have now determined that this judgment is uncollectible due the financial condition of the defendant.

Other Legal Matters. To the best of our knowledge, none of our directors, officers or owner 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 that we believe will have a material adverse effect on our financial condition or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our shareholders during the fourth quarter of fiscal year ended on December 31, 2009.

21

Item 4A.  Executive Officers of the Small Business Issuer

The executive officers, as of March 29, 2010, are as follows:

Stewart Wallach is the Chief Executive Officer and President of Company and Chief Executive Officer of Capstone.

Howard Ullman is the Chairman of the Board of Directors of the Company.

Gerry McClinton is the Chief Financial Officer and Chief Operating Officer of the Company and Capstone.

Reid Goldstein is the President of Capstone.

Jill Mohler is the Secretary of the Company.

22

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

As of March 29, 2010, there were approximately 3300 holders of record (excluding OBO/Street Name accounts) of our Common Stock and 648,632,786 outstanding shares of the Common Stock. We have not previously declared or paid any dividends on our Common Stock and do not anticipate declaring any dividends on our Common Stock in the foreseeable future. The following table shows the high and low bid prices of the Common Stock as quoted on the OTC Bulletin Board, by quarter, during each of our last two fiscal years ended December 31, 2009 and 2008. These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions. The information below was obtained from information provided from the OTC Bulletin Board, for the respective periods.

	2009				2008
	high		low		high		low
1st Quarter		.015		.008		.030		.020
2nd Quarter		.029		.011		.030		.020
3rd Quarter		.017		.010		.030		.020
4th Quarter		.015		.009		.020		.010

First Quarter 2010
(January 1, 2010 to March 19, 2010)
High		Low
	.011		.0076

We changed our name and trading symbol on the OTC Bulletin Board in second fiscal quarter of 2007 from “China Direct Trading Corporation” and CHDT.OB” to “CHDT Corporation” and “CHDO.OB,” respectively We changed our name because we believed that the old name did not accurately reflect the current business and strategy of our company.

Dividend Policy

We have not declared or paid any cash or other dividends on shares of our Common Stock in the last five years, and we presently have no intention of paying any cash dividends on shares of our Common Stock. We do not currently anticipate, based on existing financial performance, to be declaring or paying dividends on any series of our preferred stock in the foreseeable future.  Our current policy is to retain earnings, if any, to finance the expansion and development of our business. The future payment of dividends on shares of our Common Stock will be at the sole discretion of our board of directors, but we do not anticipate declaring or paying any dividends in the foreseeable future due to our need to fund business and product development.

Recent Sales of Unregistered Securities

Except as set forth herein or reported in our Information Statement to be filed within 120 days after the end of our fiscal year ended December 31, 2009, we have no recent sales of unregistered securities that have not been previously reported in filings with the SEC.

23

Item 6.  Management’s Discussion and Analysis of Operation

Management's discussion and analysis provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes. Management's discussion and analysis is divided into subsections entitled “Forward Looking Statements,” “Introduction,” “Results of Operations,” “Liquidity and Capital Resources,” “Critical Accounting Policies,” and “Risk Factors.” Information therein should facilitate a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during 2009 compares with prior years.

Forward Looking Statements

Management’s Discussion and Analysis contains “forward-looking” statements within the meaning of the 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, 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, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

Many economic and other factors outside of our control, including consumer confidence, consumer spending levels, employment levels, consumer debt levels and inflation, as well as the availability of consumer credit, affect consumer spending habits. A significant deterioration in the global financial markets and economic environment, recessions or uncertain economic outlook, could adversely affect consumer spending habits, and can result in lower levels of economic activity. The domestic and international political situation also affects consumer confidence. Any of these events or factors can curtail consumers spending, especially with respect to our more discretionary offers. During fiscal 2009, there was a significant deterioration of global markets and economic environment which negatively impacted consumer spending at retail. If these adverse trends in economic conditions continue to worsen or our efforts to counteract these trends are not sufficiently effective, our revenue would decline, negatively affecting our results of operations.

Consumer concerns about federal spending and federal debt may have also adversely affected consumer spending for our products to the extent such spending and debt creates concern about the future health of the U.S. economy and job market.

While the Company has seen a significant decline in our STP® Hardware and Automotive Line, however this reduction has been partially offset by increased sales in our Lighting Division products. We do not produce “essential” products for basic living requirements and the purchase of our products by consumers are entirely discretionary and prone to deferral by consumers.

24

Introduction

The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for 2009 compared to 2008; and (ii) financial liquidity and capital resources.  This discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this Form 10-K.

We are a developer and manufacturer of niche consumer products selling to distributors and retailers in the United States. Our subsidiary, Capstone currently operates in six primary business:  (1) Portable booklights, specialty flashlights,  multi-task lights and EReader E-Lites (2) Eco-i-Lite power failure lights, (3)C-Lite wireless motion sensor light (4) Light Ringers™ collection of desk lamps and utility lamps  (5) BBIL computer peripheral accessories (6) STP®-branded power tools and automotive accessories.

Our growth strategy has six main elements:

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

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

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

4. Through acquiring businesses that have innovative products that would complement our existing marketing strategies; provided, however, that we have not consummated any such acquisitions during the fiscal year and the low price of our Common Stock may discourage or prevent future acquisitions; and

5. Through acquiring businesses that would allow us to diversify into direct to consumer or commercial-industrial  channels; ; provided, however, that we have not consummated any such acquisitions during the fiscal year and the low price of our Common Stock may discourage or prevent future acquisitions; and

6Seek to expand retail distribution into overseas distribution channels, particularly in South America and Western Europe.

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 contract manufacturer and those products are sold under the name or trade name of the manufacturer’s customers, like retailers, distributors or bulk buyers.

Current Products.   Capstone is engaged in the business of producing the following consumer products, which are, unless indicated otherwise, manufactured for and under the trade name of “Capstone” by contract manufacturers in China, distributed by us and sold through regional and national retailers and distributors in the United States:

(1) Portable Book Lights, Task Lights and EReader E-lite:  In March 2009 the Company launched an expanded new line of booklights and multi-task lights, under the name PATHWAY LIGHTS. This program included the following named products: Mini Taskbright, Multi Taskbright, Poser Taskbright, PawprintTaskbright, Compact 1 Brightbook, Compact 2 Brightbook, Britespot 2 Brightbook, Britespot 3 Brightbook, Multipose Brightbook  These products were offered in various trendy colors. The line was further expanded with the launch of the E-Reader Light, Diva Compact Booklights, the Retro Taskbright and the Minipose Taskbright at the International Housewares Show in March 2010. These LED booklights are small, lightweight and portable and attach to reading materials and illuminate the area of text. They are powered by batteries.

The new EReader E-lite has been specifically designed to provide lighting for the new E-Reader products. The Diva Compact booklight has been designed for consumers that require multi functions. Shaped as a compact case, it is a booklight but also has a mirror.

25

(2) In 2009 the Company also launched The Eco-i-Lite and Mini Eco-i-lite Power Failure Lights. Both use induction charge technology and function as a power failure light, hand held flashlight, and night lite. Each product uses an encased lithium ion battery that when fully charged provides 8 + hours of battery life and LED light bulbs that last 100,000 hours. In March 2010 at the International Housewares Show, the Company expanded the line with the launch of the Midi Eco-i-Light and the Pawprint Line in Full size, Midi and Mini, specifically developed for the dog walking consumers.

(3). In March 2010 at the International Housewares Show, the Company also launched its new C-Lite Wireless Motion Sensor light. This is offered in a 12 LED full size and a 6 LED Mini Size and is powered by AA batteries. These lights provide lighting for dark areas without having to install electrical wiring. The bulb housing rotates 360 degrees to allow for light to be directed where needed. Both versions have a Motion Sensor Circuitry that activates the lights when movement is detected within 13 feet of the C-Lite. Both versions have a Hi and Lo light brightness setting to conserve the batteries. The full size also has a period selector (60 seconds, 90 seconds or 120 seconds) which presets the time period that a light should turn off after the last motion has been detected. Both come with a   slide and snap bracket that allows for the product to be installed on a wall.

(4) In March 2010 the Company officially launched its new line of Light Ringers Lamps. This offer includes the 12 LED Battery Operated Lamp, 12 LED Rechargeable Lamp, 12 LED Solar Lamp and 12 LED AC Lamp also the 20 LED Rechargeable Lamp, 20 LED AC Lamp, 20 LED Metal Lamp and 20 LED Utility Lamp. These products are all offered in trendy colors and unique packaging.

(5) BBI launched its initial products in the second half of fiscal year 2008.  with (1) Personal Pocket Safe®– a portable computer flash memory device that provides pre-formatted fields for easy entry of all personal important records, documents and images and (2) Secret Diary® is a portable computer memory device that works on PC computer systems using as a personal diary --- providing pre-teens and teens with absolute privacy while allowing for complete creativity.  The line was expanded in late 2009 with the introducing of (3) SafeMouse ™.  A mouse that can backup computer files automatically in real time and keep the files securely protected by the same encryption software as the other products. (4)Secure Flash Drive™ was also launched which is a secured storage flash drive.  All of these devices use Datalock™ Pin Protection, Military –grade 256 bit AES Hardware Encryption and Epoxy Coatings that destroys contents upon forced entry.  All of these products were renamed under the “CLASSIFIED” brand and officially relaunched in March 2010 at the International Hardware Show.

Personal Pocket Safe®has the following features: click- Icons identify all of your personal vital categories; enter- preformatted fields allow easy entry of all records and also attach documents, photos, and other images; and view- Quickly view your information on any standard Windows based PC computer system (Vista/XP MicroSoft operating systems), any time, any place. No software installation is required for PC computer systems using Vista or XP by MicroSoft. The encrypted data auto-saves to your Personal Pocket Safe®. When you’re done saving the data, no trace of the software or the data is left behind on the PC computer system.

Secret Diary® has the following features:  Secure - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - -  Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Helpful - PIN replacement assistance and optional registration for Never-Lost, a backup subscription that retains your diary entries in case of loss or theft.

26

SAFEMOUSE™ has the following features:  A mouse that can back up files automatically in real time and keeps the data secured.  - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Helpful - PIN replacement assistance and optional registration for Never-Lost, a backup subscription that retains your diary entries in case of loss or theft.

SECURE FLASH DRIVE™ has the following features:  Secure - Personalized PIN-code and non-removable memory chip foils break-in attempts; Safe - -  Hack-resistant with encryption software; Invisible --“Traceless” in that data entry leaves nothing on the host PC computer; Useful for storing storage files, videos and pictures. Simple - you just add a pin number.

(6)       STP®-Branded Power Tools and Automotive Accessories:  Under an April 2007 licensing agreement with Clorox Company, we have the right to use the trade name STP® on a line of power tools and automotive accessories made for Capstone by Chinese manufacturers and sold by Capstone though its distribution channels in the United States. STP® is a registered trademark of The Armor All/STP Products Company, which is owned by Clorox Company.  Our licensing rights to the STP® trademark require periodic licensing payments to Clorox Company and achievement of certain milestones in sales.  Clorox Company is a Delaware corporation and an SEC reporting company.

A selection of these STP ®-branded products, which are designed for home use and are not contractor-grade tools, are: Screw drivers, power drills, inverters, spot-lights and automotive accessories.  However after initial successes we have been impacted by the continued severe downturn in the retail market especially in the automotive and hardware segments. After exhausting our efforts in this market it is evident that this category will remain severely depressed as a result of the recession and we do not plan to continue marketing this line beyond 2010.

As a small business manufacturer with limited resources, we do not have the resources to compete head-to-head with larger, more established competitors for any of the products.  We face many national or regional brand-named competitors in all of our  product lines. However, 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.

Prior History.  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.

27

Starting in late 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  continued losses  for fiscal year 2009,  but we believe that this investment in corporate infrastructure is necessary to lay the foundation for possible 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, 2009 and 2008, the Company’s revenues were derived from 4 sources: (i) the sale of our PATHWAY LIGHTS 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) the sale of our CLASSIFIED secured computer peripherals; and (iv) sale of our STP® tools power drills and automotive accessories.

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. Our efforts have also been severely hampered by the current economic recession and tight credit markets.

The failure of CHDT to achieve sustained profitability in its operations continues to hamper our efforts to establish and sustain a profitable, growing business or cause any appreciation in our Common Stock market price.  In fiscal year 2009, 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 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 huge 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.

28

We intend to address the above problems in public and market maker support for our Common Stock by: (1) establishing  revenue growth   in our current consumer product business lines 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 our core consumer product line or another non retail product line that offers entry into a new distribution channel or niche market.  We can make no assurances that we shall succeed in this effort.

We intend to remain focused on niche consumer products for the time being 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 also recognize that the retail distribution has been negatively impacted by the ongoing economic recession. We intend to continue to develop exciting new products by internal efforts as well as acquire new products by mergers and acquisitions, but we will also look for opportunities by merger and acquisitions that would allow us to diversify into non retail distribution channels.  Nonetheless, our company is also considering a number of options to enhance shareholder value, including, without limitation, new business lines, divesting one or more existing business lines, and mergers and acquisitions.

Results of Operations: For the year ended December 31, 2009, the Company had a net loss from continuing operations of approximately $1,099,000. For the year ended December 31, 2008 the Company had a net loss from operations of $1,338,000. That is a net loss decrease of $239,000 over 2008 results.

Total Net Revenues: For the year ended December 31, 2009 and 2008, the Company had total net sales of approximately $6,161,000 and $6,616,000, respectively, for an decrease of $455,000 which represents an 6.8% decrease over 2008 revenue. All of the revenues were generated by Capstone.  The economic recession had a particularly severe impact in the Hardware and Automotive categories as these products are not deemed necessities by consumers.  The major reason for the total revenue reduction is attributed to $1,524,000 reduced sales for the STP® tools products. In 2009 STP® tools sales were $86,000 as compared to $1,610,000 in 2008, This large reduction was partially offset by increased sales in our Eco-i-Lite, PATHWAY LIGHTS and Black Box Innovations product lines.

Cost of Sales: For the year ended December 31, 2009 and 2008, we had cost of sales of approximately $4,350,000 and $4,589,000, respectively. This cost represents 70.4% and 69.4% respectively of total Revenue. Overall material costs have remained steady during the year, but we provided additional sales allowances to promote our new items that have increased overall cost of sales. As a percentage of Total Net Revenue costs have increased by 1 %.

Gross Profit: For 2009, gross profit was $1,811,000, a reduction by approximately $215,000 or 10.6% from 2008.  For 2008, gross profit was $2,026,000.  Gross profit as a percentage of sales was 29.4% for the year as compared to 30.6% for 2008. The gross profit decrease is the result of the added sales allowance offered to promote the new product launches and less sales.

Our larger customers are continuing to buy 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.

Operating expenses were $2,645,000 in 2009 as compared to $3,075,000, a net reduction of $430,000 or 14%. This reduction can be attributed to various factors.   Sales and Marketing expenses were $355,000, a reduction of $202,000 or 36% over the $557,000 expensed in 2008.

29

Product Development expenses were $198,000 an increase of $178,000 over $20,000 expensed in 2008. This represents an investment in new product designs and concepts for possible new revenue growth.

Compensation for 2009 was $1,283,000, a reduction of $310,000 or 19.4% from $1,593,000 in 2008.

Professional Fees were $265,000 in 2009, an increase of $44,000 as compared to $221,000 in 2008. We have incurred additional professional services to assist in developing our overseas markets.

Depreciation and Amortization expenses were $230,000, an increase of $53,000 or 30% over the $177,000 expensed in 2008. This represents the depreciation and amortization of the cost of investing in new moulds and product packaging for the new product releases, including the Eco-i-Lite programs, PATHWAY LIGHTS Booklights and Classified computer peripherals. This represents another investment for possible future revenue growth.

Other Income (Expense):Interest Expenses for 2009 was $266,000 a decrease of $25,000 or 8.6% over $291,000 expensed in 2008. Even though we achieved an expense reduction, mainly through better terms with some of our overseas manufacturers, we have incurred a significant cost to fund our business transactions.

Net/Income (Loss):

The Loss for 2009 was $1,099,000 against a Loss of $1,338,000 for 2008, a  loss reduction of $239,000 or  17.8%. The economic downturn had a major impact on our overall financial results.  Some major retailers delayed their programs until 2010 which also impacted our revenue growth in 2009. The poor performance of our STP® tools category with a $1.5 million revenue shortfall compared to 2008 has over shadowed the positive revenue growth in our Eco-i-Lite and PATHWAY LIGHTS programs. We have been successful in reducing expenses to offset revenue shortfalls but at the same time we have continued to invest in new product concepts and moulds as investments for possible future growth.

Item 7:  Financial Statements

The financial statements and financial statement schedules of CHDT as well as supplementary data are listed in Item 13 below and included after the signature page to this report of Form 10-K.

Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

There are not and have not been any disagreements between the Company and its accountants on any matter of accounting principles, practices, financial statements disclosure or auditing scope or procedure.

Item 8A (T).  Evaluation of Disclosure Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures. Since 2009 our Chief Financial Officer, assisted by the Corporate Controller, is responsible for establishing and maintaining adequate internal disclosure control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company.  Since December 2007, our Chief Financial Officer, often assisted by the Chief Operating Officer, has been responsible for establishing and maintaining adequate internal disclosure control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

30

As of the date of this Report on Form 10-K, Stewart Wallach is our Chief Executive Officer, and James Gerald (“Gerry’) McClinton is our Chief Financial Officer and Chief Operating Officer. Mr. Laurie Holtz our previous Chief Financial Officer retired in 2009.  Laurie Holtz was appointed as our Chief Financial Officer in December 2007.  Mr. McClinton handled the chief financial duties prior to Mr. Holtz’s appointment.

Our Chief Financial Officer has reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) and internal control over financial reporting (as defined in Securities Exchange Act of 1934, as amended, Rules 13a-15(f) and 15d-15(f)) as of the fiscal year end of this Form 10-K.

Management’s Annual Report on Internal Control over Financial Reporting.  No matter how well conceived and operated, an internal control system can provide only a certain level of confidence in the ability of the internal controls to identify errors.  In light of the inherent limitations in all internal control systems and procedures, and the limitations of the Company's resources, no evaluation of internal controls can provide absolute assurance that all defects or errors in the operation of our internal control systems are immediately identified.  These inherent limitations include the realities that subjective judgments in decision-making in this area can be faulty and that a breakdown in internal processes can occur because of simple, good faith error or mistake.  No design can in all instances immediately accommodate changes in regulatory requirements or changes in the business and financial environment of a company.  Such inherent limitations in a control system means that inadvertent misstatements due to error or fraud may occur and not be immediately or in a timely manner detected.  Nonetheless, we recognize our ongoing obligation to use our best efforts to design and apply internal   controls and procedures that are as effective as possible in identifying errors or breakdowns in the internal controls system and procedures.

The framework for our evaluation of the adequacy of our internal disclosure controls and procedures comes from our use of CCH, Inc.’s 2007 SOX for Small, Publicly Held Companies and applicable accounting standards and guidelines as supplemented by guidance from outside legal and accountant advice.

We believe our internal disclosure controls and procedures are effective as of the filing of this Report on Form 10-K in providing reasonable assurances that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

This annual report does not include an attestation report of CHDT’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by CHDT’s registered public accounting firm pursuant to temporary rules of the Commission that permit CHDT to provide only management’s report in this annual report on Form 10-K.

31

Part III

Item 9.  Directors and Executive Officers of the Registrant.

Directors and Executive Officers.  Information regarding our directors and executive officers is incorporated by reference to the section entitled "Election of Directors” appearing in our Information Statement for our Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the "Commission") within 120 days after the end of our year ended December 31, 2009.

Item 10.  Executive Compensation.

Information   regarding executive   compensation is incorporated by reference   to the   information   set forth under the caption   "Executive Compensation” in our Information Statement to be filed with the Commission within 120 days after the end of our year ended December 31, 2009.

Item 11.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management Ownership" in our Information Statement to be filed with the Commission within 120 days after the end of our year ended December 31, 2009.

Item 12. Certain Relationships and Related Transactions, Director Independence; Potential Conflicts of Interest.

Information regarding certain relationships and related transactions is incorporated by reference to the information set forth under the caption "Certain Relationships and Related Transactions" in our Information Statement to be filed with the Commission within 120 days after the end of our year ended December 31, 2009.

Item 13.  Exhibits, and Reports on Form 8-K

(a) The following documents are filed as part of this report.

1. FINANCIAL STATEMENTS

PAGE
F-1	Report of Independent Registered Public Accountants
F-2	Consolidated Balance Sheets as of December 31, 2009, and 2008
F-4	Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
F-5	Consolidated Statement of Stockholders' Equity For the Years Ended December 31, 2009 and 2008
F-7	Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
F-9	Notes to Consolidated Financial Statements

2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedules required by Regulation S-X are included herein.  All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

32

3. 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. +++
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	2008 Employment Agreement by James Gerald (Gerry) McClinton and 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^^
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 Laurie Holtz, Chief Financial Officer^
31.3	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Gerry McClinton, 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 Laurie Holtz, Chief Financial Officer^
32.3	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Gerry McClinton, 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.

^^ Filed as an exhibit to the Form 10-K for the fiscal year ending December 31, 2007.

^ Filed Herein.

33

(b) Reports on Form 8-K filed.

The following reports were filed during the last quarter of the 2009 fiscal year:  November 10, 2009; November 17, 2009’ Amendment on November 18, 2009; and December 17, 2009.

Item 14.  Principal Accountant Fees & Services

The following is a summary of the fees billed to us by Robison, Hill & Company for professional services rendered for the years ended December 31, 2009 and 2008:

	2009		2008
Audit Fees	$	55,008	$	57,751
Audit-Related Fees		-		-
Tax Fees		2,498		2,240
All Other Fees		-		-
Total	$	57,506	$	59,991

Audit Fees.  Consists of fees billed for professional services rendered for the audits of our consolidated financial statements, reviews of our interim consolidated financial statements included in quarterly reports, services performed in connection with filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by Robison, Hill & Company in connection with statutory and regulatory filings or Engagements.

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning.  These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.

AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

The Audit Committee is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation.  Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount.  The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

The Audit Committee pre-approved 100% of the Company's 2009 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after the effective date of the Securities and Exchange Commission’s final pre-approval rules.

34

In accordance with Section 13 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 30th day of March 2010.

CHDT CORPORATION

Dated:   March 30, 2010

By

/S/ Stewart Wallach

Chief Executive Officer and Director

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of CHDT Corporation and in the capacities and on the dates indicated.

/s/ Stewart Wallach

Stewart Wallach

Principal Executive Officer

Director and Chief Executive Officer

March 30, 2010

/s/ Laurie Holtz

Laurie Holtz

Director

March 30, 2010

/s/ Gerry McClinton

Gerry McClinton

Chief Financial Officer

Chief Operating Officer and Director

March 30, 2010

/s/ Howard Ullman

Howard Ullman

Chairman of the Board of Directors

March 30, 2010

/s/ Jeffrey Guzy

Jeffrey Guzy

Director

March 30, 2010

/s/ Jeffrey Postal

Jeffrey Postal

Director

March 30, 2010

/s/ Larry Sloven

Larry Sloven

Director

March 30, 2010

35

CHDT CORPORATION

AND SUBSIDIARIES

-:-

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS’ REPORT

DECEMBER 31, 2009 AND 2008

CONTENTS

	Page
Report of Independent Registered Public Accountants	F - 1
Consolidated Balance Sheets
December 31, 2009 and 2008	F - 2
Consolidated Statements of Operations for the
Years Ended December 31, 2009 and 2008	F - 4
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 2009 and 2008	F - 5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2009 and 2008	F - 6
Notes to Consolidated Financial Statements	F - 8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders

CHDT Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of CHDT Corporation and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CHDT Corporation and Subsidiaries as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

_/s/ Robison, Hill & Co.____

Certified Public Accountants

Salt Lake City, Utah

March 30, 2010

F - 1

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
Assets:
Current assets:
Cash	$	266,867		$	156,371
Accounts receivable - net		1,341,883			2,399,859
Inventory		397,908			387,749
Prepaid expense		57,076			83,846
Total Current Assets		2,063,734			3,027,825
Fixed assets:
Computer equipment & software		63,448			60,648
Machinery and equipment		461,146			408,429
Furniture and fixtures		5,665			5,665
Less: Accumulated Depreciation		(353,854	)		(219,894	)
Total Fixed Assets		176,405			254,848
Other non-current assets:
Product development costs, net		44,756			103,700
Goodwill		1,936,020			1,936,020
Deposits		15,000			15,000
Total other non-current assets		1,995,776			2,054,720
Total assets	$	4,235,915		$	5,337,393

F - 2

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

	December 31,
	2009			2008
Liabilities and Stockholders’ Deficit:
Current liabilities:
Accounts payable and accrued expenses	$	306,196		$	1,824,295
Note payable – Sterling Bank		1,277,151			722,547
Notes and loans payable to related parties - current maturities		1,198,288			1,185,407
Total current liabilities		2,781,635			3,732,249
Total Liabilities		2,781,635			3,732,249
Stockholders' Equity:
Preferred Stock, Series A, par value $.001 per share
Authorized 100,000,000 shares,
Issued -0- shares at December 31, 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 December 31, 2009
and 2,108,813 at December 31, 2008		-			210,882
Preferred Stock, Series B-1, par value $..0001 per share
Authorized 50,000,000 shares,
Issued -0- shares at December 31, 2009 and 2008		-			-
Preferred Stock, Series C, par value $1.00 per share
Authorized 1,000 shares, issued 1,000 shares at
December 31, 2009 and -0- at December 31, 2008		1,000			-
Common Stock, par value $.0001 per share
Authorized 850,000,000 shares,
Issued 648,632,786 shares at December 31, 2009
and 557,941,646 shares at December 31, 2008		64,863			55,794
Related party receivable		(40,441	)		(40,441	)
Additional paid-in capital		6,734,720			5,585,702
Accumulated deficit		(5,305,862	)		(4,206,794	)
Total Stockholders' Equity		1,454,280			1,605,144
Total Liabilities and Stockholders’ Equity	$	4,235,915		$	5,337,393

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

F - 3

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2009			2008
Revenues	$	6,161,367		$	6,616,330
Cost of Sales		(4,350,019	)		(4,589,636	)
Gross Profit		1,811,348			2,026,694
Operating Expenses:
Sales and marketing		355,480			557,027
Product development		198,134			19,908
Compensation		1,283,262			1,593,349
Professional fees		265,434			221,831
Depreciation and amortization		230,048			177,186
Other General and administrative		312,162			506,405
Total Operating Expenses		2,644,520			3,075,706
Net Operating Income (Loss)		(833,172	)		(1,049,012	)
Other Income (Expense):
Interest expense		(266,132	)		(291,133	)
Interest income		179			1,409
Miscellaneous income		57			-
Total Other Income (Expense)		(265,896	)		(289,724	)
Net Income (Loss)	$	(1,099,068	)	$	(1,338,736	)
Income (Loss) per Common Share	$	-		$	-
Weighted average shares outstanding		563,178,018			559,844,813

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

F - 4

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2009 AND 2008

	Preferred Stock						Preferred Stock						Preferred Stock										Additional
	Series A						Series B						Series C				Common Stock						Paid-In			Retained
	Shares			Par Value			Shares			Par Value			Shares		Par Value		Shares			Par Value			Capital			Deficit
Balance at January 1, 2008		6,560		$	7			1,358,738		$	135,874			-	$	-		599,745,646		$	59,975		$	5,034,527		$	(2,868,058	)
January 2008 – Common shares converted
to Preferred Series B shares		-			-			750,075			75,008			-		-		(50,000,000	)		(5,000	)		(70,008	)		-
February 2008 – Shares issued for accrued
directors’ fees		-			-			-			-			-		-		1,584,000			158			39,842			-
February 2008 – Preferred Series A shares
converted to common shares		(6,500	)		(6	)		-			-			-		-		6,500,000			650			(644	)		-
March 2008 – Common shares issued for
consulting fees		-			-			-			-			-		-		112,000			11			2,489			-
Stock options for compensation		-			-			-			-			-		-		-			-			523,121			-
Stock warrants for interest expense		-			-			-			-			-		-		-			-			56,375			-
Net Loss		-			-			-			-			-		-		-			-			-			(1,338,736	)
																											-
Balance at December 31, 2008		60			1			2,108,813			210,882			-		-		557,941,646			55,794		$	5,585,702		$	(4,206,794	)
February 2009 – Common shares issued
for consulting fees		-			-			-			-			-		-		2,100,000			210			20,790			-
Series B Preferred Shares returned to
treasury and cancelled		-			-			(779,813	)		(77,982	)		-		-		-			-			77,982			-
Series A Preferred Shares returned to
treasury and cancelled		(60	)		(1	)		-			-			-		-		-			-			1			-
Series B Preferred Shares converted
to common shares		-			-			(1,329,000	)		(132,900	)		-		-		88,591,140			8,859			124,041			-
Series C Preferred Shares issued for cash		-			-			-			-			1,000		1,000		-			-			699,000
Stock options for compensation		-			-			-			-			-		-		-			-			227,204			-
Net Loss		-			-			-			-			-		-		-			-			-			(1,099,068	)
Balance at December 31, 2009		-		$	-			-		$	-			1,000	$	1,000		648,632,786		$	64,863		$	6,734,720		$	(5,305,862	)

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

F - 5

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended
	December 31,
	2009			2008
CASH FLOWS FROM OPERATING
ACTIVITIES:
Continuing operations:
Net Income (Loss)	$	(1,099,068	)	$	(1,338,736	)
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Interest expense from stock warrants		-			56,376
Stock issued for accrued expenses		-			40,000
Stock issued for expenses		21,000			2,500
Depreciation and amortization		230,048			177,187
Compensation expense from stock options		227,204			523,123
(Increase) decrease in accounts receivable		1,057,976			(1,048,212	)
(Increase) decrease in inventory		(10,159	)		(54,565	)
(Increase) decrease in prepaid expenses		26,770			(60,515	)
(Increase) decrease in other assets		(37,142	)		(95,888	)
(Increase) decrease in shareholder receivable		-			(40,441	)
Increase (decrease) in accounts payable and accounts payable		(1,518,099	)		1,222,348
Increase (decrease) in accrued interest on notes payable		12,880			3,174
Net cash used in operating activities		(1,088,590	)		(613,349	)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment		(55,518	)		(158,232	)
Net cash provided by (used) investing activities		(55,518	)		(158,232	)

F - 6

CHDT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

	For the Years Ended
	December 31,
	2009		2008
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of stock	$	700,000	$	-
Proceeds from notes and loans payable to related parties		-		650,000
Repayments of notes and loans payable to related parties		-		(697,000	)
Proceeds from line of credit		554,604		717,450
Net Cash Provided by Financing Activities		1,254,604		670,450
Net (Decrease) Increase in Cash and Cash Equivalents		110,496		(101,431	)
Cash and Cash Equivalents at Beginning of Period		156,371		257,802
Cash and Cash Equivalents at End of Period	$	266,867	$	156,371

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	242,718	$	213,897
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.

F - 7

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.

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.

F - 8

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.

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 December 31, 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 $397,908 and $387,749 at December 31, 2009 and  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

F - 9

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 $133,961 and $111,989 for the years  ended December 31, 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, 2009, whereas the fair value of the intangible asset exceeds its carrying amount.

F - 10

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 years ended December 31, 2009 and 2008 are not presented as it would be anti-dilutive.  At December 31, 2009 and 2008, the total number of potentially dilutive common stock equivalents was 140,830,211 and 203,295,071, respectively.

Principles of Consolidation

The consolidated financial statements for the years ended December 31, 2009 and 2008 include the accounts of the parent entity and its wholly-owned subsidiaries 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.

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments, including accounts receivable, accounts payable and accrued liabilities at December 31, 2009 and 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.

F - 11

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 $176,101 and $103,651 for the years  ended December 31, 2009 and 2008, respectively.

Shipping and Handling

The Company’s shipping and handling costs, incurred by Capstone amounted to $72,301 and $70,379 for the years ended December 31, 2009 and 2008, respectively.

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).

F - 12

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 year ended December 31, 2009, the Company recognized compensation expense of $156,557 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 year ended December 31, 2009, the Company recognized compensation expense of $10,869 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 year ended December 31, 2009, the Company recognized compensation expense of $6,648 related to these options.

F - 13

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 year ended December 31, 2009, the Company recognized compensation expense of $2,603 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 year ended December 31, 2009, the Company recognized compensation expense of $7,862 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 year ended December 31, 2009, the Company recognized compensation expense of $42,663 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 year ended December 31, 2009 included $21,000 for consulting fees.  Stock-based compensation expense for the year ended December 31, 2008 included $2,500 for consulting fees.

Recent Accounting Standards

In April 2009, the FASB updated ASC 820 to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have decreased significantly. ASC 820 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The implementation of ASC 820 did not have a material effect on the Company’s financial statements.

In April 2009, the FASB updated ASC 825 regarding interim disclosures about fair value of financial instruments.  ASC 825 requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The implementation of ASC 825 did not have a material effect on the Company’s financial statements.

In April 2009, the FASB updated ASC 320 for proper recognition and presentation of other-than-temporary impairments.  ASC 320 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities.  The implementation of ASC 320 did not have a material effect on the Company’s consolidated financial statements.

F - 14

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In June 2009, the FASB created the Accounting Standards Codification, which is codified as ASC 105.  ASC 105 establishes the codification as the single official non-governmental source of authoritative accounting principles (other than guidance issued by the SEC) and supersedes and effectively replaces previously issued GAAP hierarchy framework.  All other literature that is not part of the codification will be considered non-authoritative.  The codification is effective for interim and annual periods ending on or after September 15, 2009.  The Company has applied the codification, as required, beginning with the 2009 Form 10-K.  The adoption of the codification did not have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2009, the FASB updated ASC 855, which established principles and requirements for subsequent events.  This guidance details the period after the balance sheet date which the Company should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events.  ASC 855 is effective for interim and annual periods ending after June 15, 2009.  The implementation of ASC 855 did not have a material effect on the Company’s financial statements.

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2009-13 (ASU 2009-13), which provided an update to ASC 605.  ASU 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting in multiple-deliverable arrangements. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact that this update will have on its 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 December 31, 2009, the Company had no cash in excess of FDIC limits.

F - 15

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, 2009 and 2008.  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
	2009			2008			2009		2008
Customer A		41	%		44	%	$	2,500	$	1,742,135
Customer B		24	%		22	%		-		614,384
Customer C		23	%		15	%		1,305,821		21,773
		88	%		81	%	$	1,308,321	$	2,378,292

Major Vendors

The Company had four vendors from which it purchased at least ten percent (10%) of merchandise during the fiscal year ended December 31, 2009 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
	2009			2008			2009		2008
Vendor A		36	%		52	%	$	-	$	169,997
Vendor B		25	%		31	%		2,524		969,741
Vendor C		17	%		14	%		12,688		-
Vendor D		10	%		-			75,525		-
		88	%		97	%	$	90,737	$	1,139,738

F - 16

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 31, 2009 and 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, 2010 and carries an interest rate of 8% per annum.  At December 31, 2009 and 2008, the total amount payable on this note was $250,000 and $254,932, respectively.

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 December 31, 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 was due on December 31, 2007.  In December 2008, the Company borrowed an additional $75,000 from this director.  At December 31, 2009, the total amount payable on this loan was $202,263, including interest of $24,263.  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.

F - 17

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 December 31, 2009 and 2008 was $1,198,288 and $1,185,407, respectively, including accrued interest of $24,263 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,
2010	$1,198,288
2011	-
2012	-
2013	-
2014	-
Total future maturities	$1,198,288

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 December 31, 2009 and 2008, there was $1,277,151 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 $121,263 (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.

On February 19, 2010, the Company entered into a loan modification agreement with Sterling National Bank, whereby the maturity date of the loan was extended from May 1, 2010 to February 19, 2012.

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.  This loan was paid in full in November 2009.

F - 18

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – PURCHASE ORDER ASSIGNMENT-FUNDING AGREEMENT (continued)

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.  This loan was paid in full in November 2009.

On June 16, 2009, Capstone Industries, Inc. received a $100,000 loan from Examsoft Worldwide.  The loan was 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.

Stewart Wallach, the Company’s Chief Executive Officer and President, was a director of Examsoft Worldwide until November 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 $4,390 per month.

Rental expense under these leases was approximately $52,684 and $51,809 for the years ended December 31, 2009 and 2008, respectively.

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.  As part of the agreement, Mr. Wallach will receive a minimum increase of 5% per year.  For 2009, Mr. Wallach was paid $236,250, and for 2010, Mr. Wallach will be paid $247,500.  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.  As part of the agreement, Mr. McClinton will receive a minimum increase of 5% per year.  For 2009, Mr. McClinton was paid $157,500 and for 2010 Mr. McClinton will be paid $165,000.  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 2010 as follows: $187,500 payable in 2010.  Future guaranteed minimum royalty payments are as follows:

		Guaranteed Minimum
Year		Royalty Payments
2010	$	187,500
	$	187,500

F - 19

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

F - 20

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

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.

In December 2009, the remaining 1,329,000 shares of the new Series B-1 Preferred Shares were converted into 88,591,140 shares of common stock.

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.

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.

F - 21

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, 2009 and 2008, the Company recognized compensation expense of $10,869 and $25,131 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.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2009 and 2008, the Company recognized compensation expense of $156,557 and $405,198 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 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, 2009 and 2008, the Company recognized compensation expense of $6,648 and $7,978 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

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

F - 22

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 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 years ended December 31, 2009 and 2008, the Company recognized compensation expense of $2,603 and $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

On May 1, 2008, the Company granted 850,000 stock options to an 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 years ended December 31, 2009 and 2008, the Company recognized compensation expense of $7,862 and $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 $2,620 in 2010 related to these stock options.

On June 8, 2009, the Company granted 4,500,000 stock options to four directors 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. For the years ended December 31, 2009, the Company recognized compensation expense of $42,663 related to these options.  The following assumptions were used in the fair value calculations:

Risk free rate – 1.42%

Expected term – 2  years

Expected volatility of stock – 500.5%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company will recognize compensation expense of $33,837 in 2010 related to these stock options.

F - 23

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK TRANSACTIONS (continued)

The following table sets forth the Company’s stock options outstanding as of December 31, 2009 and 2008 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		4,500,000		0.029
Exercised		-		-				-
Forfeited/expired		-		-
Outstanding, December 31, 2009		68,933,333	$	0.028		8.64	$	-
Vested/exercisable at December 31, 2008		43,102,777	$	0.028		8.68	$	-
Vested/exercisable at December 31, 2009		57,266,667	$	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	8	$.029	48,241,677
$.029	3,000,000	9	$.029	3,000,000
$.029	700,000	10	$.029	700,000
$.029	1,000,000	9	$.029	1,000,000
$.029	150,000	9	$.029	150,000
$.029	2,000,000	0.08	$.029	2,000,000
$.027	1,500,000	0.08	$.027	1,500,000
$.029	850,000	10	$.029	425,000
$.029	4,500,000	2	$.029	-

F - 24

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.

F - 25

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, 2009, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $3,900,000 that may be offset against future taxable income through 2029. 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.

	2009			2008
Net Operating Losses	$	799,500		$	554,500
Valuation Allowance		(799,500	)		(554,500	)
	$	-		$	-

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

	2009			2008
Provision (Benefit) at US Statutory Rate	$	(205,000	)	$	(139,810	)
Increase (Decrease) in Valuation Allowance		205,000			139,810
	$	-		$	-

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.

F - 26

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - INCOME TAXES (continued)

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, 2009 and 2008.  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 2006. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2009:

United States (a)	2006 – 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”).   The parties settled this case on February 18, 2010.  A summary of the settlement is below. A stipulation withdrawing the plaintiff's appeal in the Celeste case was filed with and accepted by the court on February 8, 2010, which filing effectively ended the litigation in the Celeste case. 

The settlement and release provides a mutual, general release of all claims that plaintiffs and Company may have against each other as the date of the release, including any causes of action or claims under the Celeste case and any related proceedings.  The settlement provides, in part, that: (1) the parties will seek a court order dismissing the Celeste case; (2) the parties will release each other from any and all claims and causes of action in or related to the Celeste case or the pending appeal to the U.S. Circuit Court for the Second Circuit;  (3) the plaintiffs will pay $100,000 towards the Company’s legal fees incurred in the Celeste case; (4) the Company will support the release of shares of Company Common Stock, $0.0001 par value per share, (“Common Stock”) owned of record by Networkland, Inc., a Virginia corporation, (“NET”) and Technet Computer Services, Inc., a Virginia corporation, (“TECH”) to the plaintiffs or their designees (each such block of Common Stock was sought by the plaintiffs in the Celeste case as part of their claims against the Company (collectively, said shares of Common Stock held of record by NET and TECH being referred to as the “N&T Shares”));  (5) the issuance of 350,000 shares of Common Stock owned by Howard Ullman, a director of the Company, to the plaintiffs or their designees; and (6) the granting by Mr. Ullman of a five year option to purchase 20 million shares of Common Stock owned by Mr. Ullman to the plaintiffs or their designees, which option has an exercise price of $0.029 per share.  Under the proposed settlement agreement and release, the Company will grant piggy-back registration rights to the option and underlying shares of Common Stock referenced in (6) above, which rights will be effective after June 1, 2010.  The Company will pay all registration fees and legal costs associated with any such registration, which are currently estimated to be approximately $3,000 to $5,000.

The settlement and release, which consists of a settlement agreement and release and option agreement by Mr. Ullman, was negotiated by Mr. Ullman on behalf of the Company with the plaintiffs. Mr. Ullman has provided case administration of the Celeste case for the Company.

The Company believes that the settlement and release is in the best interests of the Company and its public shareholders because (1) it will, when effective, eliminate the possibility of an adverse ruling by the U.S. Court of Appeals for the Second Circuit on the plaintiffs’ appeal, which adverse ruling could potentially impose a significant liability on the Company; and (2) the continuation of the Celeste case may discourage potential investors and funding sources from assisting the Company in financing operations and business development as well as make it more difficult to pursue any possible future merger and acquisition transactions.

F - 27

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – CONTINGENCIES (continued)

The Company’s board of directors approved the general terms of the settlement and release on February 1, 2010, but approval and execution of all documents necessary to reaching a settlement and release was not achieved until the February 18, 2010 signing of the option granted by Mr. Ullman.  A copy of the settlement agreement and release and the option granted by Mr. Ullman are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to the Form 8-K, dated February 19, 2010 and filed by the Company with the Commission on February 22, 2010).  The above summary of the settlement agreement and release and option are qualified in its entirety by reference to the proposed settlement agreement and release as attached as Exhibit 99.1 and the option attached as Exhibit 99.2 to the aforesaid Form 8-K report.

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 – INTANGIBLE ASSETS

At December 31, 2009, the Company had capitalized $206,042 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 year ended December 31, 2009, the Company capitalized an additional $37,142 related to packaging artwork and design costs and recognized amortization expense of $96,087 during the year.  At December 31, 2009 and 2008, the net amount of the intangible asset was $44,756 and $103,700, respectively.

NOTE 13 – SUBSEQUENT EVENTS

The Company adopted ASC 855, and has evaluated all events occurring after December 31, 2009, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through March 30, 2010, which is the date on which the financial statements were issued.  The Company has concluded that there are no significant or material transactions to be reported for the period from January 1, 2010 to March 30, 2010, other than what was reported in Note 11.

F - 28