UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2008








o 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 or organization)
            (I.R.S.
      Employer Identification No.)





350 Jim Moran Boulevard, Suite 120, Deerfield
      Beach, Florida  33442(Address
      of principal executive offices)





(954) 252-3440(Issuer’s
      Telephone Number)





Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.xYesoNo





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




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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No





APPLICABLE
ONLY TO CORPORATE ISSUERS




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practical date.  As of September 30, 2008, there were
557,941,646 shares of the issuer's $.0001 par value common stock issued and
outstanding.




1









PART
I - FINANCIAL INFORMATION





Item 1.  Financial
Statements





CHDT
      CORPORATION AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS(Unaudited)September
      30,
              
              
              December
      31,2008
              
              
              2007Assets:Current
      assets:Cash
              
              $
              250,154
              
              
              $
              257,802Accounts
      receivable - net
              
              
              2,331,821
              
              
              
              1,351,648Inventory
              
              
              695,843
              
              
              
              333,184Prepaid
      expense
              
              
              32,271
              
              
              
              23,331Total
      Current Assets
              
              
              3,310,089
              
              
              
              1,965,965Fixed
      assets:Computer
      equipment & software
              
              
              59,646
              
              
              
              45,685Machinery
      and equipment
              
              
              402,600
              
              
              
              276,408Furniture
      and fixtures
              
              
              5,665
              
              
              
              5,665Less:
      Accumulated Depreciation
              
              
              (195,160
              )
              
              
              (119,154
              )Total
      Fixed Assets
              
              
              272,751
              
              
              
              208,604Other
      non-current assets:Product
      development costs - net
              
              
              118,352
              
              
              
              73,012Goodwill
              
              
              1,936,020
              
              
              
              1,936,020Deposits
              
              
              16,793
              
              
              
              15,000Total
      other non-current assets
              
              
              2,071,165
              
              
              
              2,024,032Total
      assets
              
              $
              5,654,005
              
              
              $
              4,198,601





2




CHDT
      CORPORATION AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS(Continued)(Unaudited)September
      30,
              
              
              December
      31,2008
              
              
              2007Liabilities
      and Stockholders’ Deficit:Current
      liabilities:Accounts
      payable and accrued expenses
              
              $
              2,332,940
              
              
              $
              601,946Customer
      deposits
              
              
              -
              
              
              
              -Notes
      and loans payable to related parties - current maturities
              
              
              572,973
              
              
              
              688,305Total
      current liabilities
              
              
              2,905,913
              
              
              
              1,290,251Non-current
      liabilitiesNote
      payable - Sterling Bank
              
              
              439,830
              
              
              
              -Notes
      and loans payable to related parties
              
              
              546,025
              
              
              
              546,025Total
      non-current liabilities
              
              
              985,855
              
              
              
              546,025Total
      Liabilities
              
              
              3,891,768
              
              
              
              1,836,276Stockholders'
      Deficit:Preferred
      Stock, Series A, par value $.001 per shareAuthorized
      100,000,000 shares,Issued
      60 at September 30, 2008and
      6,560 shares at December 31, 2007
              
              
              1
              
              
              
              7Preferred
      Stock, Series B, par value $.10 per shareAuthorized
      100,000,000 shares,Issued
      2,108,813 at September 30, 2008and
      1,358,738 at December 31, 2007
              
              
              210,882
              
              
              
              135,874Common
      Stock, par value $.0001 per shareAuthorized
      600,000,000 shares,Issued
      557,941,646 shares at September 30, 2008and
      599,745,646 shares at December 31, 2007
              
              
              55,794
              
              
              
              59,975Additional
      paid-in capital
              
              
              5,440,097
              
              
              
              5,034,527Accumulated
      deficit
              
              
              (3,944,537
              )
              
              
              (2,868,058
              )Total
      Stockholders' Deficit
              
              
              1,762,237
              
              
              
              2,362,325Total
      Liabilities and Stockholders’ Deficit
              
              $
              5,654,005
              
              
              $
              4,198,601The
      accompanying notes are an integral part of these financial
      statements.


3




CHDT
      CORPORATION AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)
              
              
              (Unaudited)For
      the Three Months Ended
              
              
              For
      the Nine Months EndedSeptember
      30,
              
              
              September 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues
              
              $
              3,021,926
              
              
              $
              814,687
              
              
              $
              4,290,702
              
              
              $
              1,415,165Cost
      of Sales
              
              
              (2,068,727
              )
              
              
              (456,918
              )
              
              
              (2,884,438
              )
              
              
              (803,777
              )Gross
      Profit
              
              
              953,199
              
              
              
              357,769
              
              
              
              1,406,264
              
              
              
              611,388Operating
      Expenses:Sales
      and marketing
              
              
              9,333
              
              
              
              10,629
              
              
              
              79,743
              
              
              
              33,775Compensation
              
              
              378,946
              
              
              
              409,435
              
              
              
              1,199,921
              
              
              
              679,994Professional
      fees
              
              
              37,051
              
              
              
              53,426
              
              
              
              117,567
              
              
              
              162,619Consulting
              
              
              22,600
              
              
              
              12,700
              
              
              
              75,930
              
              
              
              87,700Other
      General and administrative
              
              
              357,886
              
              
              
              187,433
              
              
              
              862,060
              
              
              
              452,831Total
      Operating Expenses
              
              
              805,816
              
              
              
              673,623
              
              
              
              2,335,221
              
              
              
              1,416,919Net
      Operating Income (Loss)
              
              
              147,383
              
              
              
              (315,854
              )
              
              
              (928,957
              )
              
              
              (805,531
              )Other
      Income (Expense):Debt
      forgiveness
              
              
              -
              
              
              
              79,000
              
              
              
              -
              
              
              
              79,000Miscellaneous
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              750Interest
      expense
              
              
              (84,196
              )
              
              
              (41,464
              )
              
              
              (148,699
              )
              
              
              (93,689
              )Interest
      income
              
              
              394
              
              
              
              10,554
              
              
              
              1,177
              
              
              
              27,744Total
      Other Income (Expense)
              
              
              (83,802
              )
              
              
              48,090
              
              
              
              (147,522
              )
              
              
              13,805Net
      Income (Loss)
              
              $
              63,581
              
              
              $
              (267,764
              )
              
              $
              (1,076,479
              )
              
              $
              (791,726
              )Income
      (Loss) per Common Share
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Weighted
      average shares outstanding
              
              
              557,941,646
              
              
              
              569,920,650
              
              
              
              560,476,479
              
              
              
              558,422,786The
      accompanying notes are an integral part of these financial
      statements.


4




CHDT
      CORPORATION AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)For
      the Nine Months EndedSeptember
      30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Continuing
      operations:Net
      Income (Loss)
              
              $
              (1,076,479
              )
              
              $
              (791,726
              )Adjustments
      necessary to reconcile net lossto
      net cash used in operating activities:Stock
      issued for accrued expenses
              
              
              40,000
              
              
              
              159,255Stock
      issued for expenses
              
              
              2,500
              
              
              
              101,100Depreciation
      and amortization
              
              
              119,168
              
              
              
              21,323Compensation
      expense from stock options
              
              
              433,892
              
              
              
              153,208(Increase)
      decrease in accounts receivable
              
              
              (980,173
              )
              
              
              (130,157
              )(Increase)
      decrease in inventory
              
              
              (362,659
              )
              
              
              (343,987
              )(Increase)
      decrease in prepaid expenses
              
              
              (8,940
              )
              
              
              (11,632
              )(Increase)
      decrease in deposits
              
              
              (1,793
              )
              
              
              (1,238
              )(Increase)
      decrease in other assets
              
              
              (88,504
              )
              
              
              (23,794
              )Increase
      (decrease) in accounts payable and accrued expenses
              
              
              1,730,994
              
              
              
              276,468Increase
      (decrease) in due to/from related parties
              
              
              -
              
              
              
              (100,000
              )Increase
      (decrease) in accrued interest on notes payable
              
              
              6,669
              
              
              
              (17,589
              )Increase
      (decrease) in deposits from customers
              
              
              -
              
              
              
              12,530Net
      cash provided by (used) in operating activities
              
              
              (185,325
              )
              
              
              (696,239
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
              
              
              (140,153
              )
              
              
              (229,866
              )Net
      cash provided by (used) investing activities
              
              
              (140,153
              )
              
              
              (229,866
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of stock
              
              
              -
              
              
              
              336,000Proceeds
      from notes payable
              
              
              439,830
              
              
              
              -Proceeds
      from notes and loans payable to related parties
              
              
              575,000
              
              
              
              917,500Repayments
      of notes and loans payable to related parties
              
              
              (697,000
              )
              
              
              (288,975
              )Net
      Cash Provided by Financing Activities
              
              
              317,830
              
              
              
              964,525Net
      (Decrease) Increase in Cash and Cash Equivalents
              
              
              (7,648
              )
              
              
              38,420Cash
      and Cash Equivalents at Beginning of Period
              
              
              257,802
              
              
              
              198,084Cash
      and Cash Equivalents at End of Period
              
              $
              250,154
              
              
              $
              236,504SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
              
              $
              142,031
              
              
              $
              52,225Franchise
      and income taxes
              
              $
              -
              
              
              $
              -SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:On
      February 21, 2007, the Company issued 468,750 shares of common stock for
      notes payable of $15,000 and accrued interest of $1,761.On
      March 16, 2007, the Company issued 1,835,050 shares of common stock for
      investor loans payable of $50,000 and accrued interest of
      $5,052.On
      August 21, 2007, the Company issued 2,804,947 shares of common stock for
      notes payable of $250,000 and accrued interest of $2,445.The
      accompanying notes are an integral part of these financial
      statements.
   5
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  This
summary of accounting policies for CHDT Corporation, a Florida corporation
(formerly, “China Direct Trading Corporation”) (“Company” or “CHDT”) and its
wholly-owned subsidiaries (“Subsidiaries”) is presented to assist in
understanding the Company's financial statements. The accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.  CHDT changed
its name to “CHDT Corporation” by amending its Articles of Incorporation, which
name change was effective July 16, 2007 in respect of NASD Regulation, Inc. and
OTC Bulletin Board approval of the name change, the trading symbol change from
“CHDT.OB” to “CHDO.OB” and change in CUSIP Number for CHDT Common Stock and
effective May 7, 2007 in terms of approval by the State of Florida of the
charter amendment.
 
 The
unaudited financial statements as of September 30, 2008 and for the three and
nine month periods ended September 30, 2008 and 2007 reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
the three and nine months.  Operating results for interim periods are
not necessarily indicative of the results which can be expected for full
years.
  Organization
and Basis of Presentation
  CHDT was
initially incorporated September 18, 1986 under the laws of the State of
Delaware under the name "Yorkshire Leveraged Group, Incorporated", and then
changed its domicile situs to Colorado in 1989 by merging into a Colorado
corporation, named "Freedom Funding, Inc." Freedom Funding, Inc. then changed
its name to "CBQ, Inc." by amendment of its Articles of Incorporation on
November 25, 1998. In May 2004, the Company changed its name from “CBQ, Inc.” to
“China Direct Trading Corporation” as part of a reincorporation from the State
of Colorado to the State of Florida.  Effective May 7, 2007, the
Company amended its charter to change its name from “China Direct Trading
Corporation” to “CHDT Corporation.”  This name change was effective as
of July 16, 2007 for purposes of the change of its name on the OTC Bulletin
Board.
  Souvenir
Direct, Inc. was incorporated on September 9, 2002 under the laws of the State
of Florida.  Souvenir Direct, Inc. operations were transferred to
Capstone Industries, Inc. in the first quarter of fiscal year 2007 and Souvenir
Direct, Inc.’s operating assets were sold on December 1, 2007 to an unaffiliated
buyer.
  On
December 1, 2003, CHDT issued 97 million shares common stock to acquire 100% of
the outstanding common stock of Souvenir Direct, Inc. in a reverse acquisition.
At this 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.
  6
 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 consumer products to distributors and retailers in the United
States.
  Nature
of Business
  From 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, Comfort
Products, Power Tools and Automotive Accessories. The Company’s products are
typically manufactured in the Peoples’ Republic of China by
third-party  manufacturing companies.
  During
the period that the Company owned a 51% interest in CPS (January 27, 2006
through December 31, 2006), the Company, through CPS, engaged in the business of
selling and installing standby commercial and residential power generators in
South Florida and, to a lesser extent, in adjacent states.
  Cash
and Cash Equivalents
  The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents, to the extent the funds are not
being held for investment purposes.
  Allowance
for Doubtful Accounts
  An
allowance for doubtful accounts is established as losses are estimated to have
occurred through a provision for bad debts charged to earnings.  The
allowance for bad debt is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectability of the
receivables.  This evaluation in inherently subjective and requires
estimated that are susceptible to significant revisions as more information
becomes available.
  As of
September 30, 2008, 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 the lower of cost (first-in,
first-out) or market, consists of finished goods for resale by Capstone,
totaling $655,402 at September 30, 2008 and $292,743as of December 31, 2007.
  BBI
(previously “Overseas Building Supply, L.C.”) had inventory of $40,441 at
September 30, 2008 and December 31, 2007.
  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 yearsComputer
      software
              3 -
      7 yearsMachinery
      and equipment
              3 -
      7 yearsFurniture
      and fixtures
              3 -
      7 years
  
  7
 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 2007 or
the second quarter of 2008.
  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  $76,004 and $21,323 for the nine months ended September
30, 2008 and 2007, 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 circumstance 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, 2007, whereas the
fair value of the intangible asset exceeds its carrying amount.
  8
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
  The
Company initially recorded goodwill of $1,567,214 in connection with the CPS
acquisition.  Effective December 31, 2006, the Company disposed of its
interest in CPS and, accordingly, wrote off this amount, which is included in
the loss from discontinued operations on the consolidated statement of income
(loss).
  Net
Income (Loss) Per Common Share
 
 Basic
earnings per common share were computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the
year.  In periods where losses are reported, the weighted average
number of common shares outstanding excludes common stock equivalents because
their inclusion would be anti-dilutive. Diluted loss per common share for the
nine months ended September 30, 2008 and 2007 are not presented as it would be
anti-dilutive.  At September 30, 2008 and 2007, the total number of
potentially dilutive common stock equivalents was 197,165,627 and 85,748,980,
respectively.
  Principles
of Consolidation
  The
consolidated financial statements for the nine months ended September 30, 2008
and 2007 include the accounts of the parent entity and its wholly-owned
subsidiaries Souvenir Direct, Inc., Black Box Innovations, L.L.C. (formerly
“Overseas Building Supply, LLC” and formerly “China Pathfinder Fund, LLC”), and
Capstone Industries, Inc.
  The
results of operations attributable to Capstone are included in the consolidated
results of operating beginning on September 13, 2006, the date on which the
Company’s interest in Capstone was acquired.
  The
results of operations attributable to the Company’s interest in its former
subsidiary, CPS, for the period of time in which majority interest in CPS was
held by the Company (January 27, 2006 through December 31, 2006) are included in
the loss from discontinued operations on the consolidated statement of income
(loss).  All significant intercompany balances and transactions have
been eliminated.
 
 Fair
Value of Financial Instruments
 
 The
carrying value of the Company's financial instruments, including accounts
receivable, accounts payable and accrued liabilities at September 30, 2008
approximates their fair values due to the short-term nature of these financial
instruments.
  Reclassifications
  Certain
reclassifications have been made in the 2007 financial statements to conform
with the 2008 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.
  9
 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. Advertising and promotion expense was
$79,743 and $33,775 for the nine months ended September 30, 2008 and 2007,
respectively.
  Shipping
and Handling
  The
Company’s shipping and handling costs, incurred by Capstone, are included in
General and Administrative  expenses and amounted to $38,292 for the
nine months ended September 30, 2008.
 
 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).
  10
 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, 2007, 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 23,
2008, 74,666,667 of the above stock options were cancelled.  For nine
months ended September 30, 2008, the Company recognized compensation expense of
$335,941 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.   For nine months ended
September 30, 2008, the Company recognized compensation expense of $32,868
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 nine
months ended September 30, 2008, the Company recognized compensation expense of
$5,985 related to these options.
  11
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 During
the three months ended March 31, 2008, the Company granted 4,150,000 stock
options to employees and directors of the Company.  The options vest
over one and two years.  For the nine months ended September 30, 2008,
the Company recognized compensation expense of $59,097 related to these
options.
 
 The
Company recognizes compensation expense paid with common stock and other equity
instruments issued for assets and services received based upon the fair value of
the assets/services or the equity instruments issued, whichever is more readily
determined.
 
 As of the
date of this report the Company has not adopted a method to account for the tax
effects of stock-based compensation pursuant to SFAS 123(R) and related
interpretations. However, whereas the Company has substantial net operating
losses to offset future taxable income and its current deferred tax asset is
completely reduced by the valuation allowance, no material tax effects are
anticipated.
 
 During
the year ended December 31, 2005, the Company valued stock options using the
intrinsic value method prescribed by APB 25.  Since the exercise price
of stock options previously issued was greater than or equal to the market price
on grant date, no compensation expense was recognized.
 
 
 Stock-Based
Compensation Expense
 
 Stock-based
compensation expense for the nine months ended September 30, 2008 included
$2,500 for consulting fees.  Stock-based compensation expense for the
nine months ended September 30, 2007 included $101,100, consisting of $25,000
included in employee compensation, $72,500 for consulting fees and $3,600 for
legal fees.
 
 Recent
Accounting Standards
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. Generally accepted accounting
principles have required different measurement attributes for different assets
and liabilities that can create artificial volatility in earnings. The FASB has
indicated it believes that SFAS 159 helps to mitigate this type of
accounting-induced volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need for companies to
comply with detailed rules for hedge accounting. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.  SFAS 159 does not eliminate disclosure
requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS 157 and SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." SFAS 159 is effective
for the Company as of the beginning of fiscal year 2008. The adoption of this
pronouncement is not expected to have an impact on the Company's financial
position, results of operations or cash flows.
 
 In
December 2007, the FASB issued No. 160, “Non-controlling Interests in Financial
Statements, an amendment of ARB No. 51" (“SFAS 160").  SFAS 160 amends
ARB 51 to establish accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  This
Statement is effective for fiscal years beginning on or after December 15,
2008.  Early adoption is not
  12
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 permitted.
Management is currently evaluating the effects of this statement, but it is not
expected to have any impact on the Company’s financial statements.
 
 In
December 2007, the FASB issued No. 141(R), “Business Combinations” (“SFAS
141(R)”).  SFAS 141(R) provides companies with principles and
requirements on how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any
non-controlling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS 141(R) also
requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS 141(R) is effective for business combinations
occurring in fiscal years beginning after December 15, 2008, which will require
the Company to adopt these provisions for business combinations occurring in
fiscal 2009 and thereafter. Early adoption of SFAS 141(R) is not
permitted.  Management is currently evaluating the effects of this
statement, but it is not expected to have any impact on the Company’s financial
statements.
 
 In March
2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.  (“SFAS
161").  SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting.  This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial
adoption.  Management is currently evaluating the effects of this
statement, but it is not expected to have any impact on the Company’s financial
statements.
  Pervasiveness
of Estimates
  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates, and the differences could be
material.
  NOTE
2 – CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE
  Financial
instruments that potentially subject the Company to credit risk consist
principally of cash and cash equivalents and accounts receivable.
  The
Company has no significant off-balance-sheet concentrations of credit risk such
as foreign exchange contracts, options contracts or other foreign hedging
arrangements.
  Cash
and Cash Equivalents
  The
Company at times has cash and cash equivalents with its financial institution in
excess of Federal Deposit Insurance Corporation (FDIC) insurance
limits.  The Company places in cash and cash equivalents with high
credit quality financial institution which minimize these risks.  As
of December 31, 2007, the Company has cash in excess of FDIC limits of
approximately $140,000.  As of September 30, 2008, the Company has
cash in excess of FDIC limits of approximately $84,000.
  13
 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 fiscal year ended December 31, 2007.  The loss of these
customers would adversely impact the business of the Company.  The
percentage of gross revenue and the accounts receivable from each of these
customers is as follows:
  Gross
      Revenue %
              
              
              Accounts
      Receivable2007
              
              
              2006
              
              
              2007
              
              
              2006Customer
      A
              
              
              30
              %
              
              
              37
              %
              
              $
              691,110
              
              
              $
              98,834Customer
      B
              
              
              28
              %
              
              
              -
              
              
              
              485,275
              
              
              
              -Customer
      C
              
              
              21
              %
              
              
              34
              %
              
              
              161,571
              
              
              
              341,55279
              %
              
              
              71
              %
              
              $
              1,337,956
              
              
              $
              440,386
 
 Major
Vendors
 
 The
Company had two vendors from which it purchased at least ten percent (10%) of
merchandise during fiscal year ended December 31, 2007.  The loss of
these suppliers would adversely impact the business of the
Company.  The percentage of purchases, and the related accounts
payable at December 31, 2007 from each of these vendors is as
follows:
 
 Purchases
      %
              
              
              Accounts
      Payable2007
              
              
              2006
              
              
              2007
              
              
              2006Vendor
      A
              
              
              56
              %
              
              
              86
              %
              
              $
              131,973
              
              
              $
              41,054Vendor
      B
              
              
              10
              %
              
              
              10
              %
              
              
              45,481
              
              
              
              -66
              %
              
              
              96
              %
              
              $
              177,454
              
              
              $
              41,054
  NOTE
3 – DUE TO RELATED PARTIES
  During
2003 and 2004, a former officer and director of the Company paid $300,000 to
settle a previously filed lawsuit on behalf of the Company. This $300,000 had
been included in due related parties at December 31, 2006.  During the
year ended December 31, 2007, this debt was forgiven.  Also included
in due to related parties, as of December 31, 2006, was accrued but unpaid
officer’s compensation of $100,000, payable to the Company’s former Chief
Executive Officer. During the three months ended March 31, 2007, the $100,000
accrued compensation was converted into 3,031,000 shares of common
stock.
  14
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES
  Overseas
Building Supply - Notes Payable to Shareholders
  On
September 1, 2004, Overseas Building Supply, LLC (f/k/a China Pathfinder Fund,
LLC and now known as “Black Box Innovations, L.L.C.”), a wholly-owned subsidiary
of the Company, executed notes payable of $15,000 to three shareholders of the
Company, including $5,000 to CEO. The notes carry an interest rate of 5% per
annum and are payable in twelve equal monthly installments with the first
installment due and payable on January 31, 2006.  As of December 31,
2006, the total amounts due on these loans was $16,761, including accrued
interest.  During the three months ended March 31, 2007, these notes
were converted into 468,750 shares of CHDT common stock.
  CHDT
Corp - Notes Payable to Director
  On June
29, 2006, the Company executed a $250,000 note payable to a director of the
Company.  The note carries an interest rate of 7% per annum and is
payable if full, with accrued interest, on June 30, 2007.  The
proceeds from this note were used to advanced funds to CPS. As of December 31,
2006, the total amount payable on the note was $258,750, including $8,750 of
accrued interest.  During the quarter ended June 30, 2007, the Company
paid accrued interest of $13,125 and during the quarter ended September 30,
2007, the Company paid accrued interest of $4,363.  On August 21,
2007, the Company issued 2,804,947 shares of CHDT common stock valued at
$252,445 as payment for $250,000 in principal and interest of $2,445 on the
note.
  On
September 15, 2006, the Company executed a $750,000 promissory note payable a
director of the Company, secured by the accounts receivable of the note
holder.  The note carries an interest rate of 8% per
annum.  Interest is payable each calendar quarter, commencing with the
quarter ended December 31, 2006.  All principal is payable if full,
with accrued interest, on December 31, 2008.  At the option of the
note holder, any quarterly interest or the principal may be paid in cash or in
shares of the Company’s common stock or a combination of cash or
shares.  Any shares issued shall have a value of $ .08 per share for
purposes of calculating the amount of principal or interest paid by the issuance
of each share.  The proceeds from this note were used to funds to
Capstone acquisition.  As of December 31, 2006, the total amount
payable on the note was $767,589, including $17,589 of accrued
interest.  On November 2, 2007, the Company issued 312,536 shares of
its Preferred Series B stock valued at $750,000 as payment for $750,000 in
principal.  During the year ended December 31, 2007, the Company paid
accrued interest of $62,465.  At December 31, 2007, the balance owed
on this note was $0.
  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 is payable in full, with accrued interest, on
May 30, 2009.  As of September 30, 2007, the total amount payable on
the note was $575,000.  On November 2, 2007, the Company issued 12,074
shares of its Series B Preferred stock valued at $28,975 as payment towards this
loan.  At September 30, 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 will be due on January 11, 2009 and carries an
interest rate of 8% per annum.  At September 30, 2008, the total
amount payable on this note was $254,438, including interest of
$4,438.
  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 is due within six months.  At September 30,
2008, the total amount due on these notes was $205,512, including interest of
$5,512.
  15
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES (continued)
  Overseas
Building Supplies - Notes Payable to Director
  On
December 14, 2006, Overseas Building Supply, L.C. (now known as “Black Box
Innovations, L.L.C.”) received proceeds from a note payable of $2,500 to a
director. During the quarter ended March 31, 2007, Overseas Building Supply
received proceeds from additional notes payable of $24,000.  The notes
carry an interest rate of 8% per annum and are due on demand.  On
November 2, 2007, the Company issued 11,043 shares of its Series B Preferred
stock valued at $26,500 as payment for $26,500 in principal.  During
the year ended December 31, 2007, the Company paid accrued interest of
$1,125.  At December 31, 2007 and December 31, 2006, the total amount
due on these loans was $0 and $2,510, respectively.
  China
Direct and Souvenir Direct - Loans Payable to Director
  During
the period from August 24, 2006 through November 30, 2006, a director made loans
to the Company totaling $490,000, including $10,000 to the Company’s wholly
owned subsidiary, Souvenir Direct, Inc.  The loans carry interest of
8% and are payable on demand.  In November 2006, the Company repaid
$50,000 of this amount.  During the quarter ended March 31, 2007, the
Company repaid $278,975 of these loans and received an additional $33,000 in
proceeds from loans.  On November 2, 2007, the Company issued 81,060
shares of its Series B Preferred stock valued at $194,525 as payment for
$194,525 in principal.  During the year ended December 31, 2007, the
Company paid accrued interest of $20,266.  As of December 31, 2006,
the total amount payable on these loans was $448,738, including $8,738 of
accrued interest.  At December 31, 2007, the total amount payable on
these loans was $0.
  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 is due on February 15, 2008.  During
the quarter ended September 30, 2007, the Company paid accrued interest of
$240.  At December 31, 2007, the total amount payable on this loan was
$74,904, including interest of $2,904.  In January 2008, the Company
repaid this note payable.
  On July
16, 2007, Capstone Industries executed a $103,000 promissory note payable to a
director of the Company.  The note carries an interest rate of 8% per
annum and is due on December 31, 2007.  At December 31, 2007, the
total amount payable on this loan was $106,838, including interest of
$3,838.  At September 30, 2008, the total amount payable on this loan
was $113,023, 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 is 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 is and 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 is 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.
  16
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
4 – 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 is due September 24, 2008.  On August 5, 2008, the Company
paid principal of $25,000 and interest of $230 to pay off this
note.
  Based on
the above, the total amount payable to officers and directors as of September
30, 2008 and December 31, 2007 was $1,118,998 and $1,234,330, respectively,
including accrued interest of $19,973 and $13,305, respectively.
  The
maturities under the notes and loan payable to related parties for the next five
years are:
 
 Year Ended December 31,2008
              
              $
              318,5352009
              
              
              800,4632010
              
              
              -2011
              
              
              -2012
              
              
              -Total
      future maturities
              
              $
              1,118,998
  NOTE
5 – INVESTOR LOANS PAYABLE
  In March,
2006, the Company executed notes payable to an investor of $25,500 and $24,500,
totaling $50,000.  The notes carry an interest rate of 10% per annum
and are payable if full, with accrued interest, in March 2008.  The
notes are secured by shares of the Company’s common stock and convertible into
the Company’s common stock.  As of December 31, 2006, the total amount
payable on the notes was $54,038, including $4,038 of accrued
interest.
  Interest
shall be payable, at the option of the note holder, in cash or in shares of the
Company’s common stock.  The number of common shares to be issued as
payment of accrued and unpaid interest shall be determined by dividing the total
amount of accrued and unpaid interest to be converted in common stock by the
“Conversion Price” (as defined below). The Note shall be convertible (in whole
or in part), at the option of the note holder, into a number of fully paid and
non-assessable shares of common stock, by dividing that portion of the
outstanding principal balance plus any accrued but unpaid interest as of the
conversion date by the Conversion Price.
  The
Conversion Price shall mean a price no lower than $ .03 and higher than $ .04
which will be the average of the closing bid price (adjusted for stock splits,
combinations, certain dividends and distributions, reclassification, exchange or
substitution, reorganization, merger, consolidation or sales of asses, issuances
of additional shares of common stock, and issuance of common stock equivalents)
for ten days trading preceding the conversion date.
  In March
2007, the note holders elected to convert the notes payable and accrued
interest, totaling $55,052, into a total of 1,835,050 shares of the Company’s
common stock, at a conversion price of $ .03 per share.
  NOTE
6 – 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.  At September 30, 2008, there was $439,830 due on this
loan.
  17
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
7 – 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 $4,145 per
month.
  Rental
expense under these leases was approximately $49,415 and $24,072 for the nine
months ended September 30, 2008 and 2007, respectively.
  NOTE
8 - COMMITMENTS
  Employment
Agreements
 
 On
February 5, 2008, the Company entered into an Employment Agreement with Stewart
Wallach, the Company’s Chief Executive Offer and President, whereby Mr. Wallach
will be paid $225,000 per annum.  The term of the contract begins
February 5, 2008 and ends on February 5, 2011.
 
 On
February 5, 2008, the Company entered into an Employment Agreement with Gerry
McClinton, the Company’s Chief Operating Officer, whereby Mr. McClinton will be
paid $150,000 per annum.  The term of the contract begins February 5,
2008 and ends on February 5, 2011.
 
 On
February 5, 2008, the Company entered into an Employment Agreement with Howard
Ullman, the Chairman of Board of Directors of the Company, whereby Mr. Ullman
will be paid $100,000 per annum.  The term of the contract begins
February 5, 2008 and ends on February 5, 2011.
 
 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 5% of product sales.  The Company is required to make guaranteed
minimum royalty payments as follows:  $100,000 payable in the 1st year of
the contract; $300,000 payable in the 2nd year of
the contract; and $500,000 payable in the 3rd year of
the contract.  As of December 31, 2007, the Company has paid $50,000
in royalty expense to AASTP that is included as part of selling
expenses.  Future guaranteed minimum royalty payments are as
follows:
  Guaranteed
      MinimumYear
              
              Royalty
      Payments2008
              
              $
              125,0002009
              
              $
              350,0002010
              
              $
              375,000$
              850,000
  NOTE
9 - STOCK TRANSACTIONS
  Common
Stock
  In
February 2007, the Company issued 1,428,571 shares of common
stock  for consulting fees valued at $50,000.  The shares
were valued at $.035 per share.
  In
February 2007, the Company issued 250,000 shares of common stock for cash of
$5,000.
  In
February 2007, the Company issued 468,750 shares of common stock for notes
payable totaling $16,761.
  In March
2007, the Company issued 3,031,000 shares of common stock for accrued
compensation of $100,000.
  
  18
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
9 - STOCK TRANSACTIONS (continued)
  In March
2007, the Company issued 757,575 shares of common stock for officers’
compensation valued at $25,000.  The shares were valued at $.033 per
share.
  In March
2007, the Company issued 1,835,050 shares of common stock for investor loans
payable totaling $55,051.
  In May
2007, the Company issued 500,000 shares of common stock for expenses totaling
$15,000.
  In August
2007, the Company issued 105,882 shares of common stock for legal expenses of
$1,800.
  In August
2007, the Company issued 2,804,947 shares of common stock for notes payable of
$252,445.
  In August
2007, the Company issued 2,500,000 shares of common stock for accrued expenses
of $50,000.
  In August
2007, the Company issued 340,909 shares of common stock for consulting expenses
of $7,500.
  In August
2007, the Company issued 112,510 shares of common stock for legal expenses of
$1,800.
  In
September 2007, the Company issued 19,470,588 shares of common stock for cash of
$331,000.
  In
October 2007, the Company issued 12,352,941 shares of common stock for cash of
$210,000.
  In
November 2007, the Company issued 50,000 shares of common stock for legal
expenses of $1,800.
  In
November 2007, the Company issued 275,000 shares of common stock for consulting
fees of  $9,100.
  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.
  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.
  19
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
9 - STOCK TRANSACTIONS (continued)
  In June,
2006, 1,000 shares of the Company’s series “A” convertible preferred stock,
beneficially owned by the Company’s CEO, were exchanged for 1,000,000 shares of
the Company’s common stock.  In February 2007, 74 shares of the
Company’s series “A” preferred stock were exchanged for 73,400 shares of the
Company’s common stock.  In May 2007, 367 shares of the Company’s
series “A” preferred stock were exchanged for 367,000 shares of the Company’s
common stock.
  In
February 2008, 6,500 shares of the Company’s series “A” convertible preferred
stock were exchanged for 6,500,000 shares of the Company’s common
stock.
  As of
September 30, 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.
  Series
“B” Preferred Stock
  In
January 2006 the Company sold 657,000 shares of its series “B” convertible
preferred stock for cash of $637,000, including 387,000 shares to the Company’s
former CEO and the remaining shares to other directors of the
Company.  During the three months ended March 31, 2007, 15,000 shares
of the Company’s series “B” preferred shares issued to a director were exchanged
for 990,000 shares of the Company’s common stock.
  In
September 2006 the Company issued 300,030 shares of its series “B” convertible
preferred stock to the Company’s former CEO in exchange for 20,000,000 shares of
its common stock held by the former CEO.
  In
September, 2006 the Company issued an additional 236,739 shares of its series
“B” convertible preferred stock in connection with the acquisition of 100% of
the voting interest of Capstone Industries, Inc.  The shares were
valued at $1,250,000.  During the three months ended March 31, 2007,
236,739 shares of the Company’s series “B” convertible preferred stock was
converted into 15,624,774 shares of the Company’s common stock.
  In
November 2007, the Company issued 416,708 shares of its series “B” convertible
preferred stock to a director for notes payable of $1,000,000.
 
 In
January 2008, the Company’s chairman exchanged 50,000,000 shares of the
Company’s common stock for 750,075 shares of the Company’s series B” convertible
preferred stock.
  The
series “B” convertible preferred shares are convertible into common shares, at a
rate of 66.66 shares of common stock for each share of series “B” convertible
preferred stock.
  Warrants
  The
Company has issued stock warrants 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.
 
  20
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
9 - STOCK TRANSACTIONS (continued)
 
 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.
 
 The
Binomial Lattice (Suboptimal) option pricing model was used to calculate the
fair value of the options granted. During the year ended December 31, 2007, the
Company recognized compensation expense of $29,214 related to these stock
options in 2007.  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 $43,821 in 2008 and $14,607 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.
 
 The
Binomial Lattice (Suboptimal) option pricing model was used to calculate the
fair value of the options granted. During the year ended December 31, 2007, the
Company recognized compensation expense of $503,075 related to these stock
options in 2007.  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
 
  21
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
9 - STOCK TRANSACTIONS (continued)
 
 The
Company will recognize compensation expense of $409,585 in 2008, $163,137 in
2009, $163,137 in 2010, and $54,379 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 year ended December 31, 2007, the
Company recognized compensation expense of $1,330 related to these stock options
in 2007.  The following assumptions were used in the fair value
calculations:
 
 Risk free rate – 4.42%
 Expected term – 11 and 12
years
 Expected volatility of stock –
134.33%
 Expected dividend yield –
0%
 Suboptimal Exercise Behavior Multiple –
2.0
 Number of Steps – 100
 
 The
Company will recognize compensation expense of $7,978 in 2008 and $6,648 in 2009
related to these stock options.
 
 During
the three months ended March 31, 2008, the Company granted 4,150,000 stock
options to employees and directors of the Company.  The options vest
over one and two years.
 
 The
Binomial Lattice (Suboptimal) option pricing model was used to calculate the
fair value of the options granted. During the three months ended March 31, 2008,
the Company recognized compensation expense of $19,700 related to these stock
options..  The following assumptions were used in the fair value
calculations:
 
 Risk free rate – 1.93% to
3.91%
 Expected term – 2 to 11
years
 Expected volatility of stock – 133.31%
to 133.83%
 Expected dividend yield –
0%
 Suboptimal Exercise Behavior Multiple –
2.0
 Number of Steps – 100
 
 The
Company will recognize compensation expense of $78,534 in 2008 related to these
stock options.
 
 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
              7
              $.02
              250,000$.029
              55,833,333
              10
              $.029
              38,973,333$.029
              4,000,000
              11
              $.029
              1,750,000$.029
              700,000
              12
              $.029
              -0-$.029
              1,000,000
              10
              $.029
              -0-$.029
              150,000
              10
              $.029
              -0-$.029
              2,500,000
              2
              $.029
              -0-$.029
              500,000
              11
              $.029
              -0-
  22
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
10 – 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 maturiy 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 is continuing with legal
action to collect this judgment.
  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.
  23
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
10 – BUSINESS ACQUISITIONS AND DISPOSALS (continued)
  In
connection with the disposal of CPS, the Company recorded a gain from
discontinued operations of $149,424 at December 31, 2006.  The gain
from discontinued operations consists of the following unaudited
amounts:
  
 (Unaudited)For
      the Years EndedDecember
      31,2007
              
              
              2006Net
      loss from discontinued operations
              
              $
              -
              
              
              $
              (518,902
              )Net
      gain on disposal of discontinued operations
              
              
              -
              
              
              
              668,326Income
      (Loss) from discontinued operations
              
              $
              -
              
              
              $
              149,424
  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. China Direct 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
              
              $
              33,676Accounts
      receivable
              
              
              208,851Inventory
              
              
              340,109Prepaid
      expenses
              
              
              7,500Property
      and equipment
              
              
              16,127Goodwill
              
              
              1,936,020Accounts
      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.
  24
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
11 - INCOME TAXES
  As of
December 31, 2007, the Company had a net operating loss carryforward for income
tax reporting purposes of approximately $2,218,000 that may be offset against
future taxable income through 2027. 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.
  
 2007
              
              
              2006Net
      Operating Losses
              
              $
              454,690
              
              
              $
              292,945Valuation
      Allowance
              
              
              (454,690
              )
              
              
              (292,945
              )$
              -
              
              
              $
              -
 
 The
provision for income taxes differ from the amount computed using the federal US
statutory income tax rate as follows:
 2007
              
              
              2006Provision
      (Benefit) at US Statutory Rate
              
              $
              (161,745
              )
              
              $
              (84,660
              )Increase
      (Decrease) in Valuation Allowance
              
              
              161,745
              
              
              
              84,660$
              -
              
              
              $
              -
 
 The
Company evaluates its valuation allowance requirements based on projected future
operations.  When circumstances change and causes 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.
  NOTE 12 – CONTINGENCIES
 
 CELESTE TRUST REG., ESQUIRE TRADE,
ET AL. V. CBQ, INC. (Second Circuit Court of Appeals, Case #07-1701-CV,
April 2007; Lower Court Case# 03 Civ. 9650 RMB; US District Court, SDNY,
12/4/2003):   Both the initial and amended complaint of the
plaintiffs in this case against us were dismissed by the trial court upon our
motions to dismiss.  The plaintiffs perfected their appeal of the
dismissal of the amended complaint and the appeal was briefed in November
2007.  The appeal is currently pending before the Second Circuit Court
of Appeals in New York City. CHDT is uncertain when or how the Second Circuit
will rule on the plaintiffs’ appeal.  CHDT has moved that the Second
Circuit to make a ruling on the briefs without oral arguments, but CHDT believes
that the plaintiffs have requested oral arguments.  There has been no
ruling to date on the overall appeal or CHDT’s motion for a ruling based solely
on the written appeal briefs submitted to date.   CHDT intends to
appeal any adverse ruling in this case by the Second Circuit.  This
action was initially brought by certain debenture holders of Socrates
Technologies Corporation (“STC”), a defunct Delaware corporation, against us for
allegedly purchasing certain operating assets of STC’s subsidiaries in March
2001, which assets were allegedly pledged as collateral for the STC debentures
and which acquisition allegedly violated the STC debentures’ terms. Plaintiffs
are seeking the value of the transferred assets.
 
 In the
fiscal quarter ending June 30, 2008, we engaged the Dorsey & Whitney in New
York City to handle this case for us and to replace the law firm of Kalbian
Hagerty LLP of Washington, D.C., which filed to withdraw from the
case.  Bart Fisher, a former officer and director of CHDT and a
principal beneficial owner of our Common Stock is a party to the engagement
agreement with Dorsey & Whitney.  Mr. Fisher has paid previous
legal costs on behalf of CHDT in this case and has agreed to do so without
indemnification or reimbursement from CHDT.
 
  25
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
12 – CONTINGENCIES (continued)
 
 This case
concerns a lawsuit that was filed against the Company by three Plaintiffs on or
about December 4, 2003, but which the Company did not receive notice of until
the week of February 18, 2004 or thereabouts. The Plaintiffs purchased
debentures issued by Socrates Technologies Corporation (STC), a public Delaware
corporation in 2000. When the Company purchased the assets of two STC
subsidiaries in March 2001, the Plaintiffs allege that the Company promised to
issue to the Plaintiffs and others the consideration that was to be paid to STC
for the acquired assets and to so do in order to compensate the plaintiffs for
their investment in the STC debentures, which were apparently in default at that
time. The total consideration paid for the STC subsidiaries' assets were 7.65
million shares of company Common Stock and a Promissory Note made by the Company
for $700,000 principal amount. The Company has defended against the Plaintiffs'
claims to date. If the Plaintiffs win a judgment on their claims, the judgment,
if collected, would prove potentially ruinous the Company, unless a settlement
involving no cash was arranged between the parties to the lawsuit. The
Plaintiff's claims include a claim for receipt of the money due under the
Promissory Note with a principal amount of $700,000. The Company lacks the cash
flow or cash reserves or funding resources to pay such a claim, either in a lump
sum or over time. If the Plaintiffs are awarded the claimed damages against the
Company in this lawsuit and the Company did not or could not appeal such an
award, then under such circumstances the Company would be unable to pay such
damages, either in a lump sum or under any short-term schedule, and would be
insolvent without an emergency infusion of capital from investors.
 
 Sun
Trust Bank Dispute. Sun Trust Bank line of credit and term note
  Prior to
being acquired by CHDT, Quantum Technology Group had a $4 million line of credit
with Crestar Bank, which was subsequently acquired by Sun Trust. This line of
credit was guaranteed by Quantum and five individual guarantors, including Ray
Kostkowski, Anne Sigman, Skip Lewis, and Anthony Saunders. This line of credit
was opened during April, 2000. On August 8, 2000, the Company acquired all of
the shares of Quantum. Sun Trust asserted that $1.3 million of the line of
credit had been used, and was owing to Sun Trust, as well as line of credit, a
$200,000 term loan from Sun Trust to Quantum, approximately $200,000 in accrued
interest and $100,000 in attorney fees -- all of which SunTrust had sought to
collect from the individual guarantors. Sun Trust had not sued the Company and
has not raised its prior threat to sue since 2005.
  RAS
Investment, Inc., a company affiliated with Anne Sigman, a former employee of
the Company, has advised the Company that RAS has acquired the Sun Trust note
and has demanded payment in cash or stock. As of the date of this Report, the
Company's position remains as before, that is, that the Company is not obligated
to pay the Sun Trust debts and any claims made to collect that debt could be
defeated by several potential defenses and counterclaims.  CHDT has
not received any communication in this matter from RAS Investment, Inc. since
2006.  The Company will aggressively defend against any effort to
assert any claim against CHDT based on the above credit line.
  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 claims to date and the claimants
have not pursued their claims beyond an initial communication asserting
ownership of these shares of serial preferred stock.The Company has not received any further claims or
communications since mid-2006.
  26
 CHDT
CORPORATION AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
13 - SALE OF ASSETS
 
 The
assets and liabilities of Souvenir Direct were transferred into Capstone January
1, 2007.  The assets consisted of cash of $13,816, accounts receivable
of $20,967, deposits of $1,775, net fixed assets of $3,329, and intercompany
receivables of $160,263. The liabilities consisted of accrued expenses of
$38,387 and loans payable of $10,000.
 
 On
December 1, 2007, the Company sold the remaining assets of Souvenir Direct for
$206,284.  For the year ended December 31, 2007, a gain on disposal of
assets of $206,284 was recognized in the financial statements of the
Company.
 
 NOTE
14 - INTANGIBLE ASSETS
 
 During
the year ended December 31, 2007, the Company capitalized $73,012 of product
development costs related to the production of the Company’s AASTP
products.  During the nine months ended September 30, 2008, the
Company capitalized $88,504 of product development costs related to the
production of the Company’s AASTP products.  These costs will be
amortized over their useful life, which the Company has determined to be two
years.   At September 30, 2008, amortization expense of $43,163
has been recorded.
 
 NOTE
15 – UNCERTAIN TAX POSITIONS
 
 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, 2007, 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, 2007.  In many cases the
company’s uncertain tax positions are related to tax years that remain subject
to examination by relevant tax authorities. With few exceptions, the company is
generally no longer subject to U.S. federal, state, local or non-U.S. income tax
examinations by tax authorities for years before 2004. The following describes
the open tax years, by major tax jurisdiction, as of December 31,
2007:
 
 United
      States (a)
              
              2004
      – Present(a)
      Includes federal as well as state or similar local jurisdictions, as
      applicable.
 
  27


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





General – CHDT Corporation, a
Florida corporation, (“CHDT,” “Company,” “we,” or “our”) is a public holding
company with  its Common Stock, $0.0001 par value per share, (“Common
Stock”) quoted on the Over-The-Counter Bulletin Board under the trading symbol
“CHDO.OB.”   This discussion should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's annual report on Form 10-KSB for the year ended
December 31, 2007.





Forward
Looking Statements





Management’s
Discussion and Analysis contains “forward-looking” statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as well as historical information. Although we believe
that the expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that the expectations reflected in these
forward-looking statements will prove to be correct. Our actual results could
differ materially from those anticipated in forward-looking statements as a
result of certain factors – many of those factors being beyond our control or
ability to predict. Forward-looking statements include those that use
forward-looking terminology, such as the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,”
“should,” and similar expressions, including when used in the negative. Although
we believe that the expectations reflected in these forward-looking statements
are reasonable and achievable at the time made, these statements involve risks
and uncertainties and no assurance can be given that actual results will be
consistent with these forward-looking statements.  Actual results may
differ significantly from anticipated business and financial
results.





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





Introduction





The
following discussion and analysis summarizes the significant factors affecting:
(i) our consolidated results of operations for the three months ended September
30, 2008 compared to the three months ended September 30, 2007; and (ii)
financial liquidity and capital resources.





We are a
developer and manufacturer of niche consumer products selling to distributors
and retailers in the United States. We conduct our business through wholly owned
operating subsidiaries.  Our current, sole wholly-owned operating
subsidiary is Capstone Industries, Inc., a Florida corporation, (“Capstone”) and
Capstone currently operates in four primary consumer product business segments:
Automotive Accessories, Comfort Products, Lighting and Power Tools and Consumer
Electronics will be added to our product listing in 2009. We acquired Capstone
in a cash and stock transaction on September 13, 2006.





Our
growth strategy has four main strategies:





1.
            Introduce
      our new product lines to more departments or stores 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 product lines or
      categories; and


4.
            Possibly
      supplement such efforts through acquiring one or more businesses that have
      innovative products that would compliment our existing marketing
      strategies.





Capstone
Lighting products consists of 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 book lights, task lights, flashlights and
lighted magnifiers and also offers “Private Label” programs to
major retailers.  “Private Label” is the manufacture of products by a
company whereby those products are sold under the name or trade name of the
manufacturer’s retailers, distributors or bulk buyers.  In addition to
its new consumer electronics products marketed under tâke
Capstone will be introducing several new book lights and eco-friendly lights in
fiscal year ended December 31, 2008, that have been developed in association
with the engineers from the STP®
tools business unit.





28


Simply Comfort products are a
collection of uniquely designed MP3 speaker comfort products made with various
foams including memory foam.





STP®-
tools were launched in October 2007.  As used herein, “v” means volts
and “w” means watts. This product line includes the new technology lithium
batteries for the 3.6v, 4.0v , 8.0v screwdrivers and 12v and 20v drill driver
lines. The 20v system incorporates the Capstone designed Power Axis Universal
Battery System which allows the same battery to be interchangeable with other
20v STP®-branded
power tools such as reciprocating saw, jig saw, circular saw, impact wrench,
work light, detail sander and other products. The line also includes the 19.2v
Ni-cad drill driver system, which also uses a Universal Battery
System.





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





As a
small business issuer with limited resources, we do not have the resources to
effectively compete head-to-head with larger, more established competitors for
any of the products.  While we face fewer competitors in our booklight
and specialty light product line, we face many national or regional brand-named
competitors in the power tool and automotive accessories product line. In
general, we attempt to compete by leveraging the engineering and manufacturing
capabilities of our Chinese contract manufacturers in order to provide quality
products with more or at least competitive functions at what we deem to be a
value price and supported by responsive customer service.  We also
seek to license established trade names to assist in competing with larger
competitors.  STP®
is an example of this strategy. We believe that the use of a trade name like
STP®
combined with the competitive (in terms of functions, quality and features)
products offered through our Chinese contract manufacturers will reduce the cost
of market penetration, which is essential because we do not have the money or
funding to compete head-to-head, market-to-market with large competitors like
Black & Decker, Panasonic, Ryobi, Porter-Cable, Mikita, or
Dewalt.  We believe that licensing an established trade name like
STP® was important to
compete in the home use power tool market because that industry has many very
large competitors with established market shares and years of consumer loyalty
to their product lines. Black & Decker is one example of a large,
established competitor in the North American home use power tool
market.





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 development; (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 custom 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 reporting company;
and (11) acquisitions that diverted resources from existing operations and
ultimately failed and, as such, hindered CHDT’s efforts to attain profitability
on a sustained basis.





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





29


For the
nine months ended September 30, 2008 and 2007, the Company’s revenues were
derived from 3 sources: (i) the sale of our booklight, tasklight, STP tools and
Eco-i-Lite products (Capstone and its booklight/tasklight product line was
acquired by CHDT in September 2006); (ii) sale of promotional, gift and souvenir
items by our recently sold SDI subsidiary under a December 1, 2007 purchase
agreement; and (iii) revenues, if any,  from our 51% membership
interest in CPS, which interest we divested as of December 31,
2006.





The
failure of CHDT to achieve sustained profitability in its operations continues
to hamper our efforts to establish and sustain a profitable, growing
business.  In fiscal year 2007, 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.  While we
have secured bank financing for operations in the second quarter of fiscal year
2008 for Capstone operations, we may have to continue to raise working capital
for 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 our
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.





On May 1,
2008, Capstone Industries secured a conventional $2,000,000 asset based line of
credit from Sterling National Bank, located in New York City. This credit line
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 in fiscal year 2008.





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 of its Common Stock
and produce by such an offering a national network of broker-dealers and
institutional investors interested in long-term investment in CHDT and stability
in the market price for the Common Stock. As a result, we have had difficulty in
sustaining any increases in the market price of the Common
Stock.  When the market price of the Common Stock enjoys any
significant percentage increase, shareholders tend to sell the Common Stock to
reap any gains (no matter how small)  from the market price increase
and the selling causes the market price of the Common Stock to fall back to
prior levels.  Since there are no primary market makers or
institutional investors supporting the Common Stock, there are no investors
effectively countering the impact of the selling pressure on the market price
for the Common Stock. The low market price and lack of support for our Common
Stock means that we are hampered in our ability to resort to the public markets
to raise working capital because of the low stock market price. As such, we do
not readily enjoy one of the principal benefits of being a public company: ready
access to the public securities markets for working capital.





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





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





30


Results of Operations:For the
three months ended September 30, 2008, the Company had net income from
continuing operations of approximately $64,000. For the three months ended
September 30, 2007 the Company had a net loss from operations of approximately
$268,000. That is a net income increase of $332,000 over 2007 results. The third
quarter 2008 net income increased approximately $616,000 over the second quarter
2008 net income results. The major reason for this higher net income was
increased revenues in the quarter.





Total Revenues: For the three
months ended September 30, 2008 and 2007, the Company had total sales of
approximately $3,022,000 and $815,000 respectively, for an increase of
$2,207,000, which represents a 270.8% increase over 2007.  For the
nine months ended September 30th and
2007, the Company had total sales of approximately $4,290,000 and $1,415,000
respectively, for an increase of $2,875,000, which represents a 203.2% increase
over 2007. The third quarter 2008 revenue of approximately $3,022,000 increased
$2,327,000 or 334.8% over the second quarter 2008 revenue of
$695,000.  All the revenue was generated by CHDT’s Capstone
subsidiary. In 2007, the $815,000 revenue was comprised primarily of domestic
book light shipments meaning shipments to retailers made from our warehouse
located in the U.S. In the quarter ended September 30, 2008, approximately 77%
($2,315,000) of the $3,022,000 revenue was shipped on a Direct Import basis (EX
China) and only 23% was shipped from our U.S. warehouse. This higher percentage
of Direct Import Sales reflects the change of product mix sold, as Capstone’s
other product categories namely STP® branded tools and accessories and
Eco-i-Lite started to ship to retailers. In general, depending on the product
category, U.S. national retailers are moving more towards Direct Import
programs. This allows retailers to have control over the cargo/containers,
provides better inventory utilization and reduces their overall
costs.





Cost of Sales:For the three
months ended September 30, 2008 and 2007, Cost of Sales was approximately
$2,069,000 and $457,000, respectively.  This cost represents 68.5% and
56.1% respectively of total revenue. As a percentage of total revenue costs have
increased from the same period last year by 12.4%. This higher percent of sales
is a direct result of the expanded mix of products now being sold and impact of
the new Direct Import program. In third quarter 2007 Cost of Sales were
approximately $457,000 (56.1% of revenue) and were primarily related to higher
margin book lights shipped out of our U.S. warehouse (domestic). In the third
quarter 2008, Cost of Sales (68.4% of revenue) is a blend of Direct Import Sales
of power tools, automotive accessories and Eco-i-Lites and book lights sales
from our U.S. warehouse. In a direct import program as the title of the
merchandise is transferred overseas then the wholesale price charged to the
retailer is lower, as the retailer is responsible for ocean freight, US customs
duties, warehousing and financial costs. In the third quarter approximately 77%
of revenue was on a Direct Import basis, resulting in a higher blended cost of
68.4% of revenue.





Gross Profit: For the three
months ended September 30, 2008, gross profit was approximately $953,000, an
increase of approximately $595,000 or 166.2% over $358,000 in
2007.  For the nine months ended September 30, 2008, gross profit was
approximately $1,406,000, an increase of approximately $795,000 over $611,000 in
2007. In the third quarter 2008, gross profit increased by approximately
$754,000 or 378.8% over the second quarter 2008 results of approximately
$199,000.


For the
three months ended September 30, 2008, gross profit as a percent of sales was
31.5% as compared to 43.9% in 2007. This Gross Profit decrease is a direct
impact of our larger customers buying on a direct import basis. The gross
margins are lower in this selling scenario as indicated previously but the
company’s expenses are also reduced as the customer is responsible for related
expenses. (Freight, duties and handling costs).





Operating Expenses:For the
three months ended September 30, 2008 and 2007, operating expenses were $806,000
and $674,000 respectively.  This is an increase of approximately
$132,000 from 2007.  For the nine months ended September 30, 2008 and
2007, operating expenses were approximately $2,335,000 and $1,416,000. This is
an increase of $919,000 from 2007. Explanations for the major expense increases
and reductions for the year are noted below.


For the
nine months ended September 2008 and 2007, employee compensation was
approximately $1,200,000 and $680,000 respectively, an increase of approximately
$520,000. Beginning in mid-2007 CHDT started to build up its management
structure and hired experienced marketing and sales executives to manage the
growth of Capstone’s new product lines.  CHDT also recognized in the
compensation expenses for 9 months ending 2008 approximately $434,000 for stock
options to its executives.


Professional
Fees for the nine months ended September 30, 2008 and 2007 were approximately
$117,000 and $162,000 respectively, a reduction of $45,000. This expense
reduction is the result of hiring qualified in house accounting personnel and
reducing the need for outside accounting services.


31


Depreciation
Expense for the nine months ended September 30, 2008 and 2007 were approximately
$76,000 and $21,000 respectively, an increase of $55,000. This is the result of
the depreciation of moulds and equipment required to develop the STP® product
line.


Quality
Control Fees for the nine months ended September 30, 2008 and 2007 were
approximately $131,000 and $0 respectively. This expense relates to the quality
control and product testing services that we engage to ensure the products we
offer are of the highest quality.


Packaging
Cost Design for the nine months ended September 30, 2008 and 2007 were
approximately $48,000 and $11,000 respectively. The $37,000 increase is the
result of new package design and artwork for the new product lines.


Marketing
Allowances for the nine months ended September 30, 2008 and 2007 were
approximately $118,000 and $28,000 respectively. The $90,000 increase relates to
promotional and marketing allowances provided to retailers in order to support
our sales programs.





Other Income (Expense):
Interest Expense increased for the three months ended September 30, 2008 by
approximately $43,000 from $41,000 in the three months ended September 30, 2007
to $84,000 in the three months ended September 30, 2008. For the nine months
ended September 30, 2008 and 2007 interest expense were approximately $149,000
and $94,000 respectively, an increase of $55,000. This increased expense is the
result of new loans being executed by the Company.





Net Income: For the three months
ended September 30, 2008 and 2007, Net Income was approximately
$64,000


and
$(268,000) loss respectively.  This quarter showed an improvement of
net income by $332,000 as compared to the same quarter last year.  As
compared against the second quarter ended 06-30-08 which incurred a net loss of
approximately $ (552,000), the third quarter net income improved by
$616,000.


For the
nine months ended September 30, 2008 and 2007 Net Loss was approximately
$(1,076,000) and $(791,726) respectively.





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





Impact of Inflation:  Our major expenses have been the cost of selling and
marketing product lines to customers in North America.  That effort
involves mostly sales staff traveling to make direct marketing and sales pitches
to customers and potential customers trade shows around North America and
visiting China to maintain and seek to expand   distribution and
manufacturing relationships and channels.  As a result of world
economic conditions and the current price of world oil and resulting increased
material costs, there are now pressures from Chinese Manufacturers to gradually
increase costs. We generally have been able to reduce cost increases by strong
negotiating or re-engineering products, but we may have to increase the price of
our products in fiscal year 2008 in response to such inflationary
pressures.  Since we operate in industries where the consumers tend to
be price sensitive, any such increase in the prices of our products may
adversely impact our sales and financial results in fiscal year
2008.





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





32


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





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





Interest Rate Risk. We do not have significant
interest rate risk during the fiscal quarter ending September 30,
2008.





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





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





Item 3. Quantitative and
Qualitative Disclosures about Market Risk





Not
applicable.




Item 4. Controls and
Procedures





Evaluation of disclosure controls and
procedures. We maintain “disclosure controls and procedures,” as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), that are designed to ensure that information
required to be disclosed by us in reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognized that disclosure controls and
procedures, no matter how well conceived and operated, can provide only
reasonable assurance of achieving the desired control objectives, and we
necessarily are required to apply our judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures.





Our
management, including our principal executive officer and principal financial
officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of September 30, 2008 and concluded that
the disclosure controls and procedures were effective.





Item 4(T). Controls and
Procedures.





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





The
certifications of our chief executive officer and chief financial officers
attached as Exhibits 31.1, 31.2 and 31.3 to this Report include information
concerning our disclosure controls and procedures and internal control over
financial reporting. Such certifications should be read in conjunction with the
information contained in this Item 4, including the information incorporated by
reference to our annual report on Form 10-KSB for the year ended December 31,
2007, for a more complete understanding of the matters covered by such
certifications.





33


PART
II — OTHER INFORMATION





Item 1. Legal
Proceedings.





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





CELESTE TRUST REG., ESQUIRE TRADE,
ET AL. V. CBQ, INC. (Second Circuit Court of Appeals, Case #07-1701-CV,
April 2007; Lower Court Case# 03 Civ. 9650 RMB; US District Court, SDNY,
12/4/2003):   Both the initial and amended complaint of the
plaintiffs in this case against us were dismissed by the trial court upon our
motions to dismiss.  The plaintiffs perfected their appeal of the
dismissal of the amended complaint and the appeal was briefed in November
2007.  The appeal is currently pending before the Second Circuit Court
of Appeals in New York City. CHDT is uncertain when or how the Second Circuit
will rule on the plaintiffs’ appeal.  CHDT has moved that the Second
Circuit to make a ruling on the briefs without oral arguments, but CHDT believes
that the plaintiffs have requested oral arguments.  There has been no
ruling to date on the overall appeal or CHDT’s motion for a ruling based solely
on the written appeal briefs submitted to date.   CHDT intends to
appeal any adverse ruling in this case by the Second Circuit.  This
action was initially brought by certain debenture holders of Socrates
Technologies Corporation (“STC”), a defunct Delaware corporation, against us for
allegedly purchasing certain operating assets of STC’s subsidiaries in March
2001, which assets were allegedly pledged as collateral for the STC debentures
and which acquisition allegedly violated the STC debentures’ terms. Plaintiffs
are seeking the value of the transferred assets.





In the
fiscal quarter ending June 30, 2008, we engaged the Dorsey & Whitney in New
York City to handle this case for us and to replace the law firm of Kalbian
Hagerty LLP of Washington, D.C., which filed to withdraw from the
case.  Bart Fisher, a former officer and director of CHDT and a
principal beneficial owner of our Common Stock is a party to the engagement
agreement with Dorsey & Whitney.  Mr. Fisher has paid previous
legal costs on behalf of CHDT in this case and has agreed to do so without
indemnification or reimbursement from CHDT.





CPS (Complete Power
Solutions, LLC) Litigation(Case # CACE07-19082(25) 17th
Judicial Court, Broward County, Florida): As part of the January 26, 2007
Purchase and Settlement Agreement between CPS, CHDT 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 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 are now
continuing with a legal action to collect this judgment.





34


Potential
Litigation.  CYBERQUEST,  INC.:   There
have been no new developments in  this matter in fiscal year
2007.  We received two claims from certain former shareholders of
Cyberquest, Inc.  in  the summer of 2006.  They
claimed  to  hold  or  own
approximately  70,000  shares of our Series A
redeemable  preferred stock issued in our 1998 acquisition of
Cyberquest.  Cyberquest ceased operations in 2000-2001
period.  We have investigated these claims and has not
been  able to date to  substantiate  any of
the  claims  to date and the
claimants  have  not  pursued  their  claims  beyond  an  initial  communication
asserting  ownership of these shares of serial  preferred
stock.  We have not received any further claims or communications
since the late summer of 2006. We are uncertain at this point if the claimants
will pursue or press the aforementioned claim of preferred stock
ownership.





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 not disclosed above that we believe  will
have a  material  adverse  effect on
our  financial  condition  or results of
operations.





Item 1A. Risk
Factors.





During
the three months ended September 30, 2008, there were no material changes to the
risk factors previously disclosed in our Annual Report on Form 10-KSB for the
year ended December 31, 2007.





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





None by
the Company during the quarter ended September 30, 2008.








Item 3.  Defaults
Upon Senior Securities





None.





Item
4.  Submission of Matters to Vote of Security
Holders





None.





Item 5.  Other
Information





Related
Party Transactions. On June 2, 2008, Stewart Wallach, CHDT Chief Executive
Officer and President, and Howard Ullman, CHDT Chairman of the Board of
Directors, entered into and consummated a written agreement (“Agreement”)
whereby: (a) Mr. Wallach formally executed his May 23, 2008 commitment to the
CHDT Board of Directors to voluntarily cancel his non-qualified stock option for
74,666,667 million shares of CHDT Common Stock, $0.0001 par value, (“Common
Stock”), leaving 27,733,333 million shares available under that option for
purchase by Mr. Wallach at $0.029 per share, and (b) Mr. Wallach purchased
35,000,000 shares of Common Stock and approximately 939,000 shares of CHDT
Series B Convertible Preferred Stock, $0.10 par value, (“Series B Stock”) from
Mr. Ullman.  The per share purchase price for the shares was $0.0025
for the Common Stock and $0.165 for the Series B Stock, or an aggregate purchase
price of approximately $242,435  (“Aggregate Purchase
Price”).  The Aggregate Purchase Price was paid by a five-year
promissory note issued by Mr. Wallach to Mr. Ullman.  The Note bears
interest at five percent per annum and provides for payment of principal and
interest in five equal annual installments, each payable on the first annual
anniversary of the date of the Note with the first installment due June 2,
2009.  Mr. Wallach may pay such sums with shares of CHDT capital stock
that he beneficially own.  The transaction is intended to reflect Mr.
Wallach’s increasing importance to the executive management and strategic
planning of CHDT.





35


Mr.
Wallach consented to the termination of the 74,666,667 common stock option
shares on May 23, 2008, subject to the conditions of the Agreement (including
signing and closing of the Agreement on June 2, 2008).  That consent
is memorialized in the Agreement and subject to the signing and closing of the
Agreement on June 2, 2008.  As a result of the termination of the
74,666,667 stock option shares, the Company is eliminating the incentive
compensation expense for all terminated option shares from May 24, 2008, which
have not be expensed in CHDT’s historical financial statements as filed with the
SEC.  The incentive compensation expense eliminated by the termination
of the 74,666,667 stock option shares by Mr. Wallach is estimated to be as
follows: (a) $345,028 in incentive compensation expenses in fiscal
year  2008 and (b) an aggregate total of $1,725,137 in incentive
compensation expenses for fiscal year 2008 through fiscal year 20011 (the
expense elimination for fiscal year 2008 is included in the amount of the total
expense elimination for fiscal year 2008 through fiscal year
20011).





The sale
of Series B Stock leaves Mr. Ullman with total ownership of 917,813 shares of
Series B Stock (43% of the outstanding shares) and total ownership of
195,769,536 shares of Common Stock (35% of the outstanding shares) and provides
Mr. Wallach with total ownership of  65,157,295 shares of Common Stock
(12% of the outstanding shares) and 939,000 shares of Series B Stock (44% of the
outstanding shares).  The Series B Stock is convertible into shares of
Common Stock at 66 2/3 to 1 ratio. Mr. Wallach continues to have a non-qualified
stock option for 29.013 million shares of Common Stock at an exercise price of
$0.029 per share. Outstanding shares of the Series B Stock is 2,111,813 and
outstanding shares of the Common Stock is 561,941,645 – both totals as of May
30, 2008.





On July
11, 2008, we received a loan commitment from Jeffrey Postal, a director of CHDT,
for a maximum of $250,000 principal amount.  The principal accrues
interest at 8% simple interest per annum and has a six (6) month
term.  Principal and all accrued interest on the principal are due in
a lump-sum payment on the maturity date of January 11, 2009, which can be
extended for an additional six (6) consecutive month period with the mutual
agreement of both parties.  As an equity kicker, CHDT also issued a
warrant to Mr. Postal to purchase 4 million shares of “restricted” (as defined
under Rule 144 of the Securities Act of 1933, as amended) concurrently with the
loan commitment.  The exercise price under the warrant is $0.025 per
share and the warrant has a term of five years.  The debt obligation
is evidenced by a Promissory Note, dated July 11, 2008. Attached to the
Promissory Note is the form of the warrant.  The proceeds from the
loan will be used solely for funding of the production of products sold by
Capstone.   CHDT elected to pursue the loan from Mr. Postal
because the funding was immediately available from Mr. Postal without the
customary delay of and the numerous restrictive covenants of traditional bank
financing, the funding was needed this fiscal quarter to fund the production of
products and there was no assurance or certainty that the funding could be
obtained from other funding sources in a timely manner or at all. This
transaction and the underlying documentation were approved by disinterested
directors of CHDT as being fair to CHDT and its public shareholders. The
issuance of the warrant is made in reliance on a Section 4(2) exemption from
registration under the Securities Act of 1933, as amended.  The above
description of the Promissory Note and warrant are qualified in their entirety
by reference to the actual documents, which are attached to this Form 8-K
Report, filed with the Commission on July 17, 2008, as Exhibit
10.1.





36


Item
6.  Exhibits


EXHIBIT #
            DESCRIPTION OF EXHIBIT2.1
            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
            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.


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


^ Filed
Herein.


37


SIGNATURES





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 28th
day of October 2008.





CHDT
CORPORATION





Dated:   October
28, 2008








/s/ Stewart
      Wallach
              Stewart
      Wallach
              Principal
      Executive Officer
            
            Chief
      Executive Officer and President/s/ Laurie
      Holtz
              Laurie
      Holtz
              Principal
      Financial and Accounting Officer
            
            Chief
      Financial Officer/s/ Gerry
      McClinton
              Gerry
      McClinton
              Principal
      Operations Executive
            
            Chief
      Operating Officer