UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


(Mark One)
       [X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended: September 30, 2004
                ------------------------------------------------

       [  ]   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                                  EXCHANGE ACT

                        For the transition period from to
      ------------------------------ --------------------------------------
                        Commission file number 33-4707-NY
         ---------------------------------------------------------------

                        China Direct Trading Corporation
 -------------------------------------------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

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

               12535 Orange Drive, Suite 613, Davie, Florida 33330
 ------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (954) 474-0224
                            Issuer's telephone number

                                   CBQ, Inc.
(Former  name,  former  address and former  fiscal year,  if changed  since last
report.)


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDING DURING THE PRECEDING FIVE YEARS

         Check whether the registrant  filed all documents and reports  required
to be  filed  by  Section  12,  13 or  15(d)  of  the  Exchange  Act  after  the
distribution of securities under a plan confirmed by a court. Yes ----- No -----



<PAGE>




                      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:  September  30,  2004
Approximately 499,595,300 shares

         Transitional Small Business Disclosure Format (check one).
Yes      ;  No   X
    ----       -----








































<PAGE>



                                                      PART I

ITEM 1.  FINANCIAL STATEMENTS

                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                               September 30,        December 31,
                                                                                    2004                2003
                                                                             ------------------  ------------------
Assets:

Current assets:
<S>                                                                          <C>                 <C>
   Cash                                                                      $           85,668  $           24,841
   Deferred Tax Asset                                                                     7,300               7,300
                                                                             ------------------  ------------------

     Total Current Assets                                                                92,968              32,141
                                                                             ------------------  ------------------

Fixed Assets:
   Office Equipment                                                                       2,688                   -
   Accumulated Depreciation                                                                (672)                  -
                                                                             ------------------  ------------------

     Net Fixed Assets                                                                     2,016                   -
                                                                             ------------------  ------------------

Other non-current assets:
   Deposits                                                                               1,713               1,713
                                                                             ------------------  ------------------

         Total assets                                                        $           96,697  $           33,854
                                                                             ==================  ==================
</TABLE>

















<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                           CONSOLIDATED BALANCE SHEETS
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                (Unaudited)
                                                                               September 30,        December 31,
                                                                                    2004                2003
                                                                             ------------------  ------------------

Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
<S>                                                                          <C>                 <C>
   Accounts payable, trade                                                   $            9,519  $           63,117
   Accrued expenses                                                                      79,000             254,000
   Customer Deposits                                                                     60,000              60,895
   Due to related party                                                                       -               1,215
   Due to shareholders                                                                        -             145,000
                                                                             ------------------  ------------------

      Total liabilities                                                                 148,519             524,227
                                                                             ------------------  ------------------

Stockholders' Equity (Deficit):
   Preferred Stock, par value $.001 per share
      Authorized 100,000,000 shares,
      Issued 8,100 shares at September 30, 2004 and
      -0- shares at December 31, 2003                                                         8                   -
   Common Stock, par value $.0001 per share
      Authorized 600,000,000 shares,
      Issued 499,595,300 shares at September 30, 2004
      and 499,350,300 shares at December 31, 2003                                        49,960              49,935
   Additional paid-in capital                                                           943,627             563,658
   Shareholder receivables                                                             (114,368)           (112,517)
   Accumulated deficit                                                                 (931,049)           (991,449)
                                                                             ------------------  ------------------

     Total Stockholders' Equity (Deficit)                                               (51,822)           (490,373)
                                                                             ------------------  ------------------

     Total Liabilities and
       Stockholders' Equity (Deficit)                                        $           96,697  $           33,854
                                                                             ==================  ==================
</TABLE>





                             See accompanying notes.


<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                      (Unaudited)                            (Unaudited)
                                               For the three months ended               For the nine months ended
                                                      September 30,                           September 30,
                                          --------------------------------------  -------------------------------------
                                                 2004                2003               2004                2003
                                          ------------------  ------------------  -----------------   -----------------

<S>                                       <C>                 <C>                 <C>                 <C>
Revenues                                  $          224,018  $          189,795  $         898,455   $         548,424
Cost of Sales                                        206,195             109,298            630,914             319,047
                                          ------------------  ------------------  -----------------   -----------------

   Gross Profit                                       17,823              80,497            267,541             229,377
                                          ------------------  ------------------  -----------------   -----------------

Operating Expenses:
   Sales and Marketing                                 5,305               1,200             16,223               3,082
   Other General and Administrative                   71,241              37,632            188,306             103,189
                                          ------------------  ------------------  -----------------   -----------------

     Total Operating Expenses                         76,546              38,832            204,529             106,271
                                          ------------------  ------------------  -----------------   -----------------

         Net Operating Income (Loss)                 (58,723)             41,665             63,012             123,106

Other Income (Expense):
   Interest Expense                                     (883)               (475)            (2,612)             (3,704)
                                          ------------------  ------------------  -----------------   -----------------

     Net Income (Loss)                    $          (59,606) $           41,190  $          60,400   $         119,402
                                          ==================  ==================  =================   =================

Weighted Average Shares Outstanding              502,748,300          97,000,000        500,482,966          97,000,000
                                          ==================  ==================  =================   =================

Income (Loss) per Share                   $                -  $                -  $               -   $               -
                                          ==================  ==================  =================   =================
</TABLE>



                             See accompanying notes.


<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                       (Unaudited)
                                                                 For the nine months ended
                                                                      September 30,
                                                          -------------------------------------
                                                                2004                2003
                                                          -----------------  ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Continuing operations:
<S>                                                       <C>                <C>
   Net Income (Loss)                                      $          60,400  $          119,402
Adjustments necessary to reconcile net loss
   to net cash used in operating activities:
     Stock issued for expenses                                        7,674                   -
      Depreciation                                                      672                   -
     (Increase) decrease in security deposits                             -              (1,713)
      Increase (decrease) in accounts payable                        (2,485)                  -
      Increase (decrease) in customer deposits                         (895)                  -
                                                          -----------------  ------------------

Net cash used in operating activities                                65,366             117,689
                                                          -----------------  ------------------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets                                             (2,688)                  -
                                                          -----------------  ------------------
Net cash provided by (used) investing activities                     (2,688)                  -
                                                          -----------------  ------------------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Shareholder receivables                                              (1,851)            (85,954)
                                                          -----------------  ------------------
Net Cash Provided by
  Financing Activities                                               (1,851)            (85,954)
                                                          -----------------  ------------------

Net (Decrease) Increase in
  Cash and Cash Equivalents                                          60,827              31,735
Cash and Cash Equivalents
  at Beginning of Period                                             24,841                   -
                                                          -----------------  ------------------
Cash and Cash Equivalents
  at End of Period                                        $          85,668  $           31,735
                                                          =================  ==================


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest                                                $           2,612  $            3,704
  Franchise and income taxes                              $               -  $                -
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES: NONE

                             See accompanying notes.


<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This  summary  of   accounting   policies  for  China  Direct   Trading
Corporation  and  Subsidiaries  (formerly  CBQ,  Inc.) 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.

Interim Reporting

         The unaudited financial statements as of September 30, 2004 and for the
three and nine month periods ended  September 30, 2004 and 2003 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

         CBQ, Inc., (formerly Freedom Funding, Inc.) a Colorado corporation, was
incorporated  September 18, 1986,  under the laws of the State of Delaware,  and
changed its situs to Colorado in 1989.

         Souvenir  Direct,  Inc. was incorporated on September 9, 2002 under the
laws of the State of Florida.

         On December 1, 2003, China Direct Trading Corporation  acquired 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.

         In May 2004,  the  Company  changed  its name to China  Direct  Trading
Corporation  and  reincorporated  from the  State of  Colorado  to the  State of
Florida.

Nature of Business

         The  Company  is engaged  in the  business  of  marketing  and  selling
novelty,   gift,  and  promotional  items  in  North  America.   The  items  are
manufactured  in the  People's  Republic of China by  third-party  manufacturing
companies.

Cash and Cash Equivalents

         For purposes of the statement of cash flows, 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.



<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

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

Principles of Consolidation

         The  consolidated  financial  statements  for  the  nine  months  ended
September 30, 2004 and the year ended  December 31, 2003 include the accounts of
the parent entity and its subsidiary Souvenir Direct, Inc.

         The  results  of  subsidiaries  acquired  or sold  during  the year are
consolidated  from their effective dates of acquisition  through their effective
dates of disposition.

         All  significant  intercompany  balances  and  transactions  have  been
eliminated.

Pervasiveness of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  required  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.

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.  Diluted  loss per  common  share  for the  three  and nine  months  ended
September 30, 2004 and 2003 are not presented as it would be anti-dilutive.

Concentration of Credit Risk

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

Reclassifications

         Certain   reclassifications  have  been  made  in  the  2003  financial
statements to conform with the 2004 presentation.

Major Suppliers

         The Company's major  suppliers are from the People's  Republic of China
and to a lesser extent a variety of Pacific Rim countries. The Company relies on
30 manufacturing  concerns in China for its products.  The loss of these Chinese
manufacturing sources would adversely impact on the business of the Company.


<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

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

Major Customers

         At September 30, 2004, the Company  receives  approximately  36% of its
gross revenues from its top three  accounts.  The loss of these  customers would
adversely impact the business of the Company.

Revenue Recognition

         Sales  revenue is  recognized  upon the  shipment of  merchandise  from
suppliers to customers.  Allowances for sales returns, rebates and discounts are
recorded  as a  component  on  net  sales  in  the  period  the  allowances  are
recognized.

Advertising

         Advertising  costs are  expensed as incurred.  Advertising  expense was
$16,223 for the nine  months  ended  September  30, 2004 and $3,082 for the nine
months ended September 30, 2003.

Income Taxes

         The Company  accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No.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.

NOTE 2 - LEASES

         The Company leases approximately 1,500 square feet of office space from
Flamingo   Commons,   LLC.  The  lease   requires   monthly  lease  payments  of
approximately  $1,200 . The lease expires in September 2005. The office space is
used as the corporate  headquarters.  It is located at 12535 Orange Drive, Suite
613, Davie, Florida 33330.

         The Company also rents a storage  facility on a  month-to-month  basis.
Monthly rentals for the storage facility are approximately $150.

         Rental  expense  under these leases was  approximately  $15,000 for the
year ended December 31, 2003.





<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

NOTE 4 - LEASES (continued)

         The minimum  future lease payments under these leases for the next five
years are:


          Year Ended December 31,
-------------------------------------------
         2004                                             $       14,400
         2005                                                     10,800
         2006                                                          -
         2007                                                          -
         2008                                                          -
                                                          --------------
         Total minimum future lease payments              $       25,200
                                                          ==============

NOTE 5 - STOCK TRANSACTIONS

Common Stock

         On September 9, 2002, the Company issued 100 shares of common stock for
$2,774 of start- up expenses.

         On December 1, 2003,  the Company  issued  97,000,000  shares of common
stock to acquire Souvenir Direct, Inc. in a reverse acquisition.  The 100 shares
that  were  previously  issued  were  retroactively   adjusted  to  reflect  the
equivalent  number of shares  that were  issued in  connection  with the reverse
acquisition.  The acquisition was recorded by a credit to common stock of $9,600
and a debit to paid-in  capital of $2,674 and a debit to  retained  earnings  of
$6,926.  Also on December 1, 2003,  an additional  402,350,300  shares of common
stock were issued to the previous  owners of CBQ,  Inc. All  references to stock
reflect the retroactive adjustment to the shares.

         During the three months ended  September 30, 2004,  the Company  issued
245,000  shares  of common  stock at $0.03  per  share for legal and  consulting
services valued at $7,350.

Preferred Stock

         During the three months ended  September 30, 2004,  the Company  issued
8,100 shares of preferred stock at $0.04 per share to board members for services
valued at $324.  The  preferred  shares are  convertible  to common  shares at a
conversion  ratio of 1,000  shares of common  stock for each share of  preferred
stock.









<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

NOTE 6 - INCOME TAXES

         As of December 31, 2003,  the  provision  for income taxes  consists of
federal  income tax and Florida state income tax. The provision  consists of the
following:


Current:
   Federal                                        $               -
   State                                                          -
                                                  -----------------
                                                                  -
   Deferred tax benefit                                      (7,300)
                                                  -----------------
   Income tax benefit                             $          (7,300)
                                                  =================

         Deferred taxes result from temporary  differences in the recognition of
income and expenses for income tax reporting and financial  statement  reporting
purposes.  The Company had  deferred  tax  benefits of $7,300 as of December 31,
2003.  These deferred tax benefits are the result of prepaid  customer  deposits
that are made towards future sales.

         The  difference  between the effective  income tax rate and the federal
statutory  income tax rate on the income (loss) from  continuing  operations are
presented below:


                                                              December 31,
                                                                  2003
                                                           ------------------
Expense (Benefit) at the federal statutory rate of 15%     $                -
Nondeductible expenses                                                      -
State Income Taxes                                                          -
Deferred Tax Benefit                                       (7,300)
Other                                                                       -
                                                           ------------------
Effective Tax Expense (Benefit)                            $(7,300)
                                                           ==================

         The above table reflects activity from December 1, 2003 to December 31,
2003.  Prior to December 1, 2003, the Company was an  S-corporation  and did not
incur  income  taxes.  Instead,  its  earnings  and losses were  included in the
personal  returns of its  shareholders and taxed depending on their personal tax
situations.  The 2002 financial statements do not reflect a provision for income
taxes.

NOTE 7 - LEGAL SETTLEMENTS

         On December 19, 2003, the Company settled a $459,662 judgment with Bell
Microproducts, Inc. This $459,662 plus interest of $103,996 had been included in
the Company's  accounts payable.  Bart Fisher, a former officer and director and
principal  shareholder  of the Company paid the entire  settlement  of 3,000,000
shares of  common  stock and  $25,000  cash.  Mr.  Fisher  agreed to assume  the
obligation to pay the  settlement  consideration  without any  consideration  or
reimbursement from the Company.


<PAGE>



                CHINA DIRECT TRADING CORPORATION AND SUBSIDIARIES
                              (formerly CBQ, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

NOTE 7 - LEGAL SETTLEMENTS (continued)

         In June 2001,  ITC/INFO Tech  ("Claimant")  obtained a default award of
$79,000  against the Company.  The award was based on  non-payment  for computer
goods shipped by ITC to two subsidiaries of the Company. The Company has offered
to settle the award for shares of restricted stock, but the Claimant has refused
to accept such an offer to date.  The Claimant has made no effort to enforce its
award since June 2001. As of December 31, 2003 and September 30, 2004, the award
amount has been included in the accrued expenses of the Company.

NOTE 8 - CONTINGENCIES

         Celeste Trust Reg.,  Esquire Trade,  et al. v. CBQ, Inc. (Case# 03 Civ.
9650 RMB; US District Court, SDNY, 12/4/2003). A lawsuit filed against CBQ, Inc.
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 CBQ, Inc. for $700,000  principal amount. The Company is
currently  contesting  the  lawsuit.  On April 15,  2004,  the Court  denied the
plaintiffs'  motion for  default  judgment  and set the case for  discovery  and
trial.

NOTE 9 - SUBSIDIARY

         In February  2004,  the Company  established  a new  subsidiary,  China
Pathfinder Fund, LLC, a Florida limited liability  company.  The purpose of this
new   subsidiary  is  to  pursue  the  business  of  acting  as  a  funding  and
merger-and-acquisition agent in the United States and China.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL  - 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, 2003.

PLAN OF  OPERATIONS  - The Company was  organized  for the purpose of creating a
corporate  vehicle to seek,  investigate  and, if such  investigation  warrants,
acquire an interest in one or more  business  opportunities  presented  to it by
persons or firms who or which desire to seek perceived  advantages of a publicly
held  corporation.  Since the  acquisition  of SDI in December 2003, the Company
continues to explore  acquisition  opportunities  as a means of growth,  but the
Company's  focus is  mostly  on  acquisitions  that  are  consistent  with,  and
complementary to, its core trading


<PAGE>



company business line.

         The  Company  may  incur   significant   post-merger   or   acquisition
registration costs in the event management wishes to register a portion of their
shares for subsequent  sale. The Company will also incur  significant  legal and
accounting  costs in  connection  with the  acquisition  including  the costs of
preparing post- effective amendments,  Forms 8-K, agreements and related reports
and documents.

         While the Company believes that SDI will be able to generate sufficient
cash flow to pay for SDI's, China Pathfinder's and the Company's direct overhead
costs and, with respect to SDI, its internal planned growth in fiscal year 2004,
SDI does not generate  sufficient  cash flow at this time to fund an acquisition
program,  and development of new businesses (except ones requiring low start- up
costs  or  which  are  complementary  to  the  Company's  current   low-overhead
distribution operations).

         The Company  entered  into an equity line of  financing  with  Dutchess
Private Equities Fund, II, L.P., a Delaware limited partnership, ("Dutchess") on
August 5, 2004, to provide up to a $2,500,000 funding to the Company.  Under the
equity line of financing,  the Company has the right, under certain  conditions,
to put or require  Dutchess  to purchase  shares of Company  Common  Stock.  The
shares  acquired  under the equity line of credit must be  registered  under the
Securities Act of 1933, as amended.

         The Purchase Price for the Common Stock  identified in the put shall be
equal to 95% of the lowest closing bid price of the Common Stock (as reported by
www.bloomberg.com) during the period commencing on the date of the put delivered
to Dutchess by the Company and ending on and including the date that is five (5)
trading days after such put date.  The amount that the Company shall be entitled
to Put to the Dutchess  (the "Put  Amount")  shall be equal to, at the Company's
election, either: (A) 200% of the average daily volume (U.S. market only) of the
Common Stock for the 20 Trading Days  immediately  prior to the  applicable  put
notice  date,  multiplied  by the average of the three daily  closing bid prices
immediately  preceding the put date (as reported by  www.bloomberg.com),  or (B)
$100,000;  provided that in no event will the Put Amount be more than $1,000,000
with respect to any single put. A put will not be honored if the purchase  price
of the Common Stock does not equal or exceed 85% of the lowest closing bid price
as  quoted by  www.bloomberg.com  for the ten  Trading  Day  period  immediately
preceding  such put notice date.  The proceeds from the sale of the shares under
the  equity  line  of  credit  must be  used  for  general  working  capital  or
acquisitions by the Company.

         The Company also signed a registration  rights  agreement with Dutchess
on August 5, 2004, which agreement  obligates the Company to file a registration
statement  under the Securities Act of 1933, as amended,  to register the shares
of  Company  Common  Stock  to be used in the  equity  line  of  financing  with
Dutchess.  The Company  anticipates that it will take several months to register
the shares of Common Stock underlying the equity line of credit.

         The  agreement  with  Dutchess for the equity line of credit limits the
total number of shares of Company Common Stock issuable under the equity line of
credit  limits the total number of shares that can be issued to Dutchess to that
amount that equals 18% of the issued and  outstanding  shares of Company  Common
Stock (based on 502,410,299 shares issued and outstanding). Further, the Company
is not  obligated to put all or any portion of the shares to Dutchess  under the
equity line of credit.  The equity line of credit  could be dilutive of existing
shareholders even with such limitations.


<PAGE>



The Company, which has limited assets because of the nature of its business, and
is a penny stock company,  has been unable to locate better terms and conditions
for funding and believes  that the Dutchess  equity line of credit  presents the
best available terms under current circumstances.

         The above is a summary of certain  terms and  conditions  of the equity
line of credit.  The summary is  qualified  in its  entirety by reference to the
Investment  Agreement and Registration  Agreement which are attached as exhibits
to the Form 8-K as filed by the Company with the Commission on August 10, 2004.

RESULTS OF OPERATIONS - The Company had no  operations  during 2002. On December
1, 2003, the Company acquired all of the issued and outstanding shares of common
stock of Souvenir Direct, Inc. ("SDI"), a private Florida corporation engaged in
the business of  distributing  to its customers  custom  manufactured  souvenir,
promotional and gift items  manufactured in China. The financial  results of SDI
for the three and nine months ended September 30, 2004 and 2003 are reflected in
the financial statements of this Report.

         Prior to the  spring  of 2002,  the  Company  was  engaged  in  systems
development,  the  development  of  customized  software  programs  for business
clients  and  in  value-added   reseller  of  computer   hardware  and  software
manufactured  by other  companies.  After the spring of 2002, the Company had no
business  operations.  Accordingly,  comparisons  with  prior  periods  are  not
meaningful.

LIQUIDITY  AND CAPITAL  RESOURCES.  Historically,  the Company has not generated
enough cash flow from  operations  to cover its  overhead  costs and the cost of
growth.  The  inadequacy  of cash  flow  and the  inability  of the  Company  to
consistently obtain funding and ongoing funding on commercially reasonable terms
have  undermined  the former  business  operations of the Company and forced the
Company  to obtain  funding  from  management  and  through  the sale of Company
securities.

         The  Company  sought  to  acquire  SDI  because  it is a  low  overhead
distributor  operation run by two persons,  with no inventory of any consequence
to finance and with the ability to grow without  extensive outlays of funds. The
Company is hoping that SDI will generate  enough cash flow to cover the overhead
costs of the Company and SDI and to fund the  expansion of SDI's  business.  Any
acquisitions by the Company will most likely require  third-party funding of the
acquisition and the acquired  operations.  As a small business and a penny stock
company,  the Company will continue to face difficulty in obtaining financing or
funding on reasonable commercial terms.

         The Company  expects future  development and expansion will be financed
through cash flow from  operations and other forms of financing such as the sale
of  additional  equity and debt  securities,  capital  leases  and other  credit
facilities.  Since the Company, by the very nature of its business,  has limited
assets,  and is a  penny  stock  company,  there  are no  assurances  that  such
financing  will be  available on terms  acceptable  or favorable to the Company.
Further,  the  increase  in the  number of shares of common  stock in the public
markets  may reduce the  ability or appeal of the  Company to future  sources of
possible  financing  or funding.  The Company has entered into an equity line of
credit with Dutchess Private  Funding,  L.C. (See "Plan of Operations" in Item 2
above) whereby the Company,  upon  registering  the underlying  shares of Common
Stock under the Securities Act of 1933, as amended.



<PAGE>



GOVERNMENT REGULATIONS - The Company is subject to all pertinent Federal, State,
and Local laws  governing its business.  The Company is subject to licensing and
regulation by a number of  authorities in its State or  municipality.  These may
include health, safety, and fire regulations.  The Company's operations are also
subject to Federal and State minimum wage laws governing such matters as working
conditions and overtime.

IMPACT OF INFLATION.  To date, the Company has not  experienced  any significant
effect  from  inflation.  The  Company's  major  expenses  have been the cost of
marketing its product lines to customers in North America.  That effort involves
mostly Mr.  Ullman  traveling  to make  direct  marketing  and sales  pitches to
customers  and  potential  customers  as well as  showing  the SDI  products  at
industry  trade shows  around North  America and visiting  China to maintain and
expand SDI's  distribution and  manufacturing  relationships  and channels.  The
Company  generally has been able to meet increase in costs by raising  prices of
its products.

COUNTRY RISK. Almost all of the Company's contract manufacturing  operations and
sources of  products  are located in China.  As such,  the Company is subject to
significant  risks not  typically  faced by companies  operating in or obtaining
products  from  North  America  and  Western   Europe.   China  has  experienced
significant  economic  growth in the past two years and China must  continue  to
expand its infrastructure, especially electrical and other utilities, to sustain
such growth and its manufacturing industry. Inadequate infrastructure may affect
the  ability  of the  Company's  manufacturing  sources  to timely  produce  the
Company's products.  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 the
Company to obtain products and fill customer  orders from the Company's  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.

         China is also under  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.  The Company does not believe that such  revaluation of Chinese currency
would  adversely  impact  its  business  because of the  low-cost  nature of the
Company's  products and the fact that U.S. dollars is the currency of use in all
of the Company's commercial transactions.

ITEM 3.  CONTROLS AND PROCEDURES

The  Company's  Chief  Executive   Officer  and  Chief  Financial  Officer  have
concluded,  based on an evaluation  conducted within 90 days prior to the filing
date of this  Quarterly  Report on Form 10- QSB, that the  Company's  disclosure
controls and  procedures  have  functioned  effectively  so as to provide  those
officers the information necessary to evaluate whether:

         (i) this Quarterly  Report on Form 10-QSB contains any untrue statement
         of a material fact or omits to state a material fact  necessary to make
         the statements made, in light of the


<PAGE>



         circumstances  under which such  statements  were made,  not misleading
         with  respect to the period  covered by this  Quarterly  Report on Form
         10-QSB, and

         (ii) the financial statements, and other financial information included
         in this Quarterly Report on Form 10-QSB, fairly present in all material
         respects the financial condition,  results of operations and cash flows
         of the Company as of, and for, the periods  presented in this Quarterly
         Report on Form 10-QSB.

There have been no significant  changes in the Company's internal controls or in
other  factors  since  the  date of the  Chief  Executive  Officer's  and  Chief
Financial Officer's  evaluation that could  significantly  affect these internal
controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         CELESTE TRUST LITIGATION.  CELESTE TRUST REG., ESQUIRE TRADE, ET AL. V.
CBQ,  INC.  (Case# 03 Civ.  9650 RMB; US District  Court,  SDNY,  12/4/2003).  A
lawsuit  filed against CBQ,  Inc. 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 former 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  the
consideration  that  was to be paid to STC by CBQ,  Inc.  for the  acquired  STC
subsidiaries'  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 CBQ, Inc.
for $700,000 principal amount. The Company is currently  contesting the lawsuit.
On April 15, 2004, the Court denied the plaintiffs'  motion for default judgment
and the case is being for  discovery  and trial.  There has been no  significant
developments in this lawsuit since April 15, 2004.

         Sun Trust Bank line of credit and term note: Prior to being acquired by
the  Company,  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.  Suntrust  had not sued  CBQI but has
threatened to sue. RAS Investment,  Inc., a company affiliated with Anne Sigman,
has  advised  the  Company  that RAS has  acquired  the Sun  Trust  note and has
demanded  payment in cash or stock.  The Company is considering or investigating
all of the claims in the RAS  communication  to the  Company.  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.


<PAGE>




ITEM 2.  CHANGES IN SECURITIES

         During the three months ended  September 30, 2004,  the Company  issued
245,000  shares  of common  stock at $0.03  per  share for legal and  consulting
services valued at $7,350.

         During the three months ended  September 30, 2004,  the Company  issued
8,100 shares of preferred stock at $0.04 per share to board members for services
valued at $324.  The  preferred  shares are  convertible  to common  shares at a
conversion  ratio of 1,000  shares of common  stock for each share of  preferred
stock.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None/Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None/Not Applicable.

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

10.1     Investment  Agreement,  dated  August 5, 2004,  by Company and Dutchess
         Private Equities Fund, II, L.P. (1)

10.2     Registration  Rights  Agreement,  dated August 5, 2004,  by Company and
         Dutchess Private Equities Fund, II, L.P. (1)

31       Certification  Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002.

32       Certification  Pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
         2002.

(1) Incorporated by reference from Company's Form 8-K, dated
         August 6, 2004.

(b) Reports on Form 8-K.

i)       Item 5 - Company  name  change  and  change of state of  incorporation.
         Report dated and filed May 28, 2004.

ii)      Item 5 - Press release  concerning listing of Company's common stock on
         the Berlin Stock Exchange. Report dated and filed June 17, 2004; and

iii)     Item 5 - Agreement to purchase all of the outstanding  shares of Magnet
         World, Inc. and Magnet World, Ltd. Report dated and filed June 21, 2004

iv)      Item 5 - Investment Agreement and Registration Rights Agreement,  dated
         August 5, 2004, by Company and Dutchess Private Equities Fund, II, L.P.



<PAGE>



                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 8th day of November, 2004.

China Direct Trading Corporation

November 11, 2004

/s/ Howard Ullman
Howard Ullman
CEO, President and Chairman
(Principal Executive Officer)
(Principal Financial and Accounting Officer)