CAPSTONE COMPANIES, INC. - FORM 10-Q

Attached files

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EX-31.1 - CAPSTONE COMPANIES, INC.	form10q033111ex31-1.htm
EX-31.2 - CAPSTONE COMPANIES, INC.	form10q033111ex31-2.htm
EX-32.1 - CAPSTONE COMPANIES, INC.	form10q033111ex32-1.htm
EX-32.2 - CAPSTONE COMPANIES, INC.	form10q033111ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

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

For the transition period from to

Commission File Number: 000-28831

CHDT CORPORATION

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

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

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

(Address of principal executive offices)

(954) 252-3440

(Issuer’s Telephone Number)

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

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

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

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

oYes xNo

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of March 31, 2011, there were 649, 357,786 shares of the issuer's $.0001 par value common stock issued and outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31,			December 31,
	2011			2010
Assets:

Current Assets:
Cash	$	92,873		$	115,239
Accounts receivable - net		2,065,133			1,256,913
Inventory		191,584			387,990
Prepaid expense		744,539			527,562

Total Current Assets		3,094,129			2,287,704

Fixed Assets:
Computer equipment & software		64,047			64,047
Machinery and equipment		487,538			487,538
Furniture and fixtures		5,665			5,665
Less: Accumulated depreciation		(500,087	)		(486,974	)

Total Fixed Assets		57,163			70,276

Other Non-current Assets:
Product development costs - net		16,811			18,895
Goodwill		1,936,020			1,936,020

Total Other Non-current Assets		1,952,831			1,954,915

Total Assets	$	5,104,123		$	4,312,895

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)

	(Unaudited)
	March 31,			December 31,
	2011			2010
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued expenses	$	455,340		$	259,788
Note payable - Sterling Factors		1,145,802			889,708
Notes and loans payable to related parties - current maturities		2,438,436			1,550,144

Total Current Liabilities		4,039,578			2,699,640

Long Term Liabilities
Notes and loans payable to related parties - Long Term		0			671,313
Total Liabilities		4,039,578			3,370,953

Stockholders' Equity:
Preferred Stock, Series A, par value $.001 per share
Authorized 100,000,000 shares, issued -0- shares
at March 31, 2011 and December 31, 2010		-			-
Preferred Stock, Series B, par value $.10 per share
Authorized 100,000,000 shares, issued -0- shares
at March 31, 2009 and December 31, 2009
Preferred Stock, Series B-1, par value $.0001 per share		-			-
Authorized 50,000,000 shares, issued -0- shares
at March 31, 2011 and December 31, 2010		-			-
Preferred Stock, Series C, par value $1.00 per share
Authorized 1,000 shares, issued 1,000 shares
at March 31, 2011 and December 31, 2010		1,000			1,000
Common Stock, par value $.0001 per share
Authorized 850,000,000 shares,
Issued 649,357,786 shares at March 31, 2011
and December 31, 2010		64,936			64,936
Related party receivable		(40,441	)		(40,441	)
Additional paid-in capital		6,976,672			6,961,187
Accumulated deficit		(5,937,622	)		(6,044,740	)

Total Stockholders' Equity		1,064,545			941,942

Total Liabilities and Stockholders’ Equity	$	5,104,123		$	4,312,895

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

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended
	March 31st,
	2011			2010

Revenues	$	2,417,494		$	353,036
Cost of Sales		(1,826,243	)		(238,256	)
Gross Profit		591,251			114,780

Operating Expenses:
Sales and marketing		52,773			102,928
Compensation		184,603			287,584
Professional fees		37,737			54,583
Product Development		52,083			35,392
Other general and administrative		81,227			108,239
Total Operating Expenses		408,423			588,726

Net Operating Income (Loss)		182,828			(473,946	)

Other Income (Expense):
Interest expense		(75,710	)		(33,856	)
Total Other Income (Expense)		(75,710	)		(33,856	)

Net Income (Loss)	$	107,118		$	(507,802	)

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

Weighted Average Shares Outstanding
Basic		649,357,786			648,632,786
Diluted		801,009,663			801,604,363

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

CHDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Three Months Ended
	March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing operations:
Net Income (Loss)	$	107,118		$	(507,802	)
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization		17,446			42,242
Compensation expense from stock options		15,484			48,254
(Increase) decrease in accounts receivable		(808,220	)		1,207,980
(Increase) decrease in inventory		196,405			(99,785	)
(Increase) decrease in prepaid expenses		(216,977	)		(98,619	)
(Increase) decrease in deposits		-			15,000
(Increase) decrease in other assets		-			(6,001	)
Increase (decrease) in accounts payable and accrued expenses		195,553			217,281
Increase (decrease) in accrued interest on notes payable		31,604			12,264
Net cash provided by (used in) operating activities		(461,587	)		830,814

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,250	)		(5,777	)
Net cash provided by (used in) investing activities		(2,250	)		(5,777	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		256,095			-
Repayments of notes payable		-			(1,062,047	)
Proceeds from notes and loans payable to related parties		997,000			192,000
Repayments of notes and loans payable to related parties		(811,624	)		(5,439	)
Net cash provided by financing activities		441,471			(875,486	)

Net (Decrease) Increase in Cash and Cash Equivalents		(22,366	)		(50,449	)
Cash and Cash Equivalents at Beginning of Period		115,239			266,867
Cash and Cash Equivalents at End of Period	$	92,873		$	216,418

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	32,745		$	21,592
Franchise and income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

None

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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. On December 1, 2003, CHDT issued 97 million shares common stock to acquire 100% of the outstanding common stock of Souvenir Direct, Inc. in a reverse acquisition. At that time, a new reporting entity was created. Souvenir Direct, Inc. was 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. 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.

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.

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Business

Since the beginning of fiscal year 2007, the Company has been primarily engaged in the business of developing, marketing and selling consumer products through national and regional retailers and distributors, in North America. Capstone currently operates in four primary business segments: Power Failure Lights, Motion Sensor Lights, Portable Book and Task Lights and Desk Lamps. The Company’s products are typically manufactured in the Peoples’ Republic of China by third-party manufacturing companies.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

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

As of December 31, 2010 and through March 31st, 2011, management has determined that the accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts.

Inventory

The Company's inventory, which is recorded at lower of cost (first-in, first-out) or market, consists of finished goods for resale by Capstone, totaling $191,584 and $387,990 at March 31, 2011 and December 31, 2010, respectively.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Property and Equipment

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

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

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 2010 and through March 31st, 2011.

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 $13,112 and $32,037 for the quarters ended March 31, 2011 and 2010, respectively.

Goodwill and Other Intangible Assets

Intangible assets acquired, either individually or with a group of other assets (but not those acquired in a business combination), are initially recognized and measured based on 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.

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

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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. 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 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, 2010, whereas the fair value of the intangible asset exceeds its carrying amount.

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. At March 31, 2011 and 2010, the total number of potentially dilutive common stock equivalents was 151,651,877(includes 4,800,000 options which vest within 30 days) and 152,971,577, respectively.

Principles of Consolidation

The consolidated financial statements for the quarters ended March 31, 2011 and 2010 include the accounts of the parent entity and its wholly-owned subsidiaries Black Box Innovations, L.L.C., and Capstone Industries, Inc.

The results of operations attributable to subsidiaries are included in the consolidated results of operations beginning on the date on which the Company’s interest in a subsidiary was acquired.

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments, including cash, prepaid expenses, accounts receivable, accounts payable and accrued liabilities at March 31, 2011 and 2010 approximates their fair values due to the short-term nature of these financial instruments. The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:


	•	Level one — Quoted market prices in active markets for identical assets or liabilities;

	•	Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

	•	Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter.

Reclassifications

Certain reclassifications have been made in the 2010 financial statements to conform to the 2011 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.

Advertising and Promotion

Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in Sales and Marketing expenses. Advertising and promotion expense was $5,077 and $6,536 for the quarters ended March 31 2011 and 2010, respectively.

Shipping and Handling

The Company’s shipping and handling costs, incurred by Capstone amounted to $28,826 and $9,781for the quarters ended March 31, 2011 and 2010, respectively.

Accrued Liabilities

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

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (FASB) Statement No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 (now ASC 740) 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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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), (now ASC 718) 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).

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

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

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On April 23, 2007, the Company granted 130,500,000 stock options to two officers of the Company. The options vest at twenty percent per year beginning April 23, 2007. For the year ended December 31, 2007, the Company recognized compensation expense of $503,075 related to these options. On May 1, 2008, 850,000 of the above stock options were canceled and on May 23, 2008, 74,666,667 of the above stock options were cancelled. For year ended December 31, 2008, the Company recognized compensation expense of $405,198 related to these options. For the year ended December 31, 2009, the Company recognized compensation expense of $156,557 related to these options. For the year ended December 31, 2010, the Company recognized a compensation expense of $156,558 related to these options. For the three months ended March 31, 2011, the Company recognized compensation expense of $13,046 related to these options.

On May 1, 2007, the Company granted 4,000,000 stock options to five employees of the Company. The options vest over two years. For the year ended December 31, 2007, the Company recognized compensation expense of $29,214 related to these options. During 2008, 1,000,000 of the above options were cancelled prior to vesting. For the year ended December 31, 2008, the Company recognized compensation expense of $25,131 related to these options. For the year ended December 31, 2009, the Company recognized compensation expense of $10,869 related to these options. As of December 31, 2009 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On October 22, 2007, the Company granted 700,000 stock options to a business associate of the Company. The options vest over two years. For the year ended December 31, 2007, the Company recognized compensation expense of $1,330 related to these options. For the year ended December 31, 2008, the Company recognized compensation expense of $7,978 related to these options. For the year ended December 31, 2009, the Company recognized compensation expense of $6,648 related to these options. As of December 31, 2009 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On January 10, 2008, the Company granted 1,000,000 stock options to an advisor of the Company. The options vest over one year. For the year ended December 31, 2008, the Company recognized compensation expense of $19,953 related to these options. As of December 31, 2008 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On February 5, 2008, the Company granted 3,650,000 stock options to four directors and one employee of the Company. The options vest over two years. For the year ended December 31, 2008, the Company recognized compensation expense of $59,619 related to these options. For the year ended December 31, 2009, the Company recognized compensation expense of $2,603 related to these options. As of December 31, 2009 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On May 1, 2008, the Company granted 850,000 stock options to an employee of the Company. The options vest over two years. For the year ended December 31, 2008, the Company recognized compensation expense of $5,242 related to these options. For the year ended December 31, 2009, the Company recognized compensation expense of $7,862 related to these options. For the year ended December 31, 2010, the Company recognized compensation expense of $2,620 related to these options. No further expense will be recognized for these options.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On June 8, 2009, the Company granted 4,500,000 stock options to four directors of the Company The options vest in one year. For the year ended December 31, 2009, the Company recognized compensation expense of $42,663 related to these options. For the year ended December,31, 2010, the Company recognized compensation expense of $33,837 related to these options. No further expense will be recognized for these options.

On April 23, 2010, the Company granted 4,800,000 stock options to four directors of the Company and the Company Secretary. The options vest in one year. For the year ended December 31, 2010, the Company recognized compensation expense of $27,000 related to these options. For the three months ending March 31st, 2011 the Company recognized compensation expense of $2,438.

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 for the three months ended March 31st, 2011 included 0 for consulting fees. Stock-based compensation expense for the three months ended March 31, 2010 included $0 for consulting fees.

Recent Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2009-13 (ASU 2009-13), which provided an update to ASC 605. ASU 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting in multiple-deliverable arrangements. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company’s adoption of the provisions of ASU 2009-13 did not have a material effect on its financial position, results of operations or cash flows

In March 2010, the FASB issued Accounting Standards Update 2010-11 (ASU 2010-11), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company’s adoption of the provisions of ASU 2010-11 did not have a material effect on its financial position, results of operations or cash flows.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In April 2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition – Milestone Method (Topic 605). ASU 2010-17 provides guidance on applying the milestone method of revenue recognition in arrangements with research and development activities. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The Company’s adoption of the provisions of ASU 2010-17 did not have a material impact on its revenue recognition.

In July 2010, the FASB issued Accounting Standards Update 2010-20 (ASU 2010-20), Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The amendments in this Update are to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The disclosures about activity that occurs during the reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company’s adoption of the provisions of ASU 2010-20 did not have a material effect on its financial position, results of operations or cash flows.

In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-28 (ASU 2010-28), Intangibles – Goodwill and Other (Topic 350) – When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero of Negative Carrying Amounts. This Accounting Standards Update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples in paragraph 350-20-35-30, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this Update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company’s adoption of the provisions of ASU 2010-28 did not have a material effect on its financial position, results of operations or cash flows.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-29 (ASU 2010-29), Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations. This Accounting Standards Update requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. The amendments in this Update affect any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company’s adoption of the provisions of ASU 2010-29 did not have a material effect on its financial position, results of operations or cash flows.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material.

NOTE 2 – CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE

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

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

Cash and Cash Equivalents

The Company at times has cash and cash equivalents with its financial institution in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company places its cash and cash equivalents with high credit quality financial institutions which minimize these risks. As of March 31, 2011, the Company had no cash in excess of FDIC limits.

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.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Major Customers

The Company had three customers who comprised at least ten percent (10%) of gross revenue during the fiscal years ended December 31, 2010 and 2009. The loss of these customers would adversely impact the business of the Company. The percentage of gross revenue and the accounts receivable from each of these customers is as follows:

	Gross Revenue %			Accounts Receivable

	2010	2009		2010		2009

Customer A	42%	41%	$	82,041	$	2500
Customer B	23%	24%		987,231		0
Customer C	6%	23%		48,046		1,305,821

	71%	88%	$	1,117,318	$	1,308,321

Major Vendors

The Company had three vendors from which it purchased at least ten percent (10%) of merchandise during the fiscal year ended December 31, 2010 and four vendors from which it purchased at least ten percent (10%) of merchandise during the fiscal year ended December 31, 2009. The loss of these suppliers would adversely impact the business of the Company. The percentage of purchases, and the related accounts payable from each of these vendors is as follows:

	Purchases %			Accounts Payable

	2010	2009		2010		2009

Vendor A	71%	36%	$	24,597	$	-
Vendor B	17%	25%		14,701		2524
Vendor C	9%	17%		0		12,688
Vendor D	0%	10%		0		75,525

	97%	88%	$	39,298	$	90,737

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – NOTES PAYABLE

Sterling Bank

On May 1, 2008, Capstone secured a conventional $2,000,000 asset based loan agreement from Sterling National Bank, located in New York City whereby Capstone received a credit line to fund working capital needs. The loan provides funding for an amount up to 85% of eligible Capstone accounts receivable and 50% of eligible Capstone inventory. The interest rate of the loan is the Wall Street Journal prime rate plus one and one-half percent per annum. CHDT and Howard Ullman, the Chairman of the Board of Directors of CHDT, have personally guaranteed Capstone’s obligations under the Loan. As part of the loan agreement with Sterling National Bank, a subordination agreement was executed with Howard Ullman, a shareholder and director of the Company. These agreements subordinated the debt of $121,263 (plus future interest) and $546,025 due to Howard Ullman to the Sterling National Bank loan. No payments will be made on the subordinated debt until the Sterling Bank is paid in full, except for scheduled payments of interest.

On February 19, 2010, the Company entered into a loan modification agreement with Sterling National Bank, whereby the interest rate was changed to “Base Rate shall mean the base commercial lending rate of interest of the Bank in effect from time to time” plus one and three-fourths percent per annum, and the maturity date of the loan was extended from May 1, 2010 to February 19, 2012.

At December 31, 2009, there was $1,277,151 due on this loan. During September 2010, the balance of this loan was paid off in full and the note and loan facility was closed.

Sterling Capital Funding

On September 8, 2010, in order to fund increasing Accounts Receivables and support working capital needs, Capstone secured a Financing Agreement from Sterling Capital Funding, a division of Sterling Factors Corporation, located in New York, whereby Capstone receives funds for assigned retailer shipments. The assignments provide funding for an amount up to 85% of net invoices submitted. There will be a base management fee equal to .45% of the gross invoice amount. The interest rate of the loan advance is ¼% above Sterling National Bank Base Rate which at time of closing was 5%. The amounts borrowed under this agreement are secured by a right to set-off on or against any of the following (collectively as “Collateral”): all accounts including those at risk, all reserves, instruments, documents, notes, bills and chattel paper, letter of credit rights, commercial tort claims, proceeds of insurance, other forms of obligations owing to Sterling, bank and other deposit accounts whether or not reposed with affiliates, general intangibles (including without limitation all tax refunds, contract rights, trade names, trademarks, trade secrets, customer lists, software and all other licenses, rights, privileges and franchises), all balances, sums and other property at any time to our credit or in Sterling’s possession or in the possession of any Sterling Affiliates, together with all merchandise, the sale of which resulted in the creation of accounts receivable and in all such merchandise that may be returned by customers and all books and records relating to any of the foregoing, including the cash and non-cash proceeds of all of the foregoing. CHDT Corp and Howard Ullman, the Chairman of the Board of Directors of CHDT, have personally guaranteed Capstone’s obligations under the Financial Agreement. As part of the agreement with Sterling Capital Funding, a subordination agreement was executed with Howard Ullman, a shareholder and director of the Company. These agreements subordinated the debt of $121,263 (plus future interest) and $81,000 (plus future interest) due to Howard Ullman to Sterling Capital Funding loan. No payments will be made on the subordinated debt until the Sterling Capital Funding loan is paid in full. As of March 31, 2011, the balance due to Sterling was $1,145,802.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES

CHDT Corp - Notes Payable to Officers and Directors

On May 30, 2007, the Company executed a $575,000 promissory note payable to a director of the Company. This note was amended on July 1, 2009 and again on January 2, 2010. As amended, the note carries an interest rate of 8% per annum. All principal is payable in full, with accrued interest, on January 2, 2011. 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. As amended, the note is due on or before June 2, 2011. The loan grants to the holder a security interest in the accounts receivable of the Company up to the amount of the unpaid Principal. At March 31, 2011, the total amount payable on this note was $466,887. During the year 2011 the interest payments were made monthly to the note holder.

On July 11, 2008, the Company received a loan from a director of $250,000. As amended, the note is due on of before January 2, 2012 and carries an interest rate of 8% per annum. At March 31, 2011, the total amount payable on this note was $274,932, including interest of $24,932.

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

On March 11, 2010, the Company received a loan from a director of $100,000. As amended, the note is due on or before January 2, 2012 and carries an interest rate of 8% per annum. At March 31, 2011 the total amount payable on this note was $108,439, including interest of $8,439.

On May 11, 2010, the Company received a loan from a director of $75,000. As amended, the note is due on or before January 2, 2012 and carries an interest rate of 8% per annum. The loan grants to the holder a security interest in the accounts receivable of the Company up to the amount of the unpaid Principal. At March 31, 2011 the total amount payable on this note was $80,326, including interest of $5,326 amount.

On June 11, 2010, the Company received a loan from a director of $150,000. As amended, the note is due on or before July 1, 2011 and carries an interest rate of 8% per annum. The loan grants to the holder a security interest in the accounts receivable of the Company up to the amount of the unpaid Principal. At March 31, 2011 the total amount payable on this note was $159,633 including interest of $9,633

During the quarter ended June 30, 2008, the Company executed three notes payable for a combined total of $200,000 to an officer of the Company. As amended, the notes are due on or before January 2, 2012 and carry an interest rate of 8% per annum. These loans grant to the holder a security interest in the accounts receivable of the Company up to the amount of the unpaid Principal. At March 31, 2011 the total amount due on these notes was $219,945, including interest of $19,945.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES (continued)

Capstone Industries – Notes Payable to Officers and Directors

On July 16, 2007, Capstone Industries executed a $103,000 promissory note payable to a director of the Company. As amended, the note carries an interest rate of 8% per annum and is due on or before June 2, 2011. In December 2008, the Company borrowed an additional $75,000 from this director. As amended, this note is due on or before June 2, 2011. These loans grant to the holder a security interest in the accounts receivable of the Company up to the amount of the unpaid Principal. At March 31, 2011 the total amount due on these notes was $202,263, including interest of $24,263. For the year 2011 the interest payments were paid monthly to the note holder.

Purchase Order Assignment-Funding Agreements

During the First Quarter 2010, Capstone Industries, Inc. received $92,000 loan from Systematic Development Group, LLC. The loan was due on or before Dec 15, 2010 and carried an interest rate of 1.5% simple interest per month (18% annual). This loan was paid in full as of December, 31, 2010.

During Second Quarter 2010, Capstone Industries, Inc. received additional $445,000 loan from Systematic Development Group, LLC. The loan was due on or before Dec 15, 2010 and carried an interest rate of 1.5% simple interest per month (18% annual). This loan was paid in full as of December, 31, 2010

During Third Quarter 2010, Capstone Industries, Inc. received additional $714,000 loan from Systematic Development Group, LLC. The loan was due on or before January 14, 2011 and carried an interest rate of 1.5% simple interest per month (18% annual). The loan granted to the holder a security interest in the inventory purchased pursuant to this agreement until sold, with payment due immediately on advancement of funds from Sterling Factors Corp. At December 31, 2010, the total amount due on this note was $78,625 including accrued interest of $3,625. This loan was paid in full as of March 31, 2011.

On October 4th 2010, Capstone Industries, Inc. received additional $114,000 loan from Systematic Development Group, LLC and carried an interest rate of 1.5% simple interest per month (18% annual). This loan was paid in full at December 31, 2010.

Stewart Wallach, the Company’s Chief Executive Officer and President, is a 65% owner of Systematic Development Group, LLC.

On June 24, 2010, Capstone Industries, entered into a Purchase Order Funding agreement with a director. The agreement provides for loans from the director up to $682,730, with a due date of December 31, 2010, carried a simple interest rate of 1.5%% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale thereof (second position to Sterling Capital Funding). As amended, the note was due on or before March 31, 2011. On June 25, 2010, the Company received $265,000 pursuant to the agreement. During the third quarter 2010, the Company received additional funding of $415,000. During 2010, this note was partially repaid in the amount of $604,605 including $24,605 interest. At December 31, 2010 the total amount payable on this note was $104,882 including accrued interest of $4,882. This loan was paid in full as of March 31, 2011

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES (continued)

On December 9, 2010, Capstone Industries, entered into a Purchase Order Funding agreement with a director. This agreement provides for loans from the director up to $350,000, with a due date of June 30, 2011, carried a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale thereof (second position to Sterling Capital Funding), On December 9, 2010, the Company received $350,000 pursuant to the agreement. At December 31, 2010 the total amount payable on this note was $353,797 including accrued interest of $3,797. This loan was paid in full as of March 31, 2011

On March 17, 2011, Capstone Industries, entered into a Purchase Order Funding agreement with a director. This agreement provides for loans from the director up to $800,000, with a due date of December 31, 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale thereof (second position to Sterling Capital Funding). On March 18, 2011, the Company received $150,000 pursuant to the agreement. At March 31, 2011 the total amount payable on this note was $150,962 including accrued interest of $962.

On March 18, 2011, Capstone Industries, entered into a Purchase Order Funding agreement with Phyllis Postal. Mrs. Postal is a mother of a director of the company. This agreement provides for loans from the director up to $300,000, with a due date of December 31, 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale thereof (second position to Sterling Capital Funding). On March 18, 2011, the Company received $200,000 pursuant to the agreement. At March 31, 2011 the total amount payable on this note was $201,282 including accrued interest of $1,282.

On July 21, 2010, the Company entered into a Purchase Order Funding agreement with Everett Fleisig. Mr. Fleisig is the father in law of an officer of the company. The agreement provided for loans up to $356,000, with a due date of December 31, 2010, carried a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). As of December 31, 2010 the total note amount of $217,513 was repaid in full including interest of $8,513

On November 29, 2010, the Company entered into a Purchase Order Funding agreement with Rossion Holding LLC.(RHL) The agreement provides for loans up to $140,000, with a due date of April 30 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). On December 1st, 2010, Company received $47,000 pursuant to the agreement. At March 31, 2011, the note balance due was $50,477 including accrued interest of $3,477.

On December 9th, 2010, the Company entered into a Purchase Order Funding agreement with Rossion Holding LLC.(RHL) The agreement provides for loans up to $600,000, with a due date of June 30 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). As December 31, 2010 the note payable was $101,134 includes accrued interest of $1,134 which was paid off as of March 31, 2011. During the First Quarter 2011, an additional loan of $409,000 was received. At March 31, 2011, the note payable due was $419,137 including accrued interest of $10,137.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – NOTES AND LOANS PAYABLE TO RELATED PARTIES (continued)

On March 23, 2011, the Company entered into a Purchase Order Funding agreement with Rossion Holding LLC.(RHL) The agreement provides for loans up to $65,000, with a due date of Aug 23, 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). At March 31, 2010 the note payable was $27,093 includes accrued interest of $93.

Stewart Wallach, the Company’s Chief Executive Officer and President, is a 65% owner of Rossion Holding LLC.

On December 17, 2010, the Company entered into a Purchase Order Funding agreement with George Wolf. Mr. Wolf is a business partner of the CEO and an officer of the company. The agreement provides for loans up to $392,000, with a due date of June 30, 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). At December 31, 2010 the note payable was $38,187 includes accrued interest of $187 which was paid in full as of March 31, 2011. During the first quarter additional $156,000 advance was received on this note. As of March 31, 2011 the note payable was $77,061 including accrued interest of $1,061.

On February 11, 2011, the Company entered into a Purchase Order Funding agreement with George Wolf. The agreement provides for loans up to $106,000, with a due date of Aug 30, 2011, carries a simple interest rate of 1.5% per month (18% annual), and is secured by the product purchased and accounts receivable from the sale of thereof (second position to Sterling bank). As of March 31, 2011 the note payable was zero.

Notes and Loans Payable to Related Parties - Maturities

Based on the above, the total amount payable to officers, directors and related parties as of March 31, 2011 and December 31, 2010 was $2,438,436 and $2,221,457, respectively, including accrued interest of $ 109,550 and $77,250, respectively. The maturities under the notes and loan payable to related parties for the next five years are:

Year Ended December 31,
2011	$1,754,794
2012	683,642
2013	-
2014	-
2015
Total future maturities	$2,438,436

NOTE 5 – 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 $4,650 per month.

Rental expense under these leases was approximately $13,968 and $16,353 for the years ended March 31, 2011 and 2010, respectively.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - COMMITMENTS

Employment Agreements

On February 5, 2008, the Company entered into an Employment Agreement with Stewart Wallach, the Company’s Chief Executive Officer and President, whereby Mr. Wallach will be paid $225,000 per annum. As part of the agreement, Mr. Wallach will receive a minimum increase of 5% per year. For 2009, Mr. Wallach was paid $236,250, and for 2010, Mr. Wallach was paid $175,412. The term of the contract begins February 5, 2008 and ends on February 5, 2011, but the term of the contract has been extended for a further two years.

On February 5, 2008, the Company entered into an Employment Agreement with Gerry McClinton, the Company’s Chief Operating Officer, whereby Mr. McClinton will be paid $150,000 per annum. As part of the agreement, Mr. McClinton will receive a minimum increase of 5% per year. For 2009, Mr. McClinton was paid $157,500 and for 2010 Mr. McClinton was paid $113,546. The term of the contract begins February 5, 2008 and ends on February 5, 2011 but the term of the contract has been extended for a further two years.

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. For 2010 Mr Ullman was paid $73,444. The term of the contract begins February 5, 2008 and ends on February 5, 2011 and has been extended until June 30, 2011.

License Agreement

On April 12, 2007, the Company entered into a trademark and licensing agreement with The Armor All/STP Products Company (“AASTP”). As part of the agreement, the Company is required to pay AASTP royalties until September 1, 2010 either at fixed periodic amounts or 7% of product sales. Under this agreement, an expense of $187,500 was incurred during 2010. As of December 31, 2010, the STP License agreement has been terminated.

NOTE 7 - STOCK TRANSACTIONS

Common Stock

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

In September 2010, the Company issued 725,000 shares of common stock for consulting expenses of $6,525

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.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

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

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

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

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

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

Series “B” Preferred Stock

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

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

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

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.

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

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

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

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

Series “C” Preferred Stock

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

Warrants

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

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

During September and October 2007, the Company issued 31,823,529 shares of common stock for cash at $.017 per share, or $541,000 total as part of a Private Placement under Rule 506 of Regulation D. Along with the stock, each investor also received a warrant to purchase 30% of the shares purchased in the Private Placement. A total of 9,548,819 warrants were issued. The warrants are ten year warrants and have an exercise price of $.025 per share.

Options

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

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2009 and 2008, the Company recognized compensation expense of $10,869 and $25,131 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.64%

Expected term – 11 years

Expected volatility of stock – 131.13%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these 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 July 31st, 2009, 5,000,000 of the fully vested options and fully expensed options were amended and transferred to G. McClinton.

On April 23, 2007, the Company granted a ten-year non-qualified, non-statutory stock option for 28,100,000 “restricted” shares of the Company’s common stock to Gerry McClinton, the Company’s COO and Secretary, as incentive compensation. The exercise price of the options is $.029 per share, which was the fair market value of the stock on the date of grant. Twenty percent of the options vested on the date of issuance, and twenty percent per year will vest on the anniversary date through April 23, 2011. On May 1, 2008, 850,000 of these options were cancelled. On July 31st, 2009, 5,000,000 of S. Wallach fully vested and fully expensed options were amended and transferred to G. McClinton.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2010 and 2009, the Company recognized compensation expense of $156,558 and $156,557 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.66%

Expected term – 10 years

Expected volatility of stock – 133.59%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps - 100

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

The Company has recognized compensation expense of $13,046 in the quarter ended March 31st, 2011. The Company will recognize compensation expense of $52,186 in 2011 related to these stock options. No further compensation expense will be recognized for these options after 2011.

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

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. During the years ended December 31, 2009 and 2008, the Company recognized compensation expense of $6,648 and $7,978 related to these stock options. The following assumptions were used in the fair value calculations:

Risk free rate – 4.42%

Expected term – 11 and 12 years

Expected volatility of stock – 134.33%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

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

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

Risk free rate – 3.91%

Expected term – 10 years

Expected volatility of stock – 133.83%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the years ended December 31, 2009 and 2008, the Company recognized compensation expense of $2,603 and $59,619 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 1.93% to 3.61%

Expected term – 2 to 10 years

Expected volatility of stock – 133.83%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

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

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the years ended December 31, 2010 and 2009, the Company recognized compensation expense of $2,620 and $7,862 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 3.78%

Expected term – 11 years

Expected volatility of stock – 133.59%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

The Company recognized compensation expense of $2,620 in 2010 related to these stock options. As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On June 8, 2009, the Company granted 4,500,000 stock options to four directors of the Company. The options vest over one year.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the years ended December 31, 2010, the Company recognized compensation expense of $33,837 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 1.42%

Expected term – 2 years

Expected volatility of stock – 500.5%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

As of December 31, 2010 these options were fully vested and compensation expense fully recognized. No further compensation expense will be recognized for these options.

On April 23rd, 2010, the Company granted 4,500,000 stock options to four directors of the Company and 300,000 stock options to the Company Secretary. The options vest over one year.

The Binomial Lattice (Suboptimal) option pricing model was used to calculate the fair value of the options granted. For the years ended December 31, 2010, the Company recognized compensation expense of $27,000 related to these options. The following assumptions were used in the fair value calculations:

Risk free rate – 2.61%

Expected term – 5 to 10 years

Expected volatility of stock – 500.5%

Expected dividend yield – 0%

Suboptimal Exercise Behavior Multiple – 2.0

Number of Steps – 100

For the quarter ended March 31st,2011, the Company recognized compensation expense of $9,750 related to these stock options. A further $2,250 will be recognized in the second quarter ending June 30, 2011.

The following table sets forth the Company’s stock options outstanding as of March 31, 2011 and December 31, 2009 and activity for the years then ended:

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

Outstanding, January 1, 2010	68,933,333	$ 0.029		$ -
Granted	4,800,000	0.029		-
Exercised	-	-		-
Forfeited/expired	4,000,000	0.029		-

Outstanding, December 31 , 2010	69,733,333	$ 0.029	5.92	$ -
Granted	-	-		-
Exercised	-	-		-
Forfeited/expired	-	-		-

Outstanding, March 31st, 2010	69,733,333	$ 0.029	5.92	$ -

Vested/exercisable at December 31, 2009	57,266,667	$ 0.029	6.99	$ -
Vested/exercisable at December 31, 2010	53,936,666	$ 0.029	5.95	$ -
Vested/exercisable at March 31,2011	59,313,333	$ 0.029	5.67	$ -

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK TRANSACTIONS (continued)

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	4.17	$.020	250,000
$.029	54,983,333	6.08	$.029	49,363,333
$.029	2,500,000	7.08	$.029	2,500,000
$.029	700,000	8.08	$.029	700,000
$.029	1,000,000	6.75	$.029	1,000,000
$.029	150,000	6.83	$.029	150,000
$.029	850,000	8.17	$.029	850,000
$.029	4,500,000	.17	$.029	4,500,000
$.029	4,500,000	4.080	$.029	-
$.029	300,000	9.080	$.029	-

NOTE 8 – BUSINESS ACQUISITIONS AND DISPOSALS

Capstone Industries

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – BUSINESS ACQUISITIONS AND DISPOSALS (continued)

The Capstone acquisition was recorded as follows:

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

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

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

NOTE 9 - INCOME TAXES

As of December 31, 2010, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $4,300,000 that may be offset against future taxable income through 2030. 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.

	2010			2009
Net Operating Losses	$	903,000		$	799,500
Valuation Allowance		(903,000	)		(799,500	)
	$	-		$	-

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

	2010			2009
Provision (Benefit) at US Statutory Rate	$	(155,000	)	$	(205,000	)
Increase (Decrease) in Valuation Allowance		155,000			205,000
	$	-		$	-

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES (continued)

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

Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended December 31, 2010 and 2009. 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 2008. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2010:

United States (a)		2008 – Present
(a) Includes federal as well as state or similar local jurisdictions, as applicable.

NOTE 10 – CONTINGENCIES

ESQUIRE TRADE & FINANCE INC. & INVESTOR, LLC v. (Case Number 03 CIV. 9650 (SC), decided November 5, 2009) (formerly styled “CELESTE TRUST REG., ESQUIRE TRADE, ET AL. V. CBQ, INC., Case Number 03 CIV. 9650 RMB) (“Celeste case”). The parties settled this case on February 18, 2010. A summary of the settlement is below. A stipulation withdrawing the plaintiff's appeal in the Celeste case was filed with and accepted by the court on February 8, 2010, which filing effectively ended the litigation in the Celeste case.

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – CONTINGENCIES (continued)

will be effective after June 1, 2010. The Company will pay all registration fees and legal costs associated with any such registration, which are currently estimated to be approximately $3,000 to $5,000.

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

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

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

Potential Litigation

Cyberquest, Inc.

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

CHDT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – INTANGIBLE ASSETS

The Company capitalized $2,250 and $18,175 at March 31, 2011 and December 31, 2010 respectively, related to packaging artwork and design costs., The Company recognized amortization expense of $4,334 and $44,535 at March 31, 2011 and December 31, 2010 respectively, related to these assets. At March 31, 2011 and December 31, 2010, the net amount of the intangible asset was $16,811 and $18,895, respectively.

NOTE 12 – SUBSEQUENT EVENTS

The Company adopted ASC 855, and has evaluated all events occurring after December 31, 2010, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures. The Company has concluded that there are no significant or material transactions to be reported for the period from January 1, 2011 to the date of filing.

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 QB-OTC Link System under the trading symbol “CHDO.OB.” This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's annual report on Form 10-K for the year ended December 31, 2010.

Forward Looking Statements

Management’s Discussion and Analysis contains “forward-looking” statements within the meaning of Private Securities Litigation Reform Act of 1995, as amended, as well as historical information. The expectations reflected in these forward-looking statements may prove to be incorrect or could change with changing circumstances. 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 the above and all other applicable factors. We undertake no obligation to update or revise these forward-looking statements, except as required by law, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

Introduction

The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for the three months ended March 31, 2011 compared to the three months ended March 31, 2010; and (ii) financial liquidity and capital resources.

Through our operating subsidiaries, we are a developer and manufacturer of niche consumer products selling to distributors and retailers in the United States. Our Capstone subsidiary currently operates in five primary business segments: (1) Portable booklights and multi-task lights. (2) eReader lights. (3) Eco-i-Lite power failure lights and night lights (4) Wireless motion sensor lights (5) Light Ringers® collection of desk lamps and utility lamps.

Our growth strategy has six main elements:

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

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

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

Through acquiring businesses that have innovative products that would compliment our existing marketing strategies; and

Through acquiring businesses that would allow us to diversify into direct consumer or commercial industrial channels; and

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

Capstone Lighting products specialize in low cost, innovative portable lighting products that we believe can win a profitable niche and market share without high market penetration costs (especially marketing and advertising costs). Capstone sells booklights, multi-task lights, power failure lights and nightlights, motion sensor lights, desk lamps, eReader lights and also offers “Private Label” programs marketed to major retailers. “Private Label” is the manufacture of products by a company and those products are sold under the name or trade name of the manufacturer or manufacturer’s retailers, distributors or bulk buyers.

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

(1) Portable book lights and Task lights. In March 2009 the Company launched an expanded new line of booklights and multi-task lights, under the name PATHWAY LIGHTS®. This program included the following named products: Mini Taskbright, Multi Taskbright, Poser Taskbright, PawprintTaskbright, Compact 1 Brightbook, Compact 2 Brightbook, Britespot 2 Brightbook, Britespot 3 Brightbook, and Multipose Brightbook. In March 2010 at the International Housewares Show, the PATHWAY LIGHTS® program was further expanded with the launch of the Retro Taskbright and the Minipose Taskbright with additional trendy colors offered in our established line. These LED booklights are small, lightweight and portable and attach to reading materials and illuminate the area of text. They are powered by batteries which are typically included in our product offerings. In March 2011, at the International Housewares Show, the PATHWAY LIGHTS® program was further expanded with additional trendy colors and new designs.

(2) In July 2010, we developed the eReader-Lite and the eBook-Lite products and presented to only a few retailers as it was late in the buying season. This new category has been specifically designed to provide lighting for the new trendy eReader products. The eGrip design allows it to adjust to all eReader designs. In March 2011, at the International Housewares Show, the Company officially launched the line and introduced additional trendy colors and a rechargeable eReader-Lite.

(3) In 2009, the Company also launched the Eco-i-Lite and Mini Eco-i-Lite Power Failure Lights. Both use induction charge technology and function as a power failure light, hand held flashlight, and night light. Each product uses an encased lithium ion battery that when fully charged provides 7 + hours of battery life and LED light bulbs that last 100,000 hours. In March 2010, at the International Housewares Show, the Company expanded the line with the launch of the Midi Eco-i-Light and the Pawprint Line in Full size, Midi and Mini, specifically developed for the dog walking consumers. In March 2011, at the International Housewares Show, the Company introduced Mini Eco-i-Lite for children’s rooms and a version marketed to senior citizens. The Company also introduced a new Eco-Headlite.

(4). In March 2010, at the International Housewares Show, the Company also launched its new C-Lite Wireless Motion Sensor light. This is offered in a 12 LED full size and a 6 LED Mini Size and is powered by AA batteries. These lights provide lighting for dark areas without having to install electrical wiring. The bulb housing rotates 360 degrees to allow for light to be directed where needed. Both versions have a Motion Sensor Circuitry that activates the lights when movement is detected within 13 feet of the C-Lite. Both versions have a Hi and Lo light brightness setting to conserve the batteries. The full size also has a period selector (60 seconds, 90 seconds or 120 seconds) which presets the time period that a light should turn off after the last motion has been detected. Both come with a unique slide and snap bracket that allows for the product to be installed on a wall. In March 2011, the Company launched a 24 LED Outdoor version of the C-Lite motion sensor light.

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

Distribution of Products: Capstone distributes its products through existing national and regional distributors and retailers in the United States, including, office-supply chains, book store chains, warehouse clubs, supermarket chains, drug chains, department stores, catalog houses, online retailers and book clubs. Our largest distribution channels are: Target Stores, Wal-Mart/Sams Club, Meijer Stores, Office Depot, Barnes & Noble book stores, Borders book stores, Brookstone, Fred Meyer-Kroger Stores, Costco Wholesale, The Container Store , Starcrest, True Value and in Central and South America with our master distributor Avtek. These distribution channels may sell our products through the Internet as well as through retail storefronts and catalogs/mail order. When we launch new products, our sales team will initially introduce the new line to our existing customer base. Many of our products are multifunctional and as such can be marketed to many other departments within an existing customer. Our goal is to expand our products into other departments where the product features fill a consumer’s need.

As a small reporting company with limited resources, we do not have the resources to compete head-to-head with larger, more established competitors for any of the products. We face many national or regional brand-named competitors in all of our product lines. However we attempt to compete by leveraging the design, innovation, engineering and manufacturing capabilities of our Chinese contract manufacturers in order to provide quality products with more functions at what we deem to be a value price. Prior History. Since the start of the 1990’s, the history of CHDT has been a series of failed operating subsidiaries engaged in various business lines. With each failed business, we usually experienced a change in management and business focus. We believe that these past failures were due to a combination of one or more of the following: (1) inadequate financing of operations; (2) absence of a readily available sources of affordable funding for operations and product and business exception; (3) absence of any or enough experienced managers or executives; (4) lack of adequate strategic and financial planning and accurate budgeting projections; (5) general economic conditions and downturns in industries that undermined many small businesses, especially in the value-added reseller of computer hardware and software developer and systems developer industries; (6) inability to raise money in the public markets due to poor financial track record of CHDT, resulting low stock market price and lack of sufficient institutional investor and market maker support for CHDT Common Stock; (7) selection of business lines that CHDT was ill suited to compete in or acquire; (8) operating losses severely limiting the business and financial options and resources of CHDT; (9) frequent changes in management and business lines; (10) concurrently operating incompatible business lines that were ill-suited for a small business issuer; and (11) acquisitions that diverted resources from existing operations and ultimately failed and, as such, hindered CHDT’s efforts to attain profitability on a sustained basis.

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 continued losses in 2010. but we believe that this investment in corporate infrastructure is necessary to lay the foundation for any hope of future success and effective business and product development. While we are not certain that our current strategy and business lines 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 or any growth, we believe that the current strategy and business line is the best approach for our current management team and available resources and, in our opinion, the most likely path to any hope of sustained future profitability.

For the years ended December 31, 2010 and 2009, the Company’s revenues were derived from 4 sources: (i) the sale of our PATHWAY LIGHTS® booklight products (Capstone and its booklight product line was acquired by CHDT in September 2006); (ii) sale of Eco-i-Lite Power Failure Lights, (iii) sale of our Wireless motion sensor lights; and (iv) sale of our eReader-Lite program.

Despite the recent efforts to make CHDT and its operations a focused and professionally run organization, we continue to be hampered in our efforts to achieve sustained profitability by problems that stem from the past and our history of failed businesses. Our efforts have also been severely hampered by the current economic recession and tight credit markets.

The failure of CHDT to achieve sustained profitability in its operations continues to hamper our efforts to establish and sustain a profitable, growing business or cause any appreciation in our Common Stock market price. In fiscal year 2010 and through 2011 to date, we continued our historical reliance on raising working capital for operations, business and product development, by receiving loans or investments from members of management or their affiliates. During 2010 we were able to transfer our conventional asset based bank loan to a factor based line that would better support Capstone operations and working capital needs, however we may have to continue to raise working capital for CHDT and working capital for Capstone business and product development (as well as any possible mergers and acquisitions of other companies or their products) by selling our securities in private placements to investors and/or loans or investments by our management and their affiliates. This reliance on private placements of securities and insider loans or investments adds to the already significant number of outstanding shares of Common Stock, significantly dilutes our shareholders and further weakens our ability to attract primary market makers and institutional investor support for our Common Stock as a publicly traded security and also adversely impacts on our ability to do mergers and acquisitions, attract traditional bank funding or raise working capital by public offerings of our securities

Our lack of primary market makers and institutional investor support of our Common Stock also contributes to our burden in achieving sustained, profitable business lines. These problems stem from the manner in which CHDT was taken public in the late 1980’s and developed a public market for the Common Stock in 1998. CHDT did not, and perhaps could not under then current circumstances, do an underwritten initial public offering and produce a national network of broker-dealers and institutional investors interested in long-term investment in CHDT and stability in the market price for the Common Stock. As a result, we have had difficulty in sustaining any increases in the market price of the Common Stock or maintaining stability in the market for our 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 have attempted to address and intend to continue to address the above problems in public and market maker support for our Common Stock by: (1) establishing revenue growth in our current consumer product business lines in order to demonstrate that current management has a sound business line and business strategy. (2) upon establishing a record of profitability, members of management and agents will solicit support from institutional investors, asset managers, market makers and others to provide long-term investors in the Common Stock and stability in the public market for the Common Stock; (3), seek investment banker assistance in developing a strategic plan, including an acquisition plan, to dramatically grow our core product line or another non retail product line that offers entry into a new distribution channel or niche market.. We can make no assurances that we shall succeed in this effort.

We intend to remain focused on niche products for the time being that we believe can attain a profitable market niche with minimal market penetration costs and is attractive to our existing distribution channel of regional and national retailers and distributors. We also recognize that the retail distribution has been negatively impacted by the ongoing economic recession. We intend to continue to develop exciting new products by internal efforts as well as acquire new products by mergers and acquisitions, but we will also look for opportunities by merger and acquisition that would allow us to diversify into non –retail distribution channels. Nonetheless, our Company is considering a number of options to enhance shareholder value, including without limitation, divesting one or more existing business lines, and mergers and acquisitions.

Results of Operations: For the three months ended March 31, 2011, the Company had net income from continuing operations of approximately $107,100. For the three months ended March 31, 2010 the Company had a net loss from operations of approximately $507,800. That is a net improvement of approximately $614,900 over 2010 results.

Total Net Revenues: For the three months ended March 31, 2011 the Company had Gross Sales of approximately $2,616,000 with sales allowances of approximately $198,600 for net revenues of approximately $2,417,400 compared to net revenues for the same period in 2010 of approximately $ $353,000, for an increase of approximately $2,064,400 which represents a 584% increase from 2010 results. All of the revenue was generated by Capstone.

Cost of Sales: For the three months ended March 31, 2011 and 2010, cost of sales were approximately $1,826,200 and $238,200, respectively. These costs represents 75%% and 67% respectively of Total Net Revenue. Cost of Sales has increased because of the increase is sales volume. As a percentage of total revenue cost of sales has increased primarily because the Company provided promotional funds of $123,000 for the launch of the new motion sensor light program and other additional allowances of $75,600 for a total of $198.600 of allowances in the quarter. These higher than usual sales allowances had the effect of reducing Gross Sales and thereby increasing the Cost of Sales percentage to Net sales by approximately 5.7%

Gross Profit: For the three months ended March 31, 2011, gross profit was approximately $591,200 an increase of approximately $476,500 or 415% from $114,700 the three months ended March 31, 2010. Gross profit as a percentage of sales was 24.4% for the three months ended March 31, 2011 as compared to 33% for the three months ended March 31 2010. The large Gross profit increase is attributed to significantly increased shipments in the quarter as compared to the same period last year. The lower gross profit percentage compared to the same period in 2010 was mainly the result of additional promotional allowances allowed during the quarter to market the new Wireless motion sensor light

Total Operating Expenses were approximately $408,400 for the three months ended March 31, 2011 as compared to approximately $588,700 for the three months ended March 31, 2010, a net reduction of approximately $180,300 or 30%. This expense decrease can be attributed to various factors. During 2010 an expense reduction program was initiated which has continued into 2011 and the Company eliminated certain expenses.

Sales & Marketing Expenses for the quarter ended March 31 2011 were approximately $52,700 as compared to $102,900 in same period 2010. This is a reduction of $50,200 or 48.7%. The primary reason for this reduction is that the STP license fee has been eliminated in 2011, which cost $62,500 in the same period in 2010.

Compensation Expenses for the quarter ended March 31 2011 were approximately $184,600 as compared to $287,500 in same period 2010. This is a reduction of $102,900 or 35.8%. During 2010 Executive Management voluntarily cut their salaries by 20% which has continued in the first quarter 2011 and a Management position was eliminated. Stock based compensation was also reduced by $18,100 as compared to same period 2010.

Professional Fees for the quarter ended March 31, 2011 were approximately $37,700 as compared to $54,500 in the first quarter 2010. This is a reduction of $16,800 or 30.8%. In the first quarter 2010 we incurred $15,000 of additional legal fees pertaining to the CBQ settlement which was the main reason for the higher expense rate last year.

Product Development Expenses for the quarter ended March 31, 2011 were approximately $52,000 as compared to $35,300 in the first quarter 2010. This is an increase of $16,700 or 47.3% due mainly to the investment in new products and increased quality control inspection costs in our factories associated with the higher volume of orders shipped in the quarter.

General Administrative Expenses for the quarter ended March 31, 2011 were approximately $81,200 as compared to $108,200 in the first quarter 2010. This is a reduction of $27,000 or 24.9%. During first quarter 2011, depreciation and packaging amortization costs have been reduced by $24,700 as we no longer have the added expense of amortizing STP package or depreciating STP tooling expense.

Net Operating Income (Loss)

For the quarter ended March 31 2011, Net Operating Income was approximately $182,800 as compared to a Net Operating Loss of $473,900 in the same period 2010. This is an improved performance of $656,700 as compared to the same quarter in 2010.

Other Income (Expense): Interest Expenses for the three months ended March 31, 2011 was approximately $75,700, an increase of $41,900 or 123% from approximately $33,800 expensed for the three months ended March 31, 2010. This expense increase was the result of additional funding required to support the significant order increase during the quarter and for future orders.

Net Income (Loss): The Income for the three months ended March 31, 2011 was approximately $107,100, against a loss of approximately $507,800 for the three months ended March 31, 2010. As compared to the same period in 2010, the Company improved its net results by approximately $614,900. This substantial net improvement was the result of significantly increased revenue combined with the elimination of some major expenses and the implementation of an expense reduction program.

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 increase costs. We generally have been able to reduce cost increases by strong negotiating or re-engineering products, but we will have to increase the price of our products in fiscal year 2011 in response to such inflationary pressures. Since we operate in industries where the consumer tends to be price sensitive, any such increase in the prices of our products may adversely impact our sales and financial results in fiscal year 2011.

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

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

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 March 31, 2011.

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

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

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011 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 and 31.2 to this Report include information concerning our disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4, including the information incorporated by reference to our annual report on Form 10-K for the year ended December 31, 2010, for a more complete understanding of the matters covered by such certifications.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

ESQUIRE TRADE & FINANCE INC. & INVESTOR, LLC v. CBQ, Inc. (former name of our company)(Case Number 03 CIV. 9650 (SC), decided November 5, 2009) (formerly styled “CELESTE TRUST REG., ESQUIRE TRADE, ET AL. V. CBQ, INC., Case Number 03 CIV. 9650 RMB) (“Celeste case”). The parties settled this case by mutual agreement on February 18, 2010. A summary of the settlement is below. A stipulation withdrawing the plaintiffs’ appeal in the Celeste case was filed with and accepted by the court on March 8, 2010, which filing effectively ended the litigation in the Celeste case between the parties. With the entry of the stipulation, there is no pending litigation in this matter.

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

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

Potential Litigation

Cyberquest, Inc.

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

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

Item 1A. Risk Factors.

During the three months ended March 31, 2011, there were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

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

There were no unregistered issuances of Company securities in the quarter ending March 31, 2011.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT #	DESCRIPTION OF EXHIBIT

2.1	Purchase Agreement, dated January 27, 2006, by and among CHDT Corporation, William Dato and Complete Power Solutions, LLC. +
2.1.1	Purchase and Settlement Agreement by and among CHDT Corporation, Complete Power Solutions, LLC, William Dato and Howard Ullman, January 26, 2007 ++
2.1.1.1	Stock Purchase Agreement dated September 15, 2006, by and between CHDT Corporation, and Capstone Industries, Inc. +++
2.1.1.2	Stock Purchase Agreement, dated 9 July 2009, by and between CHDT Corporation and Involve, LLC †
2.1.1.3	Indemnification Agreement, dated June 6th, 2009, by Howard Ullman and CHDT Corporation ΩΩ
3.1	Articles of Incorporation of CHDT Corp.*
3.1.1	Amendment to the Articles of Incorporation of CHDT Corp. **
3.2	By-laws of the Company***
3.3	Certificate of Designation of the Preferences, Limitations, and Relative Rights of Series B Convertible Preferred Stock of CHDT Corp. ****
10.1	Voting Agreement, dated January 27, 2006, by and among CHDT Corp., William Dato and Howard Ullman. +
10.2	Operating Agreement, dated January 27, 2006, for Complete Power Solutions, LLC. +
10.3	Employment Agreement dated January 27, 2006, by and between William Dato, CHDT Corporation and Complete Power Solutions, LLC. +
10.4	Purchase Agreement, dated December 1, 2007, by Capstone Industries, Inc. and Magnet World, Ltd. For sale of operating assets of Souvenir Direct, Inc. ++++
10.6	2005 Equity Plan of CHDT Corp.++++++
10.7	2008 Employment Agreement by Stewart Wallach and CHDT Corp.++++++
10.8	CHDT Corp. ++++++
10.9	2008 Employment Agreement by Howard Ullman and CHDT Corp.++++++
10.10	Form of Non-Qualified Stock Option+
10.11	Non-Employee Director Compensation++++++
10.12	Memorandum Decision in Esquire Trade & Finance Inc. & Investor, LLC v. CBQ, Inc., Case # 03 CIV. 9650 (SC), S.D.N.Y., 11/05/2009) Ω
10.13	Settlement agreement and release as approved by the CHDT Corporation Board of Directors on February 1, 2010, in the matter of Esquire Trade & Finance, Inc. and Investcor, LLC v. CBQ, Inc., Case Number 03 CIV. 9650 (SC). ≠
10.14	Option, dated February 1, 2010, granted by Howard Ullman in settlement of Esquire Trade & Finance, Inc. and Investcor, LLC v. CBQ, Inc., Case Number 03 CIV. 9650 (SC). ≠≠
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, Chieff Executive Officer^

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

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

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

* Incorporated by reference to Annex G to the Special Meeting Proxy Statement,

Dated April 15, 2004, filed by CHDT Corporation with the Commission on April 20, 2004.

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

*** Incorporated by reference to Annex H the Special Meeting Proxy Statement,

Dated April 15, 2004, filed by CHDT Corporation with the Commission on April 20, 2004.

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

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

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

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

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

+++++ Incorporated by reference to Exhibit 14 to the Form 10-KSB for the fiscal year ended December 31, 2006 and filed by CHDT

Corp. With the Commission on April 17, 2007.

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

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

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

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

≠ Incorporated by reference to Exhibit 99.1 to the Form 8-K, dated Feb. 19, 2010, and filed by the Company with the Commission on Feb. 22, 2010,

≠≠ Incorporated by reference to Exhibit 99.2 to the Form 8-K, dated Feb. 19, 2010, and filed by the Company with the Commission on Feb. 22, 2010,

^ Filed herein.

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

SIGNATURES

In accordance with Section13 or 15(d) of the Securities Exchange Act of 1934, CHDT Corporation has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Broward County, Florida on this 5th day of May, 2011.

CHDT CORPORATION

Dated: May 5, 2011

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



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

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