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

PART I

 

Item 1.   The Company

Overview.   We are a public holding company organized under the laws of the State of Florida and engaged in business thorough our sole, wholly owned operating subsidiary, Capstone Industries, Inc., a Florida corporation organized in 1997 and acquired by us in a cash and stock transaction on September 13, 2006 (“Capstone”).  Our Common Stock, $0.0001 par value, is quoted on the Over-the-Counter Bulletin Board under the Symbol “CHDO.OB” (“Common Stock”).  Capstone produces: (1) STP ®-branded power tools and automotive accessories, and (2) portable booklights, specialty flashlights, multi-task lights optical magnifiers, and (3) Simply Comfort ® line of comfort body products, through Chinese contract manufacturers.  We distribute those products through national and regional retailers and distributors in the United States ( See: “Current Products” below ).

We have two wholly subsidiaries with no business operations, operating assets or staff: Souvenir Direct, Inc., a Florida corporation, (“SDI”) and Overseas Building Supply, LC, a Florida limited liability company that is in the process to being renamed “Black Box Innovations, L.C.”  (“BBIL”).  We expect the name change of BBIL to be completed by early April 2008. We intend to completely liquidate SDI in April 2008, and we intend to develop a new consumer electronics product line to be promoted by BBI by the second or third fiscal quarter of fiscal year 2008.

Recent Developments : On December 1, 2007, Capstone and SDI entered into a Purchase and Sale Agreement (the “SDI Purchase Agreement”) with Magnet World, Inc., a Florida corporation (“MWI”).  Under the SDI Purchase Agreement, the operating assets of SDI were sold to MWI for $200,000 cash.  Capstone had been marketing and selling SDI’s line of promotional, gift and souvenir products for most of fiscal year 2007. We decided to sell SDI’s business in order to: (i) focus on our primary business line, Capstone’s consumer products; (ii)  eliminate a secondary business that was not contributing positive cash flow on a consistent basis  and, constituted a drain on resources needed,  for the  Capstone consumer product business line;  and (iii) to  obtain cash to fund Capstone’s consumer product business, especially the STP ® -branded power tool product line  introduced in October 2007.  With the sale of SDI’s assets, Capstone’s consumer product line became our sole business line in 2007.

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

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

 

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A selection of these STP ®-branded products, which are designed for home use and are not contractor-grade tools, are:

(a)

3.6 Volt Cordless Li-Ion Screwdriver with internal Lithium batteries, forward-reverse trigger, directional indicator lights and soft touch exterior coating with 2 drill bits and 4 screw bits in a charging cradle.

(b)

4.0 Volt Cordless Li-Ion Screwdriver with internal Lithium batteries, forward-reverse trigger, directional indicator lights, Led work light with 4 screw bits and 2 drill bits – screwdriver has a soft touch exterior coating and comes in a sturdy storage bag.

(c)

8.0 Volt Cordless Li-Ion Screwdriver with internal Lithium batteries, forward-reverse trigger, directional indicator lights, Led work light with 4 screw bits and 2 drill bits – screwdriver has a  soft touch exterior coating and comes in a sturdy storage bag.

(d)

12 Volt Cordless Li-Ion Drill and Driver with 12 Volts of battery power, Lithium-Ion battery power source, 3/8” chuck, 16 torque settings, variable speed trigger, forward and reverse button, built-in LED work light, over-mold comfort grip and soft touch exterior coating.  Product includes a carry case, 1-hour battery charger, four driver bits and two drill bits and a sturdy storage bag.

(e)

20.0 Volt Cordless Lithium 2 Piece Starter Kit , which includes a Drill-Driver, which has 3 led work light, battery meter, bubble level over-mold comfort grip, 1 hour fast battery charger and lithium battery.

(f)

20.0 Volt Cordless Lithium 4 Piece Tool Kit , which includes a Drill-Driver, which has 3 led work light, battery meter, bubble level over-mold comfort grip, 1 hour fast battery charger and lithium battery, Reciprocating Saw, and 24 LED worklight, titanium bits and a BMC case or sturdy storage bag.

(g)

19.2 Volt Cordless Ni-Cad 4 Piece Tool Kit , which includes a Drill-Driver, Reciprocating Saw, Circular Saw and Worklight, drill bits , battery charger and Ni-CD interchangeable battery

(h)

19.2 Volt Cordless Ni-Cad Circular Saw, which has laser guide, spindle lock, safety switch, comfort grip, 45 degree cutting depth (1 7/16”), 0-3660 RPM (no load) and soft touch exterior coating;

(2)   AUTOMOTIVE ACCESSORIES

I nverters:

(a) 100 Watt, 200 Watt, 400 Watt and 1000 Watt Inverters ;

(b) 12 Volt Portable Air Compressor (inflates up to 250psi);

(c)    STP ®-branded Clocks,  Weather Station, Stools and Creepers for the shop or garage; and

(d)     Spotlights, in various candle power strengths from 1million cpm- 10million cpm.

 

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Warranties .  We provide limited home use warranties, usually two years in duration, for most of our STP ® branded power tools and one year for most of the automotive accessories.  Our product history has not been long enough to develop any opinion on the impact of warranty claims on our financial results for STP ®-branded power tool products. However a full customer service hotline and repair center has been contracted out to support these needs as required.

(3) Portable Book Lights and Specialty Lights :  We produce and sell the following LED lighting products under the Capstone name: Multi-Task LED Lights , Focus Booklights , Slimline Booklights , the Ultraslim Booklights , the Tri Lite Ultimate Booklight (s), Timely Reader Booklight (s) and Young  Reader(s)   Booklights, The Flip Neck Booklight, 3 LED Mini Clip Light These LED booklights are small, light-weight, portable, attach to reading  materials and  illuminate the area of the text and are powered by batteries or an AC adapter;  Many of the same products are offered under a private label program for several major retailers.

(4)   Optical Magnifiers : We produce and sell under the Capstone name the following pocket-sized reader magnifiers: the LED Wallet Magnifer and   Round Lens-Led with handle Magnifier which are all products that illuminate and magnify  the  area  of text  and  powered  by  batteries; These are also offered under a Private Label Program; and

(5)   Flashlights :  We produce and sell under the Capstone name the Liqui-Lights flashlights ,  which  are   flashlights   with   liquid  in  the   handle   with themes and characters (such as sports objects) floating in the liquid and are intended  for youths; and

(6)   Massagers :  We sell  roll-up pad style, chair back and contour-flex neck massagers – all under the   Simply Comfort ® -brand name; and

(7)   Mp3 Accessories:   We sell Simply Comfort ® (Memory Foam) speakers for MP3 players, which speakers are in a pillow, a wrap that covers the ears and sleeper shades that block out light.

Simply Comfort : Created by NASA, Memory Foam is a visco-elastic foam that is made up of cells that open and close and adjust to body weight and temperature. No other widely produced, commercially available material has this custom shaping type of feeling that you get from Memory Foam .   Memory Foam is temperature sensitive and becomes harder (more viscous) in lower temperatures and softer and bouncier (more elastic) in higher temperatures.  We employ this material to make some of our products more comfortable to use to the touch.  Memory Foam is available to commercial concerns.

Distribution of Products :  Capstone distributes its products through existing national and regional distributors and retailers in the United States, including,   office-supply  chains,  book store chains, warehouse clubs, supermarket chains, drug chains,  department stores, catalog houses, online retailers and book clubs.   Our largest distribution channels are: Target Stores, Wal-Mart ,   Meijer ,   Staples , Office Depot , Barnes & Noble book stores, Fred Meyer/Kroger Stores, Costco , Scholastic  Books ,   Rite Aid Drug Stores .  These distribution channels may sell our products through the Internet as well as through retail storefronts and catalogs/mail order. With the launch of the power tools and automotive accessories, we will be entering additional distribution channels that include DIY and hardware stores, automotive parts chains and farm & fleet stores,  but also will be introduce the new line to the applicable departments within our existing customer base.

 

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

We also try to promote our products through sponsorships. On January 28, 2008, we announced that we would be the primary sponsor for the #72 MacDonald Motorsports Dodge race car, driven by D.J. Kennington, at the NASCAR Nationwide Series, Camping World 300 at Daytona International Speedway on February 16,  2008 and remain a major associate sponsor for the remaining 34 races with one more full sponsorship at Talladega on April 26, 2008. The STP ® logo will be featured on the hood and back side quarter panels on car #72 and STP ® -branded Capstone tools will become the official tools of MacDonald Motorsports and will be placed on McDonald Motorsports website as well as used in its garage. The sponsorship also includes a 12-race schedule in the Canadian Tire Series this summer with D.J. Kennington, which is viewed on the Cable Speed Channel.

 

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

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designed for an everyday use or task;

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

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

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

We hope to accomplish this goal by:

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

 

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

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

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

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

Patents and Proprietary Rights:

 

Patents currently owned by CHDT Corp include:

 

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Liqui-Light Flashlights.

 

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Timely Reader Booklights with Timer and Auto Shut Off.

 

Trade Marks owned by CHDT Corp include:

 

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Liqui-Lights

 

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Timelyreader

 

·

Pagesitters

 

·

Simply Comfort

 

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

 

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

Lastly, there can be no assurance that third-parties will not bring suit against us for patent infringement by a licensee or us , or to have our patents declared invalid

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

Power Tools Segment :  According to Cleveland State University: 1

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the global market for power tools (home use and construction grade) in 2009 is projected to be $29.2 billion;

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In 2004, 37% of that global market was controlled by Black & Decker (U.S.), Bosch (Germany), TechTronic (Hong Kong), Makita (Japan), and Hitachi (Japan);

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70% of the power tool market is commercial users and 30% is home users; and

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North American makes up 40% of sales in the global power tool market.

We face extensive competition from numerous competitors in the power tool and accessory product line in the United States.  Many of our competitors have significantly greater resources, far more years in selling this market segment and far greater market share than we do.  Companies like Black & Decker, Bosch, Mikita, Hitachi, TechTronic, Porter & Cable, Panasonic, Ryobi and CPO Milwaukee are significantly larger companies than we are and they have well-established and much larger market share than we do in the U.S. home use power tool industry.  Our ability to obtain any market share in the U.S. home use power tool market will depend on the quality and price competitiveness of our Chinese-made power tool line and the name recognition and consumer acceptance of our licensed STP ® -brand name for our power tool line for home use.   There are dozens of smaller companies that are competing for the U.S. home use power tool market.   We just started to market and sell our STP ® -branded power tool line in October  2007. We do have sufficient track

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1 See: Gross, Andrew (Cleveland State University), The Global Market  for Power Tools , http://www.springerlink.com/content/917126p01282x670/ , August 23, 2006.

 

 

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record to predict whether we will be able to attain any or a profitable market niche for such product line or will be able to compete in this industry segment.  Success in this market segment is important to the success of our efforts to attain sustained profitability.

Government Regulation: We are subject to regulation by federal and state securities authorities (including FINRA) as well as usual and customary state and county business and tax regulation of a for-profit business.  Capstone is subject to the usual and customary federal, state and local business and tax regulation of a consumer products company and a for-profit business.  Neither Capstone nor we is subject to any U.S. federal, state or local regulation that poses, in our opinion, any special or unusual burden or obstacle to conducting our business and financial affairs.   Our main concern in terms of government regulation is the changing regulatory environment in China and its impact on our ability to access our consumer product manufacturing sources and obtain our consumer products.  While the general trend in China has to be conducive to trade and commerce, China is a still a single-party nation-state in which the central government has the power to dramatically and immediately change its trade and commercial policies and laws.  China has benefited greatly from a more liberal  trade and commercial policies and laws in the 1990’s and this decade to date.  However, political or military conflict between the United States and China, who are rivals for power and influence in Asia and to an increasing extent all along the Pacific Rim as well as being diametrically opposed to one another over the status of Taiwan,  could provoke a change in Chinese trade or commercial law that makes it more difficult or expensive for us to obtain consumer products.  Such a development would have a serious impact on our ability to compete in the United States in the niche consumer product market

Employees:   As of December 31, 2007, we had a total of eleven  full-time employees, consisting of 4 officers employed by CHDT, and  seven persons employed by Capstone.  Capstone may add 2 to 4 additional salespersons in the first six months of 2008 to sell its consumer products and an additional logistics coordinator

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

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

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

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

 

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revenue generating purpose; inability to obtain financing or funding on affordable or commercially reasonable terms or at all; or a combination of the foregoing factors.

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

From  December  1, 2003 to September 2006:  On December 1, 2003, we acquired SDI, which became the Company's sole wholly-owned operating subsidiary at that time.   SDI management also became our management as part of the stock-for-stock acquisition of SDI.

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

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

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

CPS is also indebted to us under a promissory note in the original principal  amount of  $250,000,  executed  by Dato on June 27, 2006 and payable to us,  bearing  interest at 7% per annum and maturing on June 30,  2007,  subject to  extension  (the "2006  Promissory  Note") and subject to offset by (i) $41,600  owed by an affiliate of  CHDT to the CPS for funds advanced by CPS for  portable  generators  which were never  delivered  and (ii) $15,000 as an agreed amount paid to compensate CPS for refunds required to be made to clients of CPS for  cancelled  sales made  personally  by Howard  Ullman (which amounts  have been  applied  first to accrued  and unpaid

 

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interest  due September 30, 2006 and December 31, 2006 and then applied to quarterly interest payable on the principal of the 2006 Note to maturity (June 30, 2007),  and then to reduce the principal  amount of the 2006  Promissory  Note to $210,900).

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

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

CHDT and certain note holders are currently involved in a lawsuit against CPS and others over payments due under the above referenced notes.

On September 15, 2006, we entered into a Stock Purchase Agreement with Capstone and Stewart Wallach, the sole shareholder, a director and a senior executive officer of Capstone. Under the Stock Purchase Agreement, we acquired 100% of the issued and outstanding shares of Capstone Common Stock in exchange for $750,000 in cash (funded by the previously reported credit line provided by certain directors of CHDT) and $1.25 million in Series B Preferred Stock, $0.01 par value per share, which Series B Stock is convertible into 15.625 million “restricted” shares of our Common Stock, $0.0001 par value (“Common Stock”).  We have agreed to register shares of Common Stock under the Securities Act to cover the conversion of the Series B Stock issued to Mr. Wallach in the acquisition of Capstone.  We anticipate filing such registration statement in mid-2008.

As of January 1, 2007,  SDI has merged its  operations  and marketing  efforts  under the  Capstone  umbrella in order to streamline operations and consolidate sales and marketing operations under one company.

During fiscal year 2007, we ceased promoting or devoting resources to OBS’ start-up efforts to sell Chinese made roofing tiles in the United States.  The persistent downturn in the housing construction business through 2007 reduced, in our opinion, the demand for such product.  We also concluded that our Capstone consumer products business was a more promising industry segment for our limited resources.

Item 1A.  Risk Factors .

RISKS RELATED TO OUR BUSINESS

(A) VARYING,  UNPREDICTABLE  FINANCIAL RESULTS.  Our periodic operating results may significantly  fluctuate from time to time due to sales  cycles or  decreased  demand  from customers  or  reliance  on and a  decrease  in demand  from those limited number of customers that generate most of the sales revenues, or changes in business focus.  Investors should not rely on financial results for any fiscal period as an accurate basis for predicting or an indication of future

 

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financial results. Our future revenues and results of operations may significantly fluctuate due to a combination of factors, many of which are outside of management's control.  Our operating results for any particular quarter may not be indicative of future operating results.  Prospective investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future consolidated or segment performance, especially since we have experienced changes from year to year in our business lines or business focus.  It is possible that results of operations may be below the expectations of public and investors, which could cause the market price of our Common Stock to fall.  The most important of these factors include:

*            market   rejection of Chinese-made   products;

*           drop   in   consumer   demand for our products;

*           increased  competition  from  competitors, especially from competitors  with  substantially greater resources than us;

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

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

*           general economic conditions;

*           impact of terrorism on the businesses of CHDT;

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

*           the timing of the introduction of new products;

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

*           timing and effectiveness of capital expenditures; and

*           Strength of foreign and domestic competition.

We have also had a history of operating subsidiaries or business lines failing and several resulting changes in management and business focus.  While we are optimistic about the abilities and business plan of current management, we have not yet achieved any record of sustained profitability and growth from quarter-to-quarter.  We believe that only such a record of performance will allow any sustained increase in the market price of our Common Stock, which during the past five years has been fewer than ten cents per share.

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

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

 

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(C) MERGERS AND ACQUISITIONS.  We may seek from time to time to consummate mergers and  acquisitions of companies in complementary industries to our industries as part of a strategy to grow or acquire new products, which mergers and acquisitions could have an adverse impact on our financial and business condition and prospects as a result of inability to manage growth or integrate or manage acquired operations.  We have historically tried to expand or  grow our business  through  mergers and  acquisitions  with  small,  private companies  with existing  operations.  Except  for Capstone,  those prior efforts have failed to establish a business or businesses with steady or growing revenues, or grow the  overall  revenues  or  business  of the  Company  for any extensive period.  Most of our acquired businesses failed and we closed or sold off.

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

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

Such risks include

*

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

*

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

*

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

*

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

*

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

*

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

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

*

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

*

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

 

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

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

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

*

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

*           control higher inventory and working capital requirements; and

*

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

(E) A FEW OFFICERS,  DIRECTORS AND PRINCIPAL  SHAREHOLDERS HAVE VOTING CONTROL OVER CHDT.  A few members of management  beneficially own approximately 60% of our outstanding  Common Stock on a fully diluted basis. Howard Ullman,  the Chairman of the Board, beneficially  owns  approximately  46% of issued and  outstanding  shares of Common  Stock (excluding conversion of any preferred stock of CHDT or the exercise of options). These members of  management control the  management and affairs and have voting power sufficient to determine any matters requiring shareholder approval, including:

*           election of our board of directors;

*           removal of any of our directors;

*           amendment of our certificate of incorporation or bylaws;

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

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

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

 

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(F)  INADEQUATE OR EXPENSIVE  FUNDING OR FINANCING.   We rely on funding from insiders and investors from time to time and we may be unable to raise  adequate  funding or  financing to survive  unexpected  revenue shortfalls,  or to reduce  operating  expenses quickly enough to offset any such unexpected revenue shortfall.

If  we have a  shortfall  in revenues without a corresponding reduction to its expenses, operating results may suffer.  If we do not have sufficient bank financing, we will be forced to  seek expensive  financing or funding,  or forms of financing that require issuance of our securities  (such  as  equity  credit  lines or PIPE  financing).  Such financing  would dilute the position of existing  shareholders  and put negative pressure  on the market  price of the  our  Common  Stock  while  possibly failing to provide  adequate and ongoing working capital for the Company and its operations.  While members of our management have provided personal loans to us to fund overhead and  acquisitions  in fiscal year 2007,  we cannot be sure that such financing will be available in the future or in amounts that are adequate to meet our  working capital needs.  Capstone  is seeking traditional bank financing for its operations, but such bank financing is not in place as of the date of this Report of Form 10-KSB.  The reliance on private placement of CHDT securities and insider loans or investments may depress or limit the market price for our Common Stock.

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

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

(II)  RISKS RELATED TO OUR COMMON STOCK

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

 

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common  shares and limit the  liquidity  of our securities.  Our lack of any sustained history of sustained profitability from operations also depresses our the market value of our Common Stock.

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

Stock.

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

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

*           the   establishment  of  partnerships  with  other  technology companies;

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

*           additions or departures of key personnel;

*           sales of our common stock;

*           our status as a “Penny Stock” Company;

*           our ability to execute our business plan;

*           operating results below expectations;

*           loss of any strategic relationships;

*           industry developments;

*           economic and other external factors; and

*           period-to-period fluctuations in our financial results.

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

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

 

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Item 1B:   Unresolved SEC Staff Letters.   None.   As previously reported in our SEC filings, we received comments and inquiries from the Division of Corporation Finance (“DFC”) of the Securities and Exchange Commission on or about September 7, 2007, which communication concerned our Form 10-KSB for the fiscal year ended December 31, 2006. The comments and inquiries were part of the DFC’s periodic review of SEC-reporting company Securities and Exchange Act of 1934 periodic filings. As part of the Company’s response to the SEC, the Company filed a Form 8-K, dated and filed with the Commission on October 12, 2007, to report the corrections to the financial statements for the Company’s fiscal year ended December 31, 2005 that were previously filed as Note 14 to  the financial statements of the Company’s Form 10-KSB for the fiscal year ended December 31, 2006.

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

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

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

Item 2.  Properties.

Neither the  Company  nor its  operating  subsidiaries  owns  any real properties or facilities.  CHDT and Capstone's shares principal executive offices and operating  facilities at 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida 33442. Rent expense, included in general and administrative expenses, for the years ended December 31, 2007 and 2006 amounted to $36,503 and $30,000, respectively.

 

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Item 3. Legal Proceedings .

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

CELESTE TRUST REG., ESQUIRE TRADE, ET AL. V. CBQ, INC . (Case# 03 Civ. 9650 RMB; US District Court, SDNY, 12/4/2003):   This action was brought by certain debenture holders of Socrates Technologies Corporation (“STC”), a defunct Delaware corporation, against us for allegedly purchasing certain operating assets of STC’s subsidiaries in March 2001, which assets were allegedly pledged as collateral for the STC debentures and which acquisition allegedly violated the STC debentures terms. Plaintiffs are seeking the value of the transferred assets.

There have been no new developments or activity in this lawsuit in fiscal year 2007. As of date of this Report, we are not aware of any action by the plaintiffs  to date to  resolve the pending motion for default  judgment  against the other defendants in order to clear  the way for an appeal of the  judgment  entered  in our favor by the trial court, which dismissed the plaintiffs’ initial complaint and then amended complaint in 2006.  While we are confident of prevailing in this matter with respect to claims against it, we are uncertain at this time of the final outcome  motion for default against the other defendants or whether the plaintiffs  intend to pursue this litigation any further.  An adverse judgment in this lawsuit against us, if not overturn on appeal or settled on favorable terms, would have potentially ruinous impact on our ability to effectively pursue our business plan and to achieve our business goals.  We, however, intend to vigorously litigate in this matter if the plaintiffs seek to appeal their case or obtain a default judgment against the other defendants.

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

CPS (Complete Power Solutions, LLC): As part of the January 26 , 2007 Purchase and Settlement Agreement between CPS, CHDT and other parties, CPS issued of a promissory note  to us in the principal  amount of $225,560,  bearing annual interest at 7% with interest-only  payments commencing on July 1,  2007 and thereafter  being paid quarterly on  October 1 st , January 1 st , April 1 st and July1 st until the  principal and all unpaid  interest  thereon shall become due and payable on the maturity date,  being January 26, 2010, (the "2007 Promissory Note").  The 2007 Promissory Note provides that if principal and accrued interest thereon is not paid in full by the maturity date,  then 2007  Promissory  Note's maturity  date will be roll over for  successive  one year periods until paid in full.  For any roll over period, the annual  interest will be increased to 12%.

 

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CPS is also indebted to us under a second promissory note in the original principal  amount of  $250,000,  executed  by Dato on June 27, 2006 and payable to us,  bearing  interest at 7% per annum and maturing on June 30,  2007,  subject to  extension  (the "2006  Promissory  Note") and subject to offset by (i) $41,600  owed by an affiliate of  CHDT to the CPS for funds advanced by CPS for  portable  generators  which were never  delivered  and (ii) $15,000 as an agreed amount paid to compensate CPS for refunds required to be made to clients of CPS for cancelled  sales made  personally  by Howard  Ullman (which amounts  have been  applied  first to accrued  and unpaid  interest  due September 30, 2006 and December 31, 2006 and then applied to quarterly interest payable on the principal of the 2006 Note to maturity (June 30, 2007),  and then to reduce the principal  amount of the 2006  Promissory  Note to $210,900).  CPS have failed in their responsibility to pay interest and principal payments and laid out in both notes and agreement. As a result we have been forced to take legal action to collect all outstanding amounts including full payment of principals.

On March 10 th , 2008 we were granted a Final Summary judgment against CPS (Case # CACE07-19082(25) 17 th Judicial Court, Broward County, Florida) for the following amounts June note $238,748.90 and January note $262,990.88 for a total of $501,739.78. We are now continuing with a legal action to collect this judgment.

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

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

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

No matters were submitted to a vote of our shareholders during the fourth quarter of fiscal year ended on December 31, 2007.

Item 4A.  Executive Officers of the Small Business Issuer

The executive officers, as of March 28, 2008, are as follows:

Stewart Wallach is the Chief Executive Officer of CHDT and Capstone.

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

Laurie Holtz is the Chief Financial Officer of CHDT.

Gerry McClinton is the Chief Operating Officer of CHDT and Capstone.

Reid Goldstein is the President of Capstone.

Jill Mohler is the Secretary of CHDT.